Ep.12: Ethics vs. Compliance
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About this episode. There’s a difference between doing “what’s required” and doing “what’s right.” And if you’ve been paying attention, you know that we’ve also done whole episodes on the shortcomings of “do the right thing” language. So, in this episode of The Better Way?, Hui and Zach thought it was time to give ethics the explicit spotlight it deserves. It is, after all, our “E.”
They start by unpacking the differences between compliance (think: rules, regulations, and external demands) and ethics (think: values and the messy beauty of human judgment). Then, through a combination of historical lessons and real-world dilemmas, Hui and Zach dig deep into the role of today’s “ethics and compliance” officer. What does it mean to wear “ethics” as a badge? And are those who carry the badge truly empowered to be the conscience of their companies—should they be? As always, they end with tips for navigating the complexities of today’s workplace, with a focus on having the moral courage to initiate the sort of difficult conversations that make organizations better.
Who? Zach Coseglia + Hui Chen, CDE Advisors
Full Transcript:
ZACH: Welcome back to the Better Way Podcast brought to you by CDE Advisors. Culture. Data. Ethics. This is a curiosity podcast, for those who ask, “There has to be a better way right? There just has to be.” I'm Zach Coseglia, and I'm joined as always by my friend Hui Chen. Hi, Hui.
HUI: Hi Zach. Hello, everyone. Welcome back.
ZACH: We are talking about ethics today, which is an appropriate topic because it is in fact the E in CDE. And though we've touched on ethics in some of our discussions to date, this is the first time that we're really dedicating an entire session to digging deep on ethics.
HUI: I always feel like ethics is such the glue that holds everything together in what we do that it seems too obvious to talk about, but we do need to talk about the obvious. We are dedicating today's episode to talk about just ethics.
ZACH: And in fact, one of the things that we want to get out of the way right at the very outset is the difference between compliance and ethics. And Hui, I feel like there's no better way to do this than to turn our attention to the dictionary, to look at the textbook definitions to frame our discussion around the differences between compliance and ethics. So, tell us, how are these things defined?
HUI: We always like to start there, right? Here are the definitions for compliance. One: “the act or process of complying to a desire, demand, proposal, or regiment, or to coercion.” Definition Number Two: “Conformity in fulfilling official requirements.” Definition Number Three: “A disposition to yield to others.” Interesting, isn't it?
ZACH: Yeah. I mean, when you hear that definition it feels uncomfortable, actually, because that doesn't feel like what we're doing every day.
HUI: Right. Because you're looking at words like coercion, conformity, yield.
ZACH: Yeah.
HUI: Doesn't sound leadership-like.
ZACH: That's right.
HUI: Right. So, let's now look at the definition. The dictionary definition of ethics.
ZACH: Yeah.
HUI: Also three definitions. One: “a set of moral principles, a theory or system of moral values.”
ZACH: I like that better.
HUI: Two . . . right? Doesn't that sound like the kind of thing we usually talk about.
ZACH: Yes. Yeah.
HUI: Definition Number Two: “The principles of conduct governing an individual or a group.”
ZACH: Yep.
HUI: Three: “a guiding philosophy.”
ZACH: Love it. Yeah. This is why This is why, you know, for what it's worth: we're not compliance, data, ethics. We're not culture, compliance, data, ethics. We are culture, data, ethics because that's us. That's us.
HUI: Yes, yes.
ZACH: But Hui, let's dig into this a little bit more, because I know you've given this a tremendous amount of thought. You've spoken on this for many, many years and you've kind of created this framework to break down some of the differences between compliance and ethics. And one of the things that you say about compliance is that it's more objective and that ethics, on the other hand, is more subjective. So, tell us more about that.
HUI: So, again, if you're thinking back to the definitions that we just read, compliance is all about what is required of you. It's about what someone else and that someone else being the authorities want you to do. And there's really no . . . I think one of the ways that you have put it is that compliance is very binary. You're either compliant or not.
ZACH: Yeah.
HUI: There is very little gray area, if any, in between.
ZACH: That's right. That's right. There may be different ways to get there, but at the end of the day, compliance is really about, you know, black and white, right and wrong, compliant or not. Yes or no—it is a binary thing. And the beautiful, wonderful, complex thing about ethics is not only that it may result in multiple different paths to getting to the same answer. It may also mean multiple different paths to getting to a very, very different answer.
HUI: Right. And ethics is much more subjective in the sense that if you're talking about principles and values, everybody has them. And that comes from the inside. Exactly.
