A resolute corporate compliance and ethics strategy can provide a unique opportunity for leaders to demonstrate their commitment to appropriate behavior that can favorably magnify the success of an organization. The benefits of indoctrinating ethical leadership while advancing corporate compliance initiatives are financially quantifiable to the organization; however, the residual favorable effect on the employees, reputations, and society can be immeasurable. In this chapter, the authors examine the current state of organizational malfeasance and the opportunity to revisit compliance specialization within a business school setting. Beyond the legal interpretation of compliance and regulatory guidance, the authors argue that effective compliance initiatives within an organization require authentic senior leadership indoctrination and compliance specialists with a broader business acumen within the industry or enterprise.
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The ubiquity of corporate ethical encroachments has prompted corporate compliance and ethics functions to play a more conspicuous role in leadership decision-making processes. This heightened awareness has resulted in the elevation of management control systems to ensure business decisions are consistent with company policies, ethical principles, and the law (Ferrell et al., 2021). To successfully design effective compliance and ethics functions within corporations, senior leaders are called upon to understand their unique and crucial functions, which are vital to providing concrete behavioral guidance and cultural controls consistent with the values shared by organizational members (Stöber et al., 2019).
Compliance is generally accepted as conforming to existing procedures and policies as required by the jurisdiction's laws - a framework for ensuring that an organization complies with those laws and regulations, thereby minimizing the risk of noncompliance (Rorie & Rooij, 2022). Ethics and the ethical orientation of an organization’s culture are defined as the values, norms, and guidelines for enforcing ethical standards - complying with the letter and spirit of the law (Pacanowsky & O’Donnell-Trujillo, 1983).
Scholarly research suggests that a corporation’s ethical climate can shape ethical decision-making processes and the behaviors that support those processes; however, understanding how effective ethical climates are established within organizations requires consideration of how compliance functions operate within the corporate governance structure, the level of authority they possess, and the professional development attributes of individuals charged with compliance responsibilities (Fritzsche, 2020; Victor & Cullen, 1987, 1988).
The degree to which ethical behavior can become adaptive within an organization is often the function of the situational requirements and the behaviors senior leaders exhibit in response to or anticipating the situational requirements (Mischel, 2004). Approximately 84% of leaders’ behavioral variance is due to situational influences, often a function of external competitive forces (Funder, 2001). Given this point of reference, inculcating ethics within organizational leadership principles has proven difficult (Piper, 2007). Senior leaders who do wish to create sustainable, ethical organizational climates, regardless of the situational influences, recognize that ethics is at the heart of their leadership responsibilities and that an effective compliance function requires autonomous oversight authority, senior leadership support, and adequately trained talent to design, maintain, and execute transforming corporate compliance requirements (Burns, 2014).