From the July/August 2010 issue of Ethikos
How Freescale Semiconductor Maintains Balance
In Its Ethics Investigations
When a report arrives via the corporate ethics line, a company must quickly decide: Does the matter require investigation?
If the answer is yes, then it faces a crucial second question: Who in- or outside the company will conduct the investigation?
At Freescale Semiconductor, Inc., Larry M. Parsons is the “triage point” for corporate ethics line reports. He decides who should or should not be investigated.
Conducting a successful ethics investigation often requires a fine balance—between not doing enough and doing too much, Parsons tells Ethikos in a recent interview. One has to avoid becoming ‘paralyzed’ by too much data.
Freescale Semiconductor does more than 100 investigations a year, estimates Parsons, the company’s vice president, business conduct and ethics. Of these, Parsons himself conducts about 12 to 20, often the most sensitive ones.
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A Motorola spin-off
Created in 2004 from the divestiture of Motorola's semiconductor business, Freescale Semiconductor is a private concern headquartered in Austin (TX), with more than 18,000 employees in 20 countries.
Parsons had represented Motorola while practicing labor and employment law at Fulbright & Jaworski, L.L.P. When Motorola offered him a position as its labor lawyer in 1995, he also became the firm's in-house specialist with regard to ethics investigations. If an allegation arose in connection with a senior person in Motorola's phone division, say, Parsons would often conduct the investigation.
With the spin-off of the firm's Semiconductor Products Sector, Parsons faced a decision: stay with Motorola or go with the new company.
He went with Freescale and was handed responsibility for the company's ethics and compliance office, along with other areas, like labor and employment law and immigration. (The company has many H1-B employees, and has always had a big in-house immigration group.) He also oversees corporate social responsibility and investigation matters.
A process that 'works for us'
Parsons describes the company's investigations process as one that "works for us given our structure, our size, and my background [in investigations]." The function is centralized and "most investigations will go through me."
Other company units are often involved in investigations, however. If an employee relations issue has been raised, like a bad performance review, Parsons typically goes to the company's human resources (HR) team. (If the problem is with the HR office itself, the investigation will be moved somewhere else.)
If it's a loss prevention issue, a matter of "shrinkage," say, he'll usually assign the matter to security.
If the question is one of intellectual property, Parsons will draw on specialists within the company's law department. Parsons also has a lawyer working exclusively for him who does domestic employment law.
Parsons himself usually conducts investigations of senior managers, however, and "more delicate matters," as well as anything involving a government investigation. He'll decide whether or not to bring in outside counsel.
He did bring in outside counsel in connection with a recent SEC investigation into insider trading vis-a-vis Freescale's acquisition of a public company. In the end, it was determined that a "rogue" employee had traded on inside information; