As the saying goes, reputations earned over a lifetime can be ruined in mere seconds. Reputation risks, for individuals and companies, are at least as great as other traditional risks (e.g., strategic, operational, financial, etc.) and have overlapping causes and consequences. Allegations of unethical conduct or non-compliance can have devastating effects on reputations and can linger for years or even lifetimes, regardless of whether they are substantiated.
Simply put, ethics and compliance programs that deter unethical conduct help protect reputations. One of the key ingredients of an effective ethics and compliance program is “tone at the top.” What is “tone at the top?” In its most basic form, it’s about ensuring that a company’s leaders make absolutely clear, through their actions and words, that ethical and compliant conduct comes before everything else. The Chief Executive Officer (CEO), Chief Compliance Officer (CCO) and Board of Directors play an integral role in establishing and maintaining the right tone at the top. And when it comes to setting the right tone, few things matter more than how companies reward and incentivize their employees. It’s where the “rubber meets the road.” Are employees rewarded, even unintentionally, for non-compliant behavior? Or can they expect to be disciplined for non-compliance, perhaps even fired?
For a more detailed explanation of “tone at the top” and how leaders can ensure their words and actions create the right tone, see: http://deloitte.wsj.com/riskandcompliance/files/2014/12/Tone_at_the_top.pdf