It Pays To Be Ethical: A Conversation With Corpedia Founder Alex Brigham

Submitted by Francesca Rheannon

By Francesca Rheannon

Alex Brigham is one of the pioneers of corporate compliance and ethics training. The firm he founded, Corpedia, opened shop in 1998, developing ethical codes of conduct for corporations. Back then, the field was so new, he had to explain to companies not only what Corpedia did but why developing plans for governance, risk management and compliance (GRC) was even important.

Then came the Enron collapse in 2001. All of a sudden, interest in GRC grew – in fact, Enron itself engaged Corpedia to develop a code of conduct just a few weeks before the company imploded. It was too little, too late for Enron, but other firms took note of what Corpedia had to offer and the space for GRC in the corporate sphere expanded.

Now, it looks like GRC might be ready to go mainstream. On May 24, the news broke that the NYSE Euronext had acquired Corpedia and will begin offering the company’s services to its issuer community. It’s a powerful signal, Alex Brigham says, that GRC has gained wider acceptance in the corporate community. (Brigham is leaving his post as CEO of Corpedia as a result of the NYSE transaction and moving fulltime to the Ethisphere Institute, which he also founded.)

CSRwire spoke with Brigham about Corpedia and the implications of its acquisition.

GRC Not Window-dressing

Francesca Rheannon: Corpedia’s job is to develop the code of ethics of companies. How do you make sure that Corpedia’s customers will actually follow its recommendations instead of just using them for window dressing?

Alex Brigham: You can't force a company to do anything. You can only hope that they take it seriously -- that they invest in training their employees, in getting a strong code of ethics that's upheld and spread out around the organization and in having a whistleblowing hotline. Most important is to build a culture where it's OK for employees to raise their hand and say, “Wait a second; I don't think this is right,” and do that without fear of retribution.

Almost seven years ago -- the company will go un-named -- we were asked to put together a compliance and ethics program for a company in the New York region. The general counsel said to me, “I'd like a D-minus program.” And I just looked at him incredulously and said, "What do you mean, ‘a D-minus program?’”

He wanted the worst possible program that still meets the standards that the U.S. government had developed under Federal Sentencing Guidelines for an “effective compliance and ethics program.” (pdf) I saw that the type of program this person was asking for was exactly what you just referred to as “window dressing”: making it look from the outside like an ethical company, but on the inside that culture did not exist.

Governance, Risk Management and Compliance Pays Off

But good companies understand that when you have a culture of transparency and openness, it's not just about letting employees raise their hand with a concern. It’s also about having a culture that fosters innovation, because innovation also allows people to raise ideas without fear of failure or ridicule in front of other employees. It also creates a culture where people want to work, because they feel there's a greater sense of respect, so it's easier to attract good employees and retain them.

So the challenge for us over time has been to educate companies that this isn't spinach that's bad-tasting; this is actually helpful for your organization overall and will contribute to long term superior performance.

When you talk to companies can you point to statistics that show a link between an ethical corporate culture and improved performance?

Sure. We've seen that with companies like Starbucks, Aflac and GE. About seven years ago I decided to start a group that ranks and recognizes companies that are trying to get it right. So I started the Ethisphere Institute. We find the star performers in each industry that have the strongest ethical cultures and invest the most in ethical behavior.

We found there's a direct correlation year after year, where those companies outperform their peers in the stock market. That was the truest indication that being ethical does pay. On average the outperformance has been about seven to eight percent annually -- which is a lot. We're working more with the investment community now to get that message out because there's no greater sustainability for an ethics program than for people to see that they are actually making money by doing it.

NYSE Boosts GRC’s Profile In The Larger Market

The NYSE Euronext has acquired Corpedia. What does this mean?

It means the NYSE sees there's a business opportunity in helping companies run better, to have better GRC.

The NYSE wants to distinguish its organization by having some of the best-run companies in the world be on their exchange. They see an opportunity in acquiring Corpedia to help further drive and adopt these company practices into all their listed companies.

This is really on the heels of the financial crisis of 2008, where a number of companies were not managing risk properly. In any kind of crisis, the problems are going to be rooted in GRC -- particularly financial problems, but other problems, too. There's been a broad push overall in the market, led by corporations, to want to have better government, risk and compliance systems.

What it also means is that what was almost a fringe industry has gone mainstream – and that’s huge. Looking at it from a personal standpoint, when I started Corpedia, for the first five or six years, I was constantly explaining what I did to my friends and colleagues.

Then, as it became more adopted in the post-Enron period around 2006, more and more people began to recognize, “OK, now I know what you do for a living.” But we were still not a mainstream company; people knew more about the kind of work we did, but they didn't necessarily know about us.

But when you have the most iconic name in capitalism acquire the leader in this space, Corpedia, that's unquestionably a statement that this has gone mainstream. It's here to stay and GRC is going to become, not a “best practice,” but a common and expected practice across corporations here in the US and hopefully beyond.