Integrity, culture and compliance

Some years back, Lagos State government imposed restrictions on operation of commercial motorcycles (“Okadas”) as means of public transportation. Apart from restricting “Okadas” from major expressways, highways and bridges, Okada riders and their passengers were mandated to wear crash helmets. How did the riders and passengers interpret and respond to this regime? The deduction from their actions was that they saw the regulations as merely a technical operational requirement, a silly formality, an oppressive regulatory imposition or a nuisance that they had to deal with! Some riders put used paint buckets on their heads! Some wore palm kernel shells! I personally saw passengers who held the crash helmets, only putting it on whenever they saw police officers or LASTMA officials. It was clear Okada riders, and more surprisingly majority of their passengers, did not regard the regulation as a rule meant for their own protection and safety!

How could this have been so given the frequency of road accidents involving commercial motorcycles at the time, and the frequency of grievous injury and fatalities arising therefrom? I regularly saw horrible Okada accidents, at least weekly and in one particular day, I saw two within a few hours of which an individual lay dead in one of them. It does seem that our people often respond to laws and regulations meant for their own benefit simply like technical hurdles to be circumvented, by-passed or ignored altogether! It is the same way Okada riders treat laws and regulations meant to save their lives that many businesses relate to the issues of integrity and corporate governance. I have previously described the posture of many businesses towards corporate governance and social responsibility as simply “technical compliance” or what has been referred to as “box ticking”!

Most of the “best practices” in corporate governance arose from some fundamental principles designed for the firm’s benefit – take for example the requirement of independent directors is meant to ensure that the board and in particular its chairman and CEO get the benefit of the knowledgeable, independent perspective of a skilled outsider rather than just the opinions of managers and directors who due to the need to protect their careers and board positions may not be sufficiently objective and candid in their board contributions; the requirement for board diversity is to guarantee multiplicity of perspectives and insights; requirements for independent auditors are to ensure the activities of management, staff and even the board are subjected skilled and unbiased third-party checks and controls; the separation of CEO and Chairperson is meant to ensure separation of powers and checks and balances so that no individual has sufficient unrestrained powers as to destroy the company. As these examples demonstrate, a wise board of directors would comply with these and other governance principles for its own good even if no regulation or law attempted to compel them to do so! Any wise motorcycle rider and passenger would wear a crash helmet and additional protective gear even if this was not a legal or regulatory requirement.

The reality is however different in practice. Many companies, including large and “successful” ones treat integrity and governance merely as “compliance” matters meant to enable the business escape regulatory sanctions and look good to external stakeholders (with the emphasis on “looking” rather than “being” good!) rather than as requirements of intrinsic benefit to the business. Beyond keeping to the letter of corporate governance codes and anti-corruption laws, a culture of integrity needs to pervade organizations. Although compliance is a necessary element of a culture of integrity, it is not a sufficient one.

“Organizations responsible for some of the most egregious acts of malfeasance have had quite impressive, formalized ethics and compliance guidelines,” says Nicole Sandford, a partner at Deloitte & Touche LLP’s Enterprise Compliance Services.

“Many regulators now realize that without a culture of integrity, organizations are likely to view their ethics and compliance programs as a set of check-the-box activities or—even worse—as a roadblock to achieving their business objectives,” Sandford adds.

Just like police forces on their own may never succeed in eliminating crime, compliance rules and departments alone may never ensure appropriate behavior in relation to integrity and governance, at least on a sustainable basis. Rules and regulations will always lag innovation; employees can always collude to subvert controls; on the other hand, a corporate culture founded on values and integrity is more likely to produce to consistent right choices by employees as individuals and groups even when no one is watching, with compliance checks as a complementary layer of verification.

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