ZACH: Yes, I have mine. You have yours. Exactly. Yeah, yeah. Well, that that kind of that kind of leads to one of the other differences between ethics and compliance that you that you often talk about and that is that compliance is more external—and ethics is more internal.
HUI: Exactly. Compliance is what someone else wants you to do. Ethics from the inside of you. What you want to do now. This you could be a singular “you” or plural “you,” the organization. Can even be a plural of society. But I think ultimately it is not an imposition coming from the outside.
ZACH: Right, right. And that is a theme that we've been actually talking about quite a bit (in many of our episodes and our talks and with our clients and in some of our writing): with all of the external regulatory and enforcement related uncertainty how the best way to combat that is to look within yourself, whether that's you personally or your organization. And that if we guide ourselves by those North Stars, we're never going to have the sort of ambiguity that a lot of people are worried about. So, in that sense, we've been talking about ethics a lot, actually, lately. Whether we've been saying it explicitly or not.
HUI: Absolutely.
ZACH: All right, so. Third kind of differentiator between compliance and ethics that I've heard you talk about is that compliance tends to be more singular and that ethics tends to be more plural. Explain that to us.
HUI: So, for compliance, because you have a party in power, whether that's government regulators or enforcers, you have a single authority, in a sense, that determines whether something is compliant or not. So, they say you're compliant: you're compliant. They say you’re not compliant. You're not compliant. Because the authority, the source of the compulsion, is coming from a particular. authority. That is a singular source of authority to determine whether someone or something is compliant or not. Whereas ethics, because you have multiple of people, you have multiple organizations, each with their own set of values and principles—you have this complex plurality of what is right and wrong. That goes into something we talk about all the time, right?
So that plurality leads to that complexity that we often talk about that we don't like to see reduced down to “just do the right thing”—because different people and different organizations have different principles and values. And how they prioritize them. And this creates a difficult but wonderful set of principles and values that you constantly have to wrestle with.
ZACH: Yeah, yeah. I mean on the . . . we hear folks use the phrase “just do the right thing” a lot and it's often used, I think, actually, in the context of compliance. “Just do the right thing” And the truth is, doing the right thing is actually not a compliance phrase at all, because the compliance phrase is “follow the policy,” “abide by the law,” “do what you're told to do.” Doing the right thing is a deeply complex ethical directive that, as we said, can lead two people in very different directions depending on what they value and how they balance the different things that they value. Because that's the other thing, right? It's not just about sharing values—it's also about how you then weigh and put priority on those values that could lead to very different results.
HUI: Very much so. There is in everyone . . . there is a hierarchy of values. When two values compete in a decision, you have to choose what is the more important value for you.
ZACH: One of the things that I've been thinking about a lot in preparing for this discussion and just being a nerd and thinking probably about things more than I should is: we often talk about compliance being what we must do; and then we will hear, you know, but ethics is what we should do. And I get that. I actually get that. I've said it before, I think—if we're trying to come up with simple ways to capture complex concepts, it does a fairly good job. But one of the things that I've been thinking about with that is that I worry, actually, that it could send the wrong message by somehow suggesting that compliance is like, “the must” and ethics is sort of the “nice to have.” Which I actually think is entirely backwards. Because if you don't have ethics, what are you? Who are you? Why do you matter to me? Why would I ever want to have a relationship with you? Whether that was as a co-worker, as a boss, or as a consumer of your product? Like, to me having those values and having an ethical culture or an ethical-minded approach is like the ultimate must have.
HUI: Yeah, and it leads me to think about a couple of things. One is, you know, we've been talking about the conference circuit—and that oftentimes in the ethics and compliance space, it's often . . . the star of the show is usually a government regulator or enforcer. That is the definition of compliance. You're orienting yourself to this governing authority, who will tell you whether you're compliant or not. And that's why you keep looking to them. If we truly have conferences about ethics, we would be wrestling with our values and our principles.
ZACH: Yeah.
HUI: And we are not really seeing that so. So, most of most of the compliance—or I almost want to say all of the compliance—conferences I've ever been to are purely compliance for that reason. That's one thing. The other thing is I do worry terribly about what happens to our society when we just do compliance, and not ethics. I think we have seen very, very unfortunate and devastating consequences when societies do that.
ZACH: We have. And you know, sometimes just as we like to look to definitions, to set a foundation, sometimes it's also helpful to look at the farthest extremes of a particular topic to really drive home the point. And so, Hui, I'm thinking about a piece that you wrote many years ago, actually, at this point—if you might take us back to 1930s Germany to talk to us a little bit about, to give us an example, about the difference—in very true, real life, dramatic terms—between compliance and ethics.
