The ROI of an Effective Ethics and Compliance Program

Compliance isn't just good business practice—it's also profitable

For decades, executives have seen their ethics and compliance program as a cost center within their businesses. But that view is dated—and it’s on us, as compliance leaders, to demonstrate why. Fortunately, there’s  a landslide of data on our side.

We are now at a place where there is sufficient data, academic research and actual use cases from corporations and businesses to prove that a good ethics and compliance program is not simply good for business—but, properly used, will lead to greater profitability.

The data and research on ethics and compliance programs

For 14 years, Ethisphere has been collecting data around its World’s Most Ethical Company awards. Companies which receive this designation have been found to outperform their peers on various stock indices; Ethisphere calls this the “Ethics Premium.” Ethisphere EVP Erica Salmon Byrne has noted that, “In tracking how the stock prices of publicly traded honorees compare to the U.S. Large Cap Index, we found that listed World’s Most Ethical Companies outperformed the large cap sector.” In 2010 that number was a delta of 4.5%. Yet by 2020 that number had skyrocketed to 13.5%. Clearly, Ethisphere has been on to something.

Academic research has also shown the efficacy of ethics and compliance programs. Serafeim and Healy demonstrated in their paper An Analysis of Firm’s Self-Reported Anti-Corruption Efforts that companies with robust compliance programs do better financially in countries prone to corruption than companies with less effective compliance programs. Without a robust compliance program, even with high sales in a high-risk country, the sales will drop off and lead to a negative ROI of between 24% to 30%.

A real world example of compliance ROI

But the story does not end with data, numbers or even academic research. The corporate world is full of tales where a compliance solution was delivered which not only made compliance more effective but improved business process efficiency and greater profitability. One of the more interesting stories I have come across is an organization which performed a standard fraud risk analysis of business development personnel spend in a high-risk FCPA country. Because the country was high-risk, there was a relatively low gifts and entertainment limit below which the business folks could spend without pre-approval, $75.00. The fraud risk analysis looked at traditional metrics such as split receipts and invoices right at but not over the limit. The company also looked at the aggregate amount of gifts and entertainment spend on individual government officials to see if multiple salespersons were spending amounts directed at one official.

However, the findings were not what was expected or even what the company was looking for. The gifts and entertainment segregated into a low spend (Data Point A) and a high spend (Data Point Z). The sales team had to spend the minimum of Data Point A to make a sale but above Data Point Z, it became clear the government official was not going to enter into a contract and conclude a sale. The company decreed that the sales team had to spend up to Data Point A but could not spend above Data Point Z. It turned the sales team appreciated the information as now they had a metric by which they would know when they were not in the running to make a sale. When they got to Data Point Z in gifts and entertainment spend, they moved on to the next customer.

The effect was twofold. First, the company had an immediate cost savings as the business development reps were not throwing good money after bad, above Data Point Z. However—and this is where it gets really interesting—by moving on from a sales prospect with virtually zero chance of success in making a sale, the company reduced its sales cycle time and increased performance and profitability in this business unit.

This example demonstrates that the data and information you collect can be used to improve business process efficiency—as long as you have the solutions in place to meaningfully analyze it. The right compliance solution—a holistic solution that combines reporting, case management, disclosures, and data insights—can also improve an overall business process. When you start to consider the compliance data points in every organization, from the Quote-To-Case sales cycle to the Procure-To-Pay procurement cycle, you begin to see how compliance can improve business efficiency and lead to greater profitability.

Convince your board that compliance is profitable

You might be convinced—but it’s your board’s opinion that really matters. Download our guide to preparing for your next board meeting.

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