Compliance Q&A with Joe Murphy: Low Cost Compliance

Joe Picture

Joe Murphy is the Director of Public Policy at the Society of Corporate Compliance of Ethics (SCCE) and Editor in Chief of Compliance and Ethics Professional, SCCE’s magazine. Murphy is the co-founder of Integrity Interactive, an online compliance training firm acquired by SAI Global in 2013.  Murphy has over 35 years of compliance experience, including designing a compliance program for a global telecommunications company.  He is the author of 501 Ideas for Your Compliance & Ethics Program and co-author of Building a Career in Compliance and Ethics. Murphy is the recipient of Health Care Compliance Association’s (HCCA’s) 2005 Compliance Person of the Year Award and a Certified Compliance and Ethics Professional (CCEP). Murphy co-authored the HCCA and SCCE Codes of Ethics.

CIPE’s Laura Van Voorhees discusses with Joe Murphy low-cost compliance measures for emerging markets.

I had heard someone say one time too many that “the smaller companies just weren’t able to afford compliance programs.”  I knew from my own experience that this was ridiculous, and I thought writing a paper showing how inexpensive it could be would address this.  The truth for any company, large or small, is that money doesn’t do it.  If a company wants to act ethically and legally it takes something even harder to get than money; it takes real management commitment.  And that is not a matter of dollars and cents, but a matter of taking this seriously.

The paper has turned out to be popular; in fact, SCCE has had it translated into 6 other languages besides English.

  • Smaller businesses sometimes hesitate to implement compliance programs because they believe that they are expensive. How do you respond to their concerns?

I’ll start by saying that in my experience the biggest hurdle is not cost, but actual interest in doing this.  People who start and run businesses are caught up in the business.  It can be exciting, frustrating, rewarding, scary, and exhilarating, sometimes all in the same week.  They did not go into this so they could spend time on compliance.  Making sure your people do the right thing may just not seem as exciting or as essential as running and growing the business.

But if an owner or executive really is committed to doing the right thing, then there are plenty of ways to get that message out.  For example, what does it cost a CEO to have a copy of a company’s Code of Conduct on her desk and refer to it whenever questions arise?

What does it cost a business’ owner to sit down and write out what the values of the business are and then make a point of telling the people in the business?

I recall an example that occurred when I was part of a team reviewing the compliance program in a manufacturing facility.  Each person we interviewed told us the story of how the unit’s president walked around with the safety team when they did inspections.  He had a clipboard in his hands, and he joined in looking for safety issues.  Everyone in that facility knew that workplace safety was important.

One of the studies I first discovered when I started writing about compliance and ethics was by a brilliant Australian scholar, John Braithwaite.  John was testing out a thesis he had about workplace safety.  He believed a company’s safety record would match its expenditure record, i.e., the more resources a company devoted to safety, the better its safety record.  But he disproved his own thesis (the mark of a true scholar!).  Instead, he discovered that the effectiveness of the safety program depended on the clout of the safety people.  If everyone had to listen to what the safety people said – if the safety folks could close down an operation until a safety issue was addressed – that would be the company with the best safety record.  It was the commitment, not the budget that made the difference.

Ironically, it can be easier for an executive in a small company than one in a big company.  In a small shop everyone knows the top boss.  If the boss is serious about ethics and compliance, everyone knows first-hand. In the big companies, it takes much more effort to get the word out.

  • How can compliance programs for medium-sized businesses make them more attractive partners for multi-national companies?

In the current enforcement environment, companies are increasingly being held responsible for the acts of those who act for them, even if they are independent third parties.  This is true in terms of legal risk and also for reputation risk.  If your supplier ends up killing workers by unsafe work practices, or your agent bribes a government official to win a deal for you, you face strong reputation hits and enforcement actions.

Because of this, larger companies are much more careful with their supply chains.  They need to know that those they are dealing with will act legally and ethically, and not hurt the company’s reputation.  If a potential agent or supplier has a robust compliance program this can give the company the assurance it is looking for.  A small company with a good reputation and a diligent compliance program is much more attractive as a business partner for the bigger companies.  Plus, if a big company is looking to buy your company (so you can retire rich!), they want to know the company will not blow up in their faces.  An effective compliance company helps give them that assurance.

  • Do you think small businesses in corrupt countries can afford compliance?

There is a potential area of confusion in responding to this question.  What I address is “how to” comply, once you decide that you want to be ethical and act legally.  It is simply not true that it costs much to have a good compliance program in a small business. The white paper, “A Compliance Program on a Dollar a Day” is full of specific things you can do, spending very little money.

But it is a very different question if someone is asking, “can I afford to comply with the law?” They may be saying that they can make a lot more money by stealing, cheating or bribing.  For those people I have no sympathy.  Maybe in the short term they can beat the competition by cheating, but when they get caught they deserve whatever happens to them.

So it is important always to keep that distinction in mind.  If you want to be sure your people do the right thing, then a program to achieve that is not expensive.  But if you want to save money by engaging in crime because being honest is “too expensive,” then the cost of getting caught is on you.

  • What do you see as the overall trajectory of compliance worldwide?

We can start with enforcement trends.  The field of compliance and ethics is an “evergreen” one – there is always some enforcement initiative going on. For some time the fight against corruption has drawn enormous attention, and deservedly so.  Corruption is a blight.  But there are other initiatives that come and go over time.  The recent case involving Volkswagen reminds us that environmental issues are always a risk that should never be ignored.  Major cases against competition law offenses, such as price fixing and bid rigging, are always in the news.

So I can predict with confidence that there will always be enforcement initiatives. We cannot always predict which enforcement areas will be next, but we know for certain there will be more.

Companies will always need to take steps to prevent violations in these areas. So compliance will remain a constant factor for all types of businesses.

  • You have a great metaphor for ethics codes and dance. Would you mind sharing it with us?

Yes, I came up with this when reviewing a then-draft ethics code for compliance practitioners in Australia.  I thought it was too soft, too much “do good and avoid evil”, which sounds good but in practice is close to useless.  I was urging them to be more specific.  When I was asked to cover this in a presentation for them in Melbourne, Australia, I arranged for the sound people to play a little bit of swing music and I had one of my friends in the audience join me on stage for a little bit of swing dancing (to the music of “In the Mood.”).  My point was this:  A code of ethics is like a good lead in dance. You don’t force your partner to do something; you just make it impossible for your partner to do anything other than the right thing!

Laura Van Voorhees is a Program Officer for Global Programs at CIPE.