HUI: Yes. I wrote this piece in 2018, and it is called “Our Voices Matter.” And I opened with this story. So, on April 10th, 1933, during a meeting with a German ministry official in charge of university matters, a delegation of deans and professors from Fribourg University were reminded that “dismissal of Jewish faculty members had to be carried out promptly.” The professors pledged that the decree would be “loyally implemented.” Two days later, April 12 at 10:00 AM, the order of Expulsion of the Jews from the university faculty had been fully complied with. Jewish members of the medical faculty received notification that read: “According to the Order of the academic record, I inform you that with reference to Ministry order number 87642, you are placed on indefinite leave, signed, the Dean.” That would have made a compliance officer proud.
ZACH: Yeah, yeah. Unpack that a little bit more, so that folks . . . just to drive home the point about compliance versus ethics.
HUI: I think this is, you know, this is one example of many of what was the 1930s Nuremberg laws. Because, you know, if you look to history, the Holocaust was not something that happened in one day. It was a gradual process. And one of the beginning points of it were the Nuremberg laws that began to drive Jewish people out of all aspects of public life. Out of schools, you know, as students; out of schools, as teachers and faculty members; out of medicine—you can't work in hospitals anymore, you can't work in banks anymore, you can't own certain types of shops anymore. So, this is all part of the Nuremberg laws that was trying to basically squeeze the Jewish people out of public life. And so, was there a government authority giving a very clear order? Absolutely. It was cited chapter and verse. Right, so this was the order number whatever . . .
ZACH: It was.
HUI: You must expel your Jewish faculty members. And was that complied with? It was, within 48 hours and so, so that is truly you have an authority giving a very clear order.
ZACH: Yeah.
HUI: And the order was then implemented without question.
ZACH: Yeah, yeah.
HUI: Now, I think what, of course, troubles me and I hope troubles anyone who's listening to this is: was that the ethical thing to do?
ZACH: Yeah, of course, of course. Well, you . . . let's bring it back to the profession a little bit and you know, we talk a lot about skill sets that we think should be more common in the ethics and compliance space. We talk a lot about the fact that there are a lot of lawyers and maybe we wish that there were more data analysts, more folks with technical skills, folks with scientific skills, behavioral science, in particular, is something that we are very curious about—and we think could bring a lot to the profession. In this paper that you wrote back in 2018, though, you say that—this is a quote, “moral courage should be in the fiber of ethics and compliance professionals.” Moral courage. So, say more about that in the context of the world today. It's very easy to understand how moral courage would be meaningful in the context of 1930s and 40s Germany. But let's talk about moral courage as a . . . as a qualification of today's compliance officers.
HUI: I think it's interesting. I have known some very courageous compliance officers that have risked their careers in pointing out things that senior executives, for example, have done wrong. However, when it comes to speaking up about some of the moral issues that confront our societies today, that same set of people become very, very uncomfortable and they say, you know, we don't talk about politics at work, right?
ZACH: Yeah.
HUI: Right? And it's interesting that during the first Trump administration, there was a lot written up about the role of the first daughter of Uzbekistan in one of the telecom FCPA matters of the . . . at the time, right? At the very same time all these blogs were talking about this, there was no discussion about the role the first daughter of the United States was playing in foreign affairs that impact our commerce and economy. I think we have to recognize that we are confronted with moral dilemmas and issues in our daily life, in our society today—and at some point we may have to take a stand. And that taking that stand may make you non-compliant.
ZACH: Hmm.
HUI: Right. And you look, if you look at the cases of the universities and the law firms that have been subjected to executive orders. Look at how many have just voted and how many decided to do the non-compliant thing of challenging them. Now, fortunately, we have the recourse. We don't actually have to go in front of some firing squad. We can take the matters to court. Right? If the University of Freiburg faculty had said: “no, we are going to challenge this order of expelling our Jewish faculty members; we're not going to abide by it—and the way, we're going to stand up is we're going to go challenges in court.” Now, that may not have been a realistic possibility back in 1930s Germany, but that is a realistic possibility today. And you see the organizations that have chosen to take that stand for their values and principles versus the ones who have chosen not to.
ZACH: Yeah, yeah. Let's talk a little bit more about this idea, though, of talking politics at work. I think if we're being honest, how many CEO's are actually asking their chief ethics and compliance officer about true ethical dilemmas? Like how many CEO's, how many businesspeople are really going to their ethics and compliance officers about things that impact broader corporate values or headline grabbing matters of the day, whether it's DEI or travel bans, or balancing the complexity of stakeholder interests?
