As supply chain leaders continue to tack against the winds of change in the workplace, issues relating to ethics and compliance (E&C) abound.
It can be challenging to engage employees amid such dizzying change. A recent Gallup report found that employee engagement rates in manufacturing are the lowest of any industry in the U.S., with only 25% of the workforce considered to be “engaged.” Reinforcing company values through E&C training programs can help in many ways.
In fact, an industry-specific segment of data from the LRN Benchmark of Ethical Culture reveals an opportunity to improve the state of ethical culture in the manufacturing sector by strategically and proactively reinforcing company values, especially within production teams.
Looking ahead to 2023, following are some of the top trends that will affect supply chain leaders in the E&C space.
Pandemic-related employee burnout is affecting organizational culture. People often think of E&C as a function focused on following. While it is indeed focused on rules, it’s also like HR, a people business. Over the last few years, employees have had to physically, emotionally and financially perform outside of their comfort zones. Many are running on fumes.
Productivity is going down for the first time in a very long time, according to the U.S. Bureau of Labor Statistics. Employees long to return to a place where life felt safer and more predictable. We’re seeing two specific recipes for disaster: isolated decision-making and ongoing pressure. Organizations need to figure out how to have the compliance function partner with HR in a way that benefits employees beyond what pre-pandemic programs have done. When it comes to developing and communicating company policies, it’s always best practice to “keep it human and keep it humane.”
Companies need to take a deeper look into corporate crimes. While no business wants to have to go through this type of ordeal, it’s imperative to be prepared and understand the evolution of regulators’ perspectives. In the second half of 2022, both the Department of Justice and the Securities and Exchange Commission made shifts that direct impact supply chain leaders.
When a corporate crime is identified, these regulatory bodies are looking for what’s referred to as “clawback” compensation from those involved in misconduct. In September, the DOJ announced a new policy on prosecution of corporate crime that prioritizes personal accountability for misconduct by directors, executives and employees. The policy highlights the importance of companies having policies and procedures to claw back compensation from those involved in misconduct.
In August, the SEC published a requirement that companies disclose in a clear manner the relationship between executive compensation and financial performance — for example, how incentive pay and other benefits are calculated. And in October, the commission adopted long-anticipated rules on the recovery of erroneously awarded incentive-based compensation.
What does all this mean? In the words of LRN senior adviser Susan Divers, “The SEC and DOJ are targeting compensation and incentives as a means of strengthening personal accountability with companies and shifting the consequences for accounting errors (or problems) and misconduct onto company leaders rather than just shareholders.”
Technology is evolving to support compliance initiatives and tracking. E&C leaders are seeing an increased demand for data analytics, especially from regulators. There’s a desire to analyze the root cause of compliance issues in an effort to weed out bad behavior and build more resilient companies. This impacts organizations across the supply chain.
Evolving technologies have helped shift the way in which E&C education is disseminated throughout organizations. Those looking to build and rebuild such initiatives are viewing training and compliance through the lens of learning and engagement. The focus on communicating E&C facts puts the emphasis on compliance — something an organization is obligated to do. At the same time, the shift to programming that’s more about learning and engaging addresses the impact that E&C has on people in the organization.
The geopolitical landscape is creating new and unexpected risks in the supply chain. Sanctions on Russia as a result of the Ukraine war are complicating the world of compliance, including trade sanctions and special proclamations for the European Union. E&C consequences for supply chain leaders are quite complex. Companies ultimately become responsible for the behavior not only of their own firms, but also of vendors and channel partners. Leaders need to understand where things are going — even after a product is sold. A business could face serious consequences if trade sanctions are violated anywhere along the supply chain.
The ability of supply chain leaders to assess E&C trends is critical to keeping pace with rising stakeholder expectations, supply chain management challenges, and regulatory guidance demands. Keeping abreast of these and other E&C trends in 2023 will help your organization be a step ahead in engaging your team with the right E&C content, as well preparing for any compliance issues that are sure to arise in an increasingly complex world.
Dr. Arieana Thompson is an ethics and compliance adviser at LRN Corporation.
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