Why Company Culture Is the Hidden Compliance Risk
When most firms think about compliance risk, they think about systems, policies, and controls. But the greatest risk to compliance often doesn’t come from technology, it comes from behavior.
A company’s culture – the shared attitudes, assumptions, and everyday choices that guide employee conduct – shapes how rules are interpreted, how issues are reported, and how quickly they’re addressed. In other words, culture determines whether compliance programs live on paper or in practice.
Culture as a Leading Indicator of Risk
Regulators increasingly recognize culture as a measurable element of compliance health. The SEC, FINRA, and DOJ have each emphasized that an organization’s “tone at the top” and “culture of compliance” are key factors in enforcement decisions.
When employees fear retaliation for speaking up, when leadership models inconsistent behavior, or when compliance is viewed as “someone else’s job,” the conditions are set for silent failure.
Examples abound:
- A mid-size advisory firm fined millions because junior staff “didn’t feel empowered” to question data inconsistencies.
- A global bank where compensation incentives prioritized short-term growth over client fairness.
- A fintech startup that celebrated speed but ignored process until regulators stepped in.
In each case, the root cause wasn’t policy, it was culture.
The Psychology of Compliance
Compliance is behavioral science as much as it is regulation. Employees take cues from leadership, peers, and reward systems. If those signals favor expediency, compliance will always take a back seat.
Firms that perform well in audits often share three common traits:
- Ethical leadership: Executives model transparency and humility.
- Empowered employees: People believe they can raise concerns safely and be heard.
- Reinforced expectations: Training and rewards make compliance the default, not the exception.
From Policy to Practice: How to Influence Culture
A strong culture of compliance doesn’t happen organically; it’s engineered through deliberate design and consistent reinforcement. Here’s how compliance teams can influence behavior across the firm:
1. Lead from the Top
Executives set the tone. When leadership demonstrates integrity, curiosity, and accountability, employees follow. Involve the C-suite in compliance communications and have them participate visibly in training and risk discussions.
2. Make Compliance Personal
Generic slide decks and annual check-the-box training won’t change behavior. Use real-world examples, firm-specific scenarios, and data breaches that show the personal and financial impact of lapses.
3. Integrate Compliance Into Daily Workflows
Embed compliance checkpoints into CRM systems, trading platforms, and vendor portals so that doing the right thing is part of normal operations and not an extra step.
4. Align Incentives
If performance bonuses or promotions are based solely on financial results, compliance risk will rise. Integrate compliance KPIs (accuracy, reporting timeliness, audit results) into reviews and compensation frameworks.
5. Reward Integrity
Publicly recognize employees who identify risks or propose improvements. Positive reinforcement builds trust and makes speaking up a strength, not a liability.
6. Measure What You Can’t See
Conduct anonymous surveys, audit exit interviews, and analyze complaint data to gauge sentiment and identify weak points in the firm’s ethical fabric.
The Hidden ROI of Culture
Building a culture of compliance pays off far beyond audit readiness. It reduces turnover, strengthens reputation, and increases regulator confidence, all while decreasing the likelihood of enforcement actions.
Research supports this: companies with strong ethics programs see 40% fewer compliance incidents and are three times more likely to outperform peers in long-term trust and client retention.
Culture isn’t a soft metric. It’s a strategic risk variable, and one that leaders can directly influence.
The Gryphon Compliance Perspective
At Gryphon Compliance, we view culture as the foundation of every compliance program. Our work often begins not with rewriting policies, but with assessing behaviors, incentives, and communication patterns that drive real-world outcomes.
We help firms:
- Diagnose cultural weak points.
- Build measurable “culture of compliance” frameworks.
- Develop leadership engagement and accountability models.
- Design training and incentive systems that reinforce ethical behavior at every level.
The result: compliance becomes less about enforcement and more about alignment.
Is your culture helping or hindering compliance?
This blog is for general information only and does not constitute legal advice.
Jonathan Wowak is Director of Gryphon Compliance Services LLC. He can be reached at jwowak@gryphongroup.us