HUI: OK. So, I was just on another podcast where we talked about this. If you're truly ethics officers, there are so many aspects of ethics that you can and should be concerned about. Because if ethics is about values and principles, then it affects your interaction with every set of stakeholders that your company has, right? Because this is another aspect of ethics that I think is important to illustrate: it is relational. Your values and principles don't matter that much if you're just a single person living in a cave. Because really, who's going to be impacted by your values and principles? Nobody. If you're not interacting with anyone. But ethics is where your values and principles come into action in your relationship with your employees. Your suppliers, your investors, your customers, your community—and yes with the government enforcers and regulators.
So, this is where these things come to life and all the issues that impact these relationships are ethics—because they have to do with your values in how you interact with all these different stakeholders. But for some reason, the ethics community—the ethics and compliance community—has chosen . . . many of them have chosen to focus on just one single set of relationships that, with the enforcer, not even regulators—enforcer, DOJ—on one set of laws that applies to foreign countries. It's like you're . . . you have so many products that you could be selling, but for some reason you decided that you're just gonna sell this one product.
ZACH: Yeah.
HUI: And when other people need your other products, they . . . when they want advice on how do we manage our relationships with all these different stakeholders, they're then not coming to you because you're not known for selling those products. You're only known for selling one type of product. If you are also the voice about how the company treats the employees, the customers, the investors, the suppliers—doing things in a way in these relationships that are consistent with your company's values and principles. Then, I think you would be in a position to be advising your internal clients on what are the considerations that need to come into play when you're making decision ethical decisions.
ZACH: Yeah, I mean, look, I don't want to oversimplify it—or overstate it. But I mean, I do think that many organizations that have a chief ethics and compliance officer are really using the term more as a branding exercise than as a real commitment to what those professionals are expected to do and what they have the buy in to do. I can't think of very many ethics and compliance officers who are viewed within their organization as the person who should speak up, for example, when a major brand decides that they're no longer going to be making an investment in LGBTQ causes during Pride Month because there's a fear that doing so has been sufficiently politicized in a way that could negatively impact the brand. Nor do I think that those people are looked to to have a voice on whether or not not doing those things might actually be perceived in a way that could have a negative impact on the brand. I think most compliance officers don't do that. Most ethics and compliance officers don't do that. And I think many would be viewed as stepping out of their lane, were they to do those things.
HUI: Yeah, I think you're right. Most of the ethics and compliance officers that I know would probably run away from those conversations. I think that is something that we really have to think about when we decide to brand ourselves with the word ethics, because that is a big brand to carry. Don't carry that brand if we're not ready to do that. If we just want to be compliance officers and do what is compliant based on whatever rules and regulations and requirements are in place at the time, then that's what we do. I mean, I'm not saying that's not important. You know, there are consequences to be paid when you're not compliant. And I think, I still think most of the time being compliant, you know, in most democratic societies, most of the rules make sense and they are there for good reason. So, I'm not saying compliance is all bad, I'm just saying that sometimes you will see situations where compliance conflicts with . . . conflicts with ethics—and what are we supposed to do as people who choose to brand ourselves as ethicists? Because the ethical courage comes not just when you see someone in a position of power breaking a rule, it also needs to come when there is some ethical issue with the rules themselves. And when those situations come up, I rarely see someone in our profession stand up to say, “I have a problem with this rule” and “here are the reasons why I have problems with this rule” and “here are my considerations.” And all I'm asking, I think, of our colleagues is to have that conversation, right? Again, I'm not saying that you jump right to a lawsuit. I'm saying have those conversations…and having those conversations takes not just courage, but an openness to hear people's views . . . and having those kinds of conversations, I think, is exactly what our very divided societies need.
ZACH: I really like the way that you, the way that you said that. I'm not sure I've heard you say it precisely that way before—or if you have. I wasn't listening enough. But I really like that I think a lot of folks are probably listening and thinking, well, what are we supposed to do? And so, framing it around, having conversations that feels like something we can manage—making the right choice feels like a fool's errand.
HUI: Agree, because people are complex, and organizations are ever more complex because it's consisted of complex people. And you may never reach a consensus, but you will have heard each other.
ZACH: Yeah. Well, let's talk about the politics angle a little bit more because so many of the topics that come to mind either have an explicit political bent or intersect in some way with politics. And so, how do we manage that within an organization that is typically made-up of—well, I think if you have more than one person in any organization, you're probably going to have some amount of difference of agreement about something. So, how do we have these conversations and how do we make decisions on things that feel political and that very well may be political, but are also reflective of our values.
