Creating more rules and regulations is no way to fix the governance flaws and management failings exposed by the financial crisis, the architect of the European Union’s governance framework has warned. That would only fuel a growing “compliance culture” and make the situation worse.

Instead, companies should focus on changing the behavior of individual employees, finding ways to make them feel responsible for their actions, said Dutch law professor Jaap Winter. Winter was the man called in by the European Commission after the 2002 wave of financial scandals to determine how corporate governance in Europe needed to change. His subsequent report has guided European governance reform since then.

Winter told the annual conference of the European Confederation of Institutes of Internal Audit (ECIIA), held recently in Berlin, that errant human behavior caused financial crises, not flawed systems. “No system has ever generated a crisis,” he said. “The first reaction is that the system has failed so we need new rules. We ask for more rules and more enforcement, but we forget about our own behavior: What is it in us that we continue to game the system?”

Winter said increased regulation of financial firms and general corporates was leading to the “self-enforcement” of a compliance culture. There were already far too many rules for regulators to monitor and enforce, so they were outsourcing that work to companies themselves, he argued.

This growth in corporate compliance was having a pernicious effect: crowding out personal responsibility, Winter argued. “It is not helping us ... it makes things worse,” he said. “What compliance is doing is making sure people follow rules. We forget about our own responsibility for our behavior and replace it with responsibility for compliance. For me, that is poverty. We simply become functionaries in a system, like it is no longer about us anymore.”

The answer was not to do away with rules and compliance, said Winter, but to create a corporate culture based on responsibility and integrity.

Winter also urged companies not to create dedicated compliance functions that were separate from the business. “If you want to make compliance successful you have to make business managers responsible for it—completely, down the line,” he said. “Integrate compliance—only then will we start to think about this as something that we are responsible for.”

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