Who gets promoted – Should compliance & ethics have a say?

You have worked long and hard.  You have finished every task you were given and even more.  You followed all the rules, met every deadline, and have been successful at each task. Not only that, but you have led others to achieve more than anyone expected them to do.  Now the big boss is deciding who to promote.  This is front and center on your mind.

What is important in the corporate world?  When you have done your job and a promotion is in the wind, you are watching with a sharp focus.  This decision tells you what really matters in your company. 

Now step back and look at the bigger question: what really impacts the way employees see the company in general, what do they perceive as being important to the leaders, and what do they believe the culture really is. 

If a company says integrity is a top value, or its number one concern, or at the heart of the culture, ask yourself where it ranks when promotions are being considered. Is it even a factor that matters in such decisions? If the compliance and ethics program is important in the company, then does the compliance and ethics officer or unit have any say or input?  Promotions matter in determining what a company’s culture really is.  That is the reality at all levels of any company. 

The Sentencing Guidelines make this point.  Outside of the corporate walls, also consider where the government is on how it sees promotions as a factor to consider when assessing a compliance program. This issue is actually covered in the Sentencing Guidelines standards but in a way that no one ever seems to notice.  First, in item 3 of the 7 elements (the one that seems to be most consistently ignored or forgotten), we are advised to

“(3) . . .  use reasonable efforts not to include

within the substantial authority personnel of the

organization any individual whom the organization knew,

or should have known through the exercise of due

diligence, has engaged in illegal activities or other conduct

inconsistent with an effective compliance and ethics

program.”

You might then ask what this has to do with promotions.  Unfortunately, it seems that most people never read the notes in the Guidelines that tell us what the standards actually mean.  Note 4. (B) on implementing item 3 is very clear:

4. Application of Subsection (b)(3).—

(B) Implementation.—In implementing subsection (b)(3), the organization

shall hire and promote individuals . . . (emphasis added)

 It goes on to repeat:

             With respect to the hiring or promotion of such individuals, . . . (emphasis added)

 The due diligence required for hiring people for substantial authority positions also applies to promoting such people. How could a company possibly meet this standard if it does not even inquire of the compliance and ethics staff regarding the individual to be promoted?

A real life example. For years in my practice I had recommended to companies that they review promotions with the compliance and ethics people. I remember, however, one major surprise in this area.  I was suggesting this to a corporate client, but they stopped me in my tracks. They already did checks for promotions.  I was startled, but I should have guessed the reason. They had had a very high-level promotion that required board approval.  Only after the board approved it did they find out that the individual they promoted had been under investigation by the company’s compliance office at the time, and after the promotion the person was forced to leave because of misconduct.  The board was understandably unhappy and made it clear that this was never to happen again.  

What about pushback. Of course, there can be pushback on having compliance and ethics considerations be a factor in promotions.  Managers may voice the concern that employees who got negative comments as part this process might need to leave the company.  However, this is the same concern that can arise in doing any such assessment in performance evaluations. The pushback represents a significant misunderstanding of what is being assessed. Whether it is for a performance review or a promotion, it is not an evaluation of someone’s moral character or that they did something illegal or improper. It is a very different point related only to management activity: a low rating means that the person is not showing leadership in the C&E program. This relates to one’s management ability, which is something that any manager can and should improve. For example, a manager who has not yet bothered to sign a code of conduct certification, has failed to take the antitrust compliance training herself, and has not considered commitment to the compliance program in the performance evaluations of any of her own subordinates, would be considered not yet ready for promotion.  On the other hand, if there is someone actually engaged in misconduct, the assessment is not the issue; the issue is how dangerous it is either not correcting this person’s behavior or having a bad actor staying in the company.  An official policy of sticking one’s head in the sand is the most dangerous approach.

What promotions should be reviewed? A practical point to consider is at what level of promotion should this C&E input happen.  My client’s case would suggest that this be done at least at the level where the board would be involved.  But it makes sense to include it for all promotions, just as performance regarding the compliance program and support of the company’s values should be part of all performance evaluations, at least at management level.  The Sentencing Guidelines standards would certainly indicate that this should be done for all “substantial authority” personnel, which would cover “individuals who within the scope of their authority exercise a substantial measure of discretion in acting on behalf of an organization.” 

Does the CECO really have authority? These days, government standards typically call for the compliance officer to have enough authority to get the job done.  A less polite but more direct term is that the CECO needs real power. But those who already have power tend to resist anyone else having power. This is the reason a board or CEO will push back against giving a CECO real authority.  Having the CECO participate in promotion decisions is exactly this: it connotes real power. A CECO who merely lectures about values and ethics will be politely accepted but can easily be ignored.  But if the CECO has a say over promotions they will have real power.  

Who gets promoted tells you much about the culture. Compliance standards and statements by governments also focus on culture, and rightly so. Culture has been a core element of the compliance and ethics field for decades. Culture affects and drives much corporate behavior. But consider what drives culture and how a company’s values and culture are perceived.  Promotions are a key element. In the words of Deal and Kennedy, the authors whose recognition of corporate culture in their groundbreaking books, led this trend:

“In cultural terms, recognition should be reserved for behavior that exemplifies core values and beliefs.” . . .

“Of all the workplace rewards, promotions are most closely watched for the cultural messages they send. . . . [C]ultural considerations are always present, whether acknowledged or not, irrespective of whether the promotion is to a top management position or to a new clerical grade.” 

Terrence E. Deal & Allan A. Kennedy, The New Corporate Cultures 154, 255(1999; Perseus Books)

DOJ’s view catches the same points. How else do promotions send a cultural message?  If you are a compliance professional inhouse reading this, what are your prospects for being promoted?  If you are seen as sitting in a dead-end position, or the compliance officer is always someone who is essentially retired in place until they have maximized their benefits, this sends an unmistakable message that compliance is not really important.  If the compliance officer is perceived as just putting in time at the end of their career, what cultural message does this send?  DOJ has astutely caught this point in its Evaluation of Corporate Compliance Programs (ECCP):

“[P]roviding positive incentives, such as promotions, rewards, and bonuses for improving and developing a compliance program or demonstrating ethical leadership, can drive compliance. Prosecutors should examine whether a company has made working on compliance a means of career advancement, offered opportunities for managers, and employees to serve as a compliance “champion”, or made compliance a significant metric for management bonuses.”

The government recognizes the same point that Deal and Kennedy observed.  Culture is affected by what people pay attention to; who gets promoted is an extremely strong and meaningful signal about what matters in a company.  

How this affects you personally. This allows me to close with advice to my in-house compliance and ethics friends.  If the company really wants to demonstrate their commitment to compliance, and you are the type of highly valuable compliance person who reads this newsletter every week, then your company needs to promote you as soon as possible.  And you may quote me on this.