Compliance and Inconsistent Discipline

This week I had the good fortune to attend a luncheon of compliance professionals here in Boston, where we talked about the Justice Department’s new guidelines for evaluating the effectiveness of compliance programs. Our host was Vincent DiCianni, founder of Affiliated Monitors, and he hit upon a great point about what really matters for successful compliance programs.

First DiCianni talked about ineffective compliance programs that might cause trouble with regulators. Those regulators could certainly take issue with specific technical blunders, such as poor due diligence or incomplete training. But the real trouble, he said, was anything that would suggest a systemic failure to take compliance seriously — the dreaded poor culture of compliance, regardless of how awesome your program might look on paper.

OK, that’s a valid theoretical point. Then DiCianni talked about the specific struggles he has seen at companies over the years as they try to implement effective compliance programs.

A persistent challenge, he said, is imposing discipline consistently. Meting out discipline on low-level or low-performing employees? Easy. Doing the same for high-performing superstars? Torture.

Well, to my thinking, inconsistent discipline is a systemic failure to take compliance seriously. It’s one of the gravest ethics and compliance mistakes an organization can make.

Why? Because inconsistent discipline smacks of privilege undeserved. The company has one set of rules that apply to some people; and another set of rules that apply only to a select few. Those privileged few get special treatment, when most of the organization believes they shouldn’t — and that’s what drives employees bananas. That’s what ruins corporate culture and turns your corporate compliance program into a laughingstock.

Technical problems can be remedied. You can purchase new due diligence software, or change accounting policies for payments to resellers in high-risk markets. You can create more memorable training courses or design interactive Codes of Conduct. Those are point-specific problems that do have readily available solutions, even if those solutions are a pain to implement.

Inconsistent discipline in a much more insidious threat because it’s a choice executives have to make — as in, somebody has to pass judgment on the offender. Disciplinary policies might suggest what the firm should do, but an executive still needs to put his or her imprimatur behind the doing of it.

Poor Discipline and Culture

Once you start applying discipline inconsistently, you’re sending a message to everyone that privilege exists within the organization: that two people can commit the same offense, but one gets better treatment than the other. It’s a statement that an individual person, and what the person can do for the company, is more important than ethical values such as fairness, justice, and accountability.

Let that idea take root in your organization, and all bets are off.

We’ve all seen this, and we all know it. Humans have an innate sense of fairness — and as every parent of two or more children knows, we are exquisitely attuned to find examples of unfairness.

That’s really how inconsistent discipline corrodes corporate culture. We see people getting special treatment they don’t deserve, and we resent it. Any parent with two or more children knows this.

My favorite example of this happened in 2017, when Chris Christie, then governor of New Jersey, closed state beaches over the July 4th weekend as part of a budget standoff — and then departed for a long weekend at one of those beachfront parks, opened solely for him and his family, at taxpayer expense. No wonder the guy got run out of town with record-low approval ratings.

Anyway, let’s circle back to compliance programs. You can bungle any number of specific components of a corporate compliance program, or limp along with those components woefully inadequate for the risks you face. That’s not ideal, but if a company can demonstrate commitment and a plan to improve those things, regulators will take that into consideration.

If, on the other hand, your organization bends those ethical principles printed on the mission statement at whim, depending on who’s in the crosshairs and how useful he or she is to the organization — that’s bad culture, and bad values. And that’s a systemic problem, no matter what else your compliance program boasts.

Food for thought, next time the executive suite wants to go easy on a star performer who deserves tough medicine.

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