Compliance ROI and the Ethics Pr...
Compliance ROI and the Ethics Premium: W...

Compliance ROI and the Ethics Premium: Why Ethical Companies Out-Perform the Market

There is a clear need for strong ethics and compliance programs – not only because it’s right, but because ethical companies simply perform better.

Phillip Winterburn Principal, Product Marketing and Strategy, Ethics

clock7 Min Read

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As a compliance professional, you know the business value your team provides and the ROI of a healthy compliance program. But many compliance teams fight an uphill battle to legitimize our value, attempting to overcome the dated refrain of “compliance is a cost center” and the reputation of being the “department of no.” If your stakeholders only see you as corporate cops, hall monitors, or a brick wall, then any recommendations coming out of your department will be viewed through that lens. Thankfully, the tides are changing, making compliance and ethical business practices a fundamental component of business in the 21st century, and stakeholder trust a competitive advantage.

The news is packed with worrying headlines about the shift to a bear market, inflation at a 40-year high, and surging interest rates. When a recession is looming, differentiation in the marketplace is the difference between success and failure. And your compliance team can be a secret weapon in your company’s differentiation arsenal – thanks to something called the Ethics Premium.

Make compliance a foundational part of your business. Request a free Ethics Program Management demo today.

Compliance ROI and the Ethics Premium: Why Ethical Companies Out-Perform the Market

When compliance becomes a foundational component of your business, rather than remaining relegated to its position as a cost center, then the value-add of ethical business practices and regulatory compliance increases. Read on for more on the Ethics Premium and the ROI of compliance.

The threat of maintaining the compliance status quo

In a world where the headlines are increasingly more alarming, maintaining “business as usual” isn’t just careless, it’s inviting negative outcomes. When your compliance team is seen solely as rule enforcers, struggling to get buy-in for increased budgets because leadership would rather spend money on standard revenue-generating teams, their potential influence may stagnate. Plus, poor compliance can lead to reputational damage, costly fines, investigations, prosecution, monitorships, non-prosecution agreements, and deferred prosecution agreements.

But with an empowered compliance team that has company-wide buy-in, you aren’t just improving morale, you’re building resilience into your business.

Compliance as a competitive advantage

Beyond individual behavior, ethics and integrity have an important impact on business. Employees, investors, and other stakeholders value companies with strong ethical practices. Companies are now not only evaluated on their legal compliance, but also their ability to successfully maintain ethical business practices and alignment with their stated values.

Since 2006, Ethisphere has been measuring, studying, and celebrating the World’s Most Ethical Companies. Proving that “good ethics is good business,” the organizations appearing on the 2022 World’s Most Ethical Companies Honoree List consistently “outperform the competition, are better places to work, and make a positive impact on their communities.” But what is the secret to good ethics and good business? The Ethics Premium.

What is the Ethics Premium?

According to Ethisphere’s Ethics Index, the companies who appear on their honoree list see benefits beyond the value of recognition. These companies “outperformed a comparable index of large cap companies by 24.6 percentage points from January 2017 to January 2022.” In an economic environment where razor-thin margins become battlegrounds, the Ethics Premium is an obvious strategic competitive advantage.

Additionally, this study from MSCI compares event and erosion risks, in relation to Environmental, Social and Governance (ESG) issues. It takes a comprehensive look at the ESG issues that have the largest impact on the financial performance of a company. After examining a comprehensive list of 30+ risks, their fascinating findings reveal that bottom-scoring companies on business ethics were approximately four times more likely than top-scoring ethical companies to experience a severe stock-price loss. 

When the market takes a turn for the worse, ethical companies perform better, hold their value in the face of crisis, and prove that ESG is not a fad. When paired with social responsibility and accountability, strong governance becomes timelessly valuable. Companies like Kroeger, Microsoft, and Thermo Fischer, representatives of highly rated ESG organizations, see better stock performance than lower-rated companies. The very nature of ethical companies is that they are more resilient and adaptable in times of trial.

Source: Deconstructing ESG Ratings Performance: Risk and Return for E, S And G by Time Horizon, Sector and Weighting

The ROI of compliance

A fortified Ethics and Compliance (E&C) program and reinforced ESG efforts are a great pairing for your business, and when properly used, will also lead to greater profitability. Convincing your board that compliance can positively contribute to the bottom line starts with how you use data to make your case. Because you must rise above the noise – the decades-old refrain that defines compliance as a cost center – your data needs to tell a story and resonate beyond the confines of a spreadsheet. If properly resourced and armed with the right tools, your E&C team can augment the performance of other revenue-generating teams, improve overall market performance, and become a revenue protection center.

Messaging only goes so far without proof, so to position your team as an ROI-generator, you’ll need to leverage technology to harness your data, transforming it into a story that resonates with leadership.

How to measure compliance ROI

Consider the following metrics and gather as much data as you can to prove the potential and existing ROI of your ethics and compliance program:

  • What are the costs of any potential fines?
  • What is the cost of mitigation after a fine, audit, or penalty?
  • What is the cost of non-compliance?
  • When you compare reporting rates, where do you see the cases that were surfaced and investigated? How much time, reputational value, and money in avoided potential fines were saved?
  • Using the right tools, can you use your data to predict future outcomes and avoid more costly missteps?
  • Where can you put controls into place to prevent misconduct and other issues from occurring?
  • Are you proactively managing risk or are you waiting to react?
  • Has your organization demonstrated its dedication to proactive compliance by investing in technology? Will regulators be able to see your efforts?
  • Have you developed business resilience? Do you have the “ability to deal with adversity, withstand shocks, and continuously adapt and accelerate as disruptions and crises arise over time?”

Don’t fall into a situation where your company wishes they’d invested in compliance technology earlier; become proponents of proactive investment now. New guidance from both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) shows the writing on the wall: Evolve or face the music. And Assistant Attorney General Kenneth Polite has been even more explicit in recent commentary, telling audiences at multiple events this year: “Support your compliance team now or pay later.”

Don’t wait around for a regulator to dictate their terms to you, rather, rise to the occasion by getting there on your own volition and in a way that best serves you. Evolving your compliance program is about so much more than simply outpacing regulators – it’s about actively contributing to revenue, having a positive impact on your organization’s reputation, and positioning your company to succeed in our turbulent economic environment.<

Because society and technology are evolving at such a quick pace, the opportunities for efficient and proactive action are as well. Your driving force should be an evolved and innovative approach to compliance, becoming more efficient at making sound decisions that impact your bottom line. There is a clear need for strong ethics and compliance programs, founded on pervasive company values, imbued into your culture – not only because it’s right, but because ethical companies simply perform better.

Integrity is no longer optional, and ethical companies who are true to both their brand and values will thrive. Companies with ethical cultures, a shared sense of mission, vision, and values will retain the best customers, attract and retain the best talent, and outperform the competition.

Operationalize your ethics and compliance program, automate repetitive and low risk actions, and power-up your data for the greatest potential ROI with OneTrust’s Ethics Program Management tools.

Make compliance a foundational part of your business. Request a free Ethics Program Management demo today.

Compliance ROI and the Ethics Premium: Why Ethical Companies Out-Perform the Market

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