Novartis [SWX: NOVN]

Following the compliance scandals of recent years and the ever-increasing regulatory and societal expectations placed on companies, companies have made significant and constant investments in their compliance programme. With this has come the increased pressure on compliance officers to show the impact of their programme and to demonstrate that they have positively influenced the risk situation of their organisations.

What is the purpose of measuring a compliance programme? Measuring a compliance programme allows conclusions and evidence to be provided as to whether the objectives of the compliance programme have been achieved. Any assumptions about their impact, for example, on employees’ behaviour, can thus be confirmed or refuted. This, in turn, can significantly contribute to improving a compliance programme and strengthen confidence in the compliance function. Hence, measuring a compliance programme is not purely a self-assessment performed by the compliance function. It is also a strategic tool for senior management that can be employed to determine and make decisions regarding the correct orientation and design of the programme, the focus and impact of compliance initiatives and the best possible use of resources.

However, the question of whether and how the effectiveness of a compliance programme can be measured is controversial and represents a challenge for companies and their compliance experts. There is little guidance available on how a comprehensive measurement of effectiveness should be carried out. Existing guidance around effectiveness tends to refer to or describe the standard structure of a compliance programme, i.e., what are the elements of a good compliance programme, but not necessarily how effectiveness should be assessed to show that these efforts help prevent and detect misconduct and drive ethical behaviour. Authorities assessing compliance programme focus on the existence or lack of these elements to conclude the seriousness of the endeavours taken by the company. The decision about the effectiveness of the programme is then made on this basis.

“Given the increased interest in demonstrating effectiveness, it seems inevitable that companies will have to develop their own methodology to measure their programme and evidence the success of their compliance efforts”

Given the increased interest in demonstrating effectiveness, it seems inevitable that companies will have to develop their own methodology to measure their programme and evidence the success of their compliance efforts. In doing so, a pragmatic approach could be an attempt to clarify two key questions:

1. Are the measures taken generally suitable to influence the behaviour of employees about the purpose of a compliance programme?

2. Can it be proven that the behaviour of employees has been influenced?

 Particularly regarding the second question, a realistic perspective needs to be taken with regard to what a compliance programme can achieve. No programme can prevent all misconduct, as there will always be factors outside the control of an organisation which can influence employee behaviour, such as social norms. However, a good compliance programme should and must prevent and detect systemic misconduct. This objective also provides the framework for measurement.

 To ensure a holistic and systematic approach, performance indicators should be defined for all relevant programme elements and processes based on the above-defined measure of success. Performance indicators, which are based on the (sub) purpose of a compliance programme and the expected behaviour of employees, can then be used to differentiate between satisfactory and unsatisfactory performance of the compliance programme. In order to ensure comprehensive measurement, the corporate culture, which significantly influences employee behaviour, must not be disregarded. This includes the perception of fairness and justice, the psychological security of being able to express one's own opinion, conflicts of interest, trust in colleagues and superiors and the ethical awareness of employees. In addition to traditional audits and compliance reviews, the results can be systematically evaluated using performance indicators, employee surveys, experiments, and statistical data analyses, these are further ways of demonstrating compliance success.

From the author's point of view, a multidisciplinary approach should be chosen to measure the effectiveness of a compliance programme. However, the challenges of measurement should not be underestimated. Realistic short and mid-term expectations should be defined and regularly reviewed to ensure continuous improvement and development of a holistic and multifunctional approach. In addition, the company-specific situation must be considered, like the level of process digitalisation, availability of needed data points and the necessary expertise in compliance, ethics, behavioural and social sciences and data analysis. Also, while the performance indicators should be well defined to enable a comprehensive conclusion about the level of compliance in the company, they should also be designed to allow flexibility to deal with imponderables and realities pragmatically.