The future of ethics and compliance

Navex is a Business Reporter client

Ethics and compliance faces a counterbalance between regulatory challenge and business opportunity. On one side is an increasingly complex matrix of rules governing global business. On the other are evolving technologies empowering compliance leaders to meet the moment and positively impact their organisations more than ever before.

This future will include a greater emphasis on integrated program elements, data analytics and artificial intelligence for compliance. Increasingly, these technologies will enable organisations to assess the signals of ethical behaviour – internally and across their supply chains – and the best ways to foster a culture of ethics and compliance across both.

Tomorrow’s leading organisations will also require strong visibility and agility to keep up with evolving regulations, and must replace check-the-box approaches with a more proactive and cohesive strategy. Given the global nature of today’s economy, this will be critical to doing business across jurisdictions in an even-more-interconnected future.

The outline of this future exists today. On the regulatory front, rules such as the European Union Corporate Sustainability Reporting Directive, Germany’s Supply Chain Act and Japan’s whistleblowing program requirements are just some examples of the increasing obligations for compliance. Even smaller organisations are facing new requirements to put in place processes such as internal whistleblowing and enhanced ethical supply chain due diligence – if not required, consumers, workers and business partners are often still expecting them.

Meanwhile, most organisations today are turning toward purpose-built software to execute the various elements of their ethics and compliance programs. Most industry professionals surveyed in the NAVEX 2024 State of Risk & Compliance Report said their organisation used purpose-built technology to administer program components such as training, internal whistleblowing and third-party risk monitoring.

Industry professionals may see an exciting future represented by the roughly one-fifth of respondents who cited rationales such as automation, integration and analytics as top drivers for adopting new compliance software. Systems and business practices that allow compliance activities such as internal reporting, training and policy attestation to live under “the same pane of glass” facilitate easier data analytics. The compliance function may more easily identify a relationship between insufficient training and lower use of an internal reporting system at a certain work site, for example, leading to a localised awareness campaign. These opportunities will only become more robust and proactive as technology evolves.

A separate NAVEX study suggested that organisations using more purpose-built software in their compliance programs are already seeing better outcomes. NAVEX customers using three or more NAVEX compliance functions such as training and policy management software, for example, saw a nearly 30 per cent increase in internal whistleblowing compared with those using only internal reporting services. The study found similar benefits in other major internal reporting metrics. It appears a stronger compliance software platform correlates with better program outcomes.

Notably, those compliance program outcomes are also good for business. A groundbreaking study analysing the relationship between internal whistleblower program activity and business performance for publicly traded US organisations found a 10 per cent increase in reports was associated with a 2 per cent decrease in the dollar amount of government fines received and a 1 per cent decrease in legal settlement amounts in subsequent years. This dynamic is a major talking point for those in the compliance field, and helps highlight the way in which evolving industry technologies will help drive stronger compliance programs and, thus, better business results.

In the modern era, we have observed new sanctions as one example of a regulatory landscape that can rapidly upend industries. How can an individual worker, whether internal or in the supply chain, know to raise the alarm if a transaction might create sanctions risk?

In ideal cases, workers and other reporters have resources, virtually or otherwise, to verify policies and file reports. Compliance professionals will also know they have supplied the latest policies to their stakeholders and can monitor how those policies are impacting behaviour. Regulators will increasingly demand paper trails such as these as demonstration of a good-faith effort to put the tools of compliance into the hands of the people that need them. Amid rapidly changing regulatory dynamics and increased globalisation, software will need to play a larger and larger role.

Separately, let’s take a moment to consider the inevitable role artificial intelligence will play – and is playing – in the future of ethics and compliance.

Firstly, organisations will be expected to have rules in place governing the use of AI. This includes recent compliance program guidance from the US Department of Justice and the EU AI Act. Time will tell, but the future of ethics and compliance will no doubt include emerging requirements on this new regulatory front.

Meanwhile, these AI tools are likely to provide a boon to compliance programs. We are only now seeing indications of the way this technology will come to play for the field, but it appears certain that much of the software behind compliance will continue to leverage AI. These improvements will benefit not only those who administer compliance programs, but also those who rely on them.

Ethics and compliance professionals have long known that ethical cultures are the foundation of any successful compliance or risk management program. As regulatory complexity increases, these cultures can remain agile, informing good decision making that helps the organisation to navigate fast-moving compliance risks.

With evolving technologies enabling integration and data analytics for compliance – and the promise of AI – future ethics and compliance leaders will have more tools to assess their cultures and move them in the right direction. In a potentially very near future, compliance will become even more important to positive business outcomes than it is today.

For more information please visit www.navex.com.

Source: independent.co.uk