How much a company spends on its compliance program isn't nearly as important as how that money is spent.

That assessment comes from LRN's 2013 Ethics & Compliance Leadership Survey Report released this week. LRN's sixth annual survey was based on an analysis of 180 companies, 40 percent of which have more than 15,000 employees).

“With respect to the amount spent per employee on ethics and compliance, we found that size matters, with larger programs recognizing significant economies of scale,” the report concluded. The average spend-per-employee at firms with fewer than 2,500 employees was $102, while the largest firms, those with more than 50,000 employees, spent just $23 on each one.

The growth of ethics and compliance spending recorded by LRN's annual surveys over the last three years has continued, but not without significant caveats. Although nearly half of all programs studied planned no change in their budgets compared to 2012, those planning increases (38 percent) outnumbered the 16 percent planning budget decreases. It was also noted that, compared to last year, the percentage of programs planning to decrease spending more than doubled.

Companies in highly regulated industries, where just under half are planning increases, differ markedly from their less-regulated counterparts, of which less than a third plan to. Of those highly regulated companies growing their ethics and compliance budgets, nearly one-in-five is budgeting for an increase of more than 10 percent.

On average, respondents spent less than $55 per employee on their programs, up 10 percent over last year's average ($50), and nearly 25 percent over the 2010 average, $44). Excluding staff and benefits, the largest share of ethics and compliance budgets went to spending on education and communications (27 percent), followed by administrative costs (13 percent), and spending on consultants (12 percent).

A deeper analysis of spending, however, showed little or no correlation between the amount spent per employee and the effectiveness of programs, as measured by impact on employees.

The report stresses that a strategic focus on culture can reduce misconduct, increase the reporting of misconduct, and bolster the acceptance of company values among employees. “A values-based approach to the core elements of an ethics and compliance program generates the highest return on the investment,” it says.

Hard lessons

Are current education and communication approaches, such as computer-based training, achieving maximum impact on changing employees' behaviors?

For the past two years, “online education fatigue” and “relevance of education to day-to-day work” have been leading ethics and compliance education challenges, the report says, adding, “it's clear that the medium is not the message.”

An increasing emphasis on “blended learning,” a meshing of various education and training methods (such as e-mail, social media, videos, team meetings, brochures, and newsletters), reflects growing awareness of the need to encourage managers to include ethics and compliance awareness into everyday business operations.

“To have the most impact, framing needs to occur in as much proximity as possible to the events, and the decisions, involved,” the report says, conceding that this is a difficult task for programs limited to semi-annual training.

Better results from tight budgets

Based on the survey results, the LRN report offers recommendations on how to make ethics and compliance an even more integral part of a company's day-to-day operations. Among those suggestions:

It is important for organizations to move beyond a merely defensive mindset. Organizations need to become more intentional and strategic in how they approach culture.

Align ethics and compliance with 2013 corporate goals. Growth, cost-cutting and innovation could potentially drive misconduct.

Measure outcomes, not just activities. A principles-based approach to developing and applying metrics can help ensure that the data derived from assessments is relevant and significant in analyzing a program's effectiveness.

Rather than merely investing in more controls, ethics and compliance leaders are better off developing training that imparts the importance of ethical decision-making and raises risk awareness of unintentional, but nevertheless unethical, behaviors.

There should be more spending on education and less on consultants.

A code of conduct that is predominantly values-based has a much greater chance of enabling employees to understand the why as well as the what of their actions.

Overall, more than 80 percent of respondents cited business performance and value creation as the greatest benefits of developing an ethical culture, surpassing compliance for the first time.The bad news? Forty percent of ethics and compliance leaders also reported that an executive-level lack of appreciation of culture as a business driver is a major impediment to building a strong ethical culture. The difficulty in making this business case has increased steadily over the past three years, something LRN attributes to a lack of outcomes-based metrics linking ethics and compliance activities to desired business results. Only two-thirds of respondents said they have developed outcomes-based metrics.