HUI: Well, I think first, there's a couple of recognitions that need to happen. One is politics is already in the workplace. People don't drop their political views when they come into work.
ZACH: Sure.
HUI: That's just not what happens. And if you think about it, they're really expressed in in many different ways. There may not be a discussion or a debate in the office, but you know, when people wear a yellow ribbon, for example, or put a rainbow flag in their office, they're making political statements. And I don't think there's anything wrong with that. People are who they are, and their political views is part of who they are. That's, I think, we need to recognize that's reality. People just don't drop their political views when they when they come to work. But the second thing I think it's important to recognize is workplace is not the place to have this random political discussion. So, I'm not saying that you should also, you know, sitting sit down and start, you know, talking about who we are going to vote for in the next election in the office as part of your office meetings. What I'm saying is, there are things that are happening in the society that impact the way you do business, that impact your business—and those things need to be talked about.
And if they if you're quietly talking about them, you're already talking about them. Simple example I have now heard multiple compliance officers talk to me about the Qatari jet that the President has received; and they sort of sheepishly say, “you know, I'm here dealing with like $25-50 meal limits, while everybody sees the president got a jet from a foreign government.” Then talk about it. Right? You don't have to sheepishly say that this is now making me feel very awkward—because you know everybody else is thinking about it when you're talking to them about their $5 overt limit. So, I think that in in those situations when you have things that directly impact on what people think of what you're doing on the on what, you know what you're doing and what your business organization is doing, I think you need to talk about it.
ZACH: Well, Hui, to move us toward wrap-up, and maybe to elevate this a bit, to leave on a more positive note—this was, after all, a discussion that include a reflection on 1930s Germany. But I think I can get us to a happier place. And you’ve set me up well, because I’d like to share an actual conversation that I had with a client about ethics just the other day. You say we should talk about these things, and that’s exactly what we did. And then, I know you have your own story—or a case, actually, that you want to end with. So, may I share first?
HUI: Please do.
ZACH: So was having a conversation with a client recently about their monitoring program. That's very compliance. It was very much about what should we be doing to more effectively monitor for risk and noncompliance and to better equip ourselves to early detection of potential misconduct. The ethical part of the conversation, though, was about whether or not we should be surveilling employee emails.
HUI: Interesting.
ZACH: This, this this was very much an ethical conversation. We were talking about the value that that could potentially bring from a compliance perspective, from a risk management perspective. But the impact that that would have on the organization's culture and whether or not that kind of activity, which arguably supports our values in integrity, might actually be outweighed by the conflict that it poses with our interest in—and our value in trust. And so that was a . . . and a decision hasn't been made, but it was just a very positive conversation. A very thoughtful conversation. And one where I was like, guys, we're talking about ethics right now.
HUI: That's wonderful to hear— how exciting. Those ethical conversations are actually rare.
ZACH: Yeah. Indeed.
HUI: I am going to end by referring to an article that I wrote a couple of years couple of years ago on a Supreme Court case that actually has to do with . . . the actual subject matter seems mundane, it has to do with Medicaid billing; but the core question, the core legal question that was presented to Supreme Court was: if you believe what you're doing is wrong, but there is an objectively reasonable legal interpretation that would justify your course of action, does your belief matter? All right. So, this is truly, to me, an ethics versus compliance question—the fact in the case is that they actually know what they did was wrong, but the lawyers in the company said, “but we can justify it with this legal interpretation. We can come up with an argument to justify it, and that argument would be objectively reasonable.” Is that acceptable? And I'm happy to say the Supreme Court said no.
ZACH: What was the split?
HUI: It was unanimous.
ZACH: There you go. Well, that that's inspirational right there in a world in which we can barely agree on anything. The Supreme Court of all bodies managed to agree on something.
HUI: That says something that gives me a sense of hope.
ZACH: Thank you, Hui. This has been a really wonderful discussion.
HUI: As always, thank you for joining us.
ZACH: And thank you all for tuning in to The Better Way? Podcast. For more information about this or anything else that’s happening with CDE Advisors, visit our website at www.CDEAdvisors.com, where you can also check out the Better Way blog. And please like and subscribe to this series on Apply or Spotify. And, finally, if you have thoughts about what we talked about today, the work we do here at CDE, or just have ideas for Better Ways we should explore, please don’t hesitate to reach out—we’d love to hear from you. Thanks again for listening.