Compliance, Ethics and Cultural Diversity.

Dear colleagues,

The topic above was something that always brought me huge internal questioning. But let me first help you to understand the difference between two concepts which are often treated as synonyms. I ask some help from Michael McMillan, director of ethics and professional standards at the CFA Institute, when talking to Risk & Compliance Journal about the difference between following the rules and doing things ethically.

According to Mr. McMillan, “(…) compliance really focuses upon rules and regulations. Are you following the rules, are you following the regulations and the laws of your company, or the laws and regulations of the country or environment in which you work. Ethics are completely different. Ethics are about encouraging behavior that is above just following rules and regulations. It is requiring to get people to act more in consonant with the values of the company. (…). Part of the problem with the financial crisis–and part of why you have organizations like Occupy Wall Street, why we lost trust with the investment industry–is that people were following rules and regulations but still weren’t being ethical. There is a big difference between following the law and being ethical. Very few people were charged with crimes or convicted of crimes because what they were doing wasn’t necessarily illegal, but many people viewed it as being unethical”.

FM: a friend of mine said once that compliance and Ethics are essentially different sides of the same coin. Compliance is following the law and regulations while ethics is doing what is right regardless of what the law says. 

Clarification done, it seems ethics should fill the entire company and all decisions that are made should always be tied to the values of the company and be reflected in all operating activities and decisions the company makes.

However, we know we all live in contact with different cultures, Diversity is the Rule. Thanks to God or Allah or Yahweh or Guaraci, ha! So, how face the cultural diversity and Business Ethics? For example, a diverse organization welcomes vendors, employees and customers of different sexual orientation. This attitude of inclusion may pose an ethical dilemma for employees who have a religion-based belief that heterosexuality is the only acceptable sexual orientation. Another example. Every person knows bribery is wrong and illegal. But actually, such a message may lack credibility from certain people living in the Middle East, where generous gifts or cash gifts on certain occasions are appropriate. It may actually feel wrong to them to refrain from giving an expensive gift as part of a business relationship.

In certain specific scenarios, what will be the right thing to do? People may say follow the company´s rules, laws and regulations and put an end in this question. Frankly speaking I don´t have an answer. But I will say when it comes to shaping ethical behavior, companies must be guided by three principles  published in Sep/Oct 1996 Harvard Business Review Magazine:

1- respect for core human values, which determine the absolute moral threshold for all business activities;

2- respect for local traditions;

3- belief that a context matter when deciding what is right and what is wrong.