ComplianceKeys#26: Compliance, Business Ethics and Organizational Culture.
Experience shows that the true value of an organization not only lies in its results, but also in its commitment to regulatory Compliance, ethics, and organizational culture.
Over the past decade, several of the most internationally renowned companies in the market have been involved in high-profile scandals, precisely at a stage when Compliance was beginning to consolidate itself as a strategic ally for organizations and as the primary response to the proliferation of unethical business practices.
The misconducts detected in various sectors (such as finance, automotive, banking, among others) resulted in resignations of directors, suspension of sales, stock accumulation, fines and legal sanctions amounting to millions of euros, loss of investors, as well as immense reputational damage. Although very difficult to quantify, reputational harm entails the loss of customer trust, a reduction in business opportunities, and ultimately may even jeopardize the continuity of the business.
These consequences highlight that it is not sufficient to merely react to sanctions or reputational harm once they occur; it is imperative to integrate preventive mechanisms and guiding principles into the daily management of organizations.
It follows that ethics and Compliance must stand as fundamental pillars of modern business management. Business culture should not be driven solely by economic performance or the pursuit of profit. This raises different important questions: What is the distinction between Compliance and business ethics? How can these two concepts be differentiated? And what relationship do they have with organizational culture? These terms are often easily confused, and it is essential to establish clear boundaries between them in order to apply each within the appropriate context.
In the previous ComplianceKeys#25, Compliance was defined as the set of procedures and best practices adopted by companies and organizations to identify and manage the legal risks inherent to their activity, in order to ensure compliance with applicable regulations and to prevent the commission of crimes in their operations. In other words, Compliance cannot be understood solely as the implementation of policies and procedures aimed at fulfilling current legislation; its effectiveness decisively depends on the active involvement of all members of the organization, particularly senior management and the governing body. The so-called tone from the top is crucial: leaders must lead by example, exercise ethical leadership, and convey—through their decisions and conduct—the importance of Compliance as a strategic value and not merely as a formal obligation.
It is precisely here where business ethics becomes relevant, as it transcends the regulatory framework and focuses on the set of values, principles, and moral standards that guide the conduct of individuals in the performance of their duties. Integrating ethics into corporate culture means adopting standards of behaviour that project the organization’s identity outward and consolidate the trust of its stakeholders.
One of the key tools for formalizing business ethics is the adoption of a Code of Ethics, a document that constitutes the soul of a company and sets forth the principles or values that must inspire the conduct of its members. The Code of Ethics may be regarded as the cornerstone of a positive corporate culture.
Business ethics aims to foster the construction of a genuine organizational culture. This may be understood as the “personality” of the company, insofar as it directly influences both the behaviour of employees and the way in which the organization interacts with its customers, suppliers, and other stakeholders.
The relevance of organizational culture is projected in two fundamental areas: internal and external. On the internal level, it is manifested in the dynamics of interaction among employees, shaping the working environment and cooperation within the entity. On the external level, it translates into the company’s social stance, namely, its behaviour and projection towards society and the market.
Among the essential elements that shape this culture are internal regulations, the structure of authority, the relationships among staff members and, most notably, the corporate values that guide decision-making and the management style of the organization.
In this regard, building a coherent organizational culture acts as the natural complement to Compliance, ensuring that it does not remain limited to formal rules, but rather translates into responsible conduct and decisions that embody the organization’s values.
In short, It is fair to state that the integration of the three (3) concepts —Compliance, business ethics, and organizational culture— not only contributes to the prevention of legal and reputational risks but also promotes a culture of integrity within the organization. In today’s business environment, where transparency and honesty are increasingly demanded, managing reputational risk is key to maintaining a company’s credibility.
Under this paradigm, reputational risk management emerges as an essential element for the sustainability of any organization. A strong reputation translates into trust, security for stakeholders, and consequently, greater business opportunities. Its protection requires going beyond merely reacting to materialized crises: it demands the construction of a sound business ethic, a coherent organizational culture, and an effective Compliance system that, together, allow for the prevention, detection, and response to potential breaches.
Thus, the true challenge for companies lies in harmonizing the pursuit of economic benefits with an unwavering ethical commitment, demonstrating that good governance, integrity, and responsible decision-making constitute the foundation of sustainable and enduring success.
Molins Criminal Defence – Compliance Department.