Organizational Compliance and Ethics
in an Era of Outsourcing
Michael G. Silverman, M.A.*
The marriage of ethics and compliance is an old story but in a new context.
Dating from the Federal Sentencing Guidelines for Organizations, 1 ethics in
organizations and its relationship to compliance has been a focus of
discussion for the past 25 years. Ethics and moral behavior shape the
organization’s culture, the policies and codes of conduct that it promulgates,
the rewards it values, how it addresses violations of policy, and manages its
whistleblowing program. Ethics dictate what is important, what can be
ignored, who the organization does business with, and whom it avoids.
Organizations do not address ethics and compliance in a vacuum. The
evolving scope and change of modern organizations and information
technology represent challenges in addressing issues of ethics and culture.
Boards of Directors and senior management change. In decentralized
organizations, power and decision-making is often diffused throughout the
organization. In a world of mergers and acquisitions, organizations are often
an amalgam of varying cultures, values, and appetites for risk. Policies and
standards are increasingly reflective of local or national culture and values.
This changing shape of organizational life is also evidenced by the growth
of outsourcing, 2 supply chains, vendors, and contractors that have become
the norm of modern organizations. Nearly two-thirds of U.S. businesses rely
substantially on a voluminous number of vendors or suppliers. 3 The trend
Adjunct Associate Professor, Columbia University School of International and Public
1. U.S. Sentencing Guidelines Manual, Ch. 8. (2013).
2. A word about nomenclature: “outsourcing” in this paper refers to third-party service
providers or vendors located in the United States or internationally; “organization” “business”
and “company” are used interchangeably; and reference to “chief compliance officer (CCO)”
includes “chief ethics and compliance officer (CECO)” positions.
3. SOCIETY OF CORPORATE COMPLIANCE AND ETHICS & NYSE GOVERNANCE SERVICES,
2014 COMPLIANCE AND ETHICS PROGRAM ENVIRONMENT REPORT 96 (2014),
and-Ethics-Program-Environment-Report.aspx [hereinafter SOCIETY OF CORPORATE
COMPLIANCE AND ETHICS]. Another report in 2016 confirmed this trend. A poll of compliance
officers by Kroll and Ethisphere, ‘The Year of Global Expansion and Enforcement: 2016 Anti-Bribery and Corruption Benchmarking Report,” reported that “more than 70 percent of the
respondents report doing business with more than 100 third-parties, nearly half ( 47 percent)