Not long ago I wrote about the Securities and Exchange Commission’s (SEC) recent enforcement actions against companies that include pretaliation clauses in their employment contracts. I posted the article online, and one compliance professional I know immediately replied with a question: aren’t these SEC sanctions for pretaliation a bit much?
The SEC’s campaign against pretaliation clauses is an example of how compliance officers can pierce that cynical attitude.
After all, the person said, companies never actually use these pretaliation clauses to thwart would-be whistleblowers; they are just a phantom risk that doesn’t merit an enforcement action with monetary penalties. He argued that the SEC could just publish a policy warning against the practice (formally known as a Section 21(a) report) and move on.
My friend missed the point. Even if pretaliation clauses represent a phantom risk, regulating them pushes us toward a tangible, valued result: an ethics and compliance program that works well.
The biggest challenge compliance officers face is how to win support (from both employees and management) when many dismiss compliance programs as something cosmetic, to be implemented only because regulators say we have to. The SEC’s campaign against pretaliation clauses is an example of how compliance officers can pierce that cynical attitude.
I call it the difference between being right and doing right.
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Move Beyond the Baseline (aka the letter of the compliance law)
Being right is staying within technical compliance of the law—and make no mistake, a company should always stay within technical compliance of the law. When a company ignores the law, the message to employees (and others) is that the company believes its own judgment can supersede that of public authorities. Once that message gets out, it’s only a matter of time before employees believe their judgment can supersede the company’s. Nothing good lies down that road. So being right in corporate policy, and following through with enforcement of corporate policy, will always be crucial for corporate ethics and compliance programs.
Companies will need employees with a devout belief in strong, ethical cultures just as much as they will need robust compliance systems.
But that being right is the bare minimum for a corporate culture. It also sends a message to employees: “We, the company, are within our power to do all that we do and to make all the demands we ask of you. Sometimes those demands will be reasonable, but even when they’re not, we can make you comply anyway.”
That attitude doesn’t accomplish much in the way of building loyalty and enthusiasm—and that’s the core problem for compliance officers. Think about the misconduct risks that businesses are going to face as we keep moving into a world of highly inter-connected companies and highly accelerated risks. Those threats won’t necessarily be caught by risk assessments, model contract language or IT systems. Companies will need employees with a devout belief in strong, ethical cultures just as much as they will need robust compliance systems.
Some of the gestures necessary to achieve that sense of culture are easy to make. Cutting pretaliation clauses is one of them.
Building a Core of Ethics & Culture
The point to ponder is why cutting pretaliation agreements can boost ethical culture. Sure, that gesture can help employees feel safe, and it will please regulators, but how does it help the company? After all, to a certain extent, clearing the path for whistleblowers to approach regulators actually increases your risks.
The purpose of such a gesture is to overcome the dividing lines that lurk within a corporate organization—so that what employees experience is one uniform, widely understood corporate culture, built on a few core ethical values.
To put it another way, every company is a collection of dividing lines and power structures. Every employee sees that. What an ethics and compliance officer wants to prevent is the perception that dividing lines and power structures are all that the company is about: nothing more than a collection of policies and legal structures that let the organization advance whatever interests senior executives want on any given day.
A company that wants its ethical culture to endure, to withstand pressure and to help the company thrive as a business must demonstrate to employees that while policies, power structures and dividing lines are necessary, the corporate culture is about something more—and that it includes them.
A business must demonstrate to employees that while policies, power structures and dividing lines are necessary, the corporate culture is about something more—and that it includes them.
We’ve all seen companies that do this well. These successful companies can be large, too, with plenty of bureaucracy and compliance risks. But everyone—customers, employees, business partners—knows that these companies are founded on a few ethical values rather than policies to advance quarterly earnings targets.
That’s how the gesture of killing pretaliation clauses helps you. It moves the organization beyond simply being right, to focus on doing right: giving employees unrestricted permission to speak to regulators about possible misconduct. And as a bonus, it keeps you on the right side of SEC enforcement policy.
People in this field often say that if they could only spend time on compliance or ethics, they would pick ethics every time; once you have that mastered, compliance gets a lot easier. That’s true. Cutting pretaliation clauses is a simple example of that idea.
We could (and in future posts, hopefully will) find many other examples of actions that underline the primacy of ethical culture. Just remember the goal for ethics and compliance programs: to keep nudging the organization toward becoming one where people want to do right, rather than just be right.
No matter what the future brings, that stance will only help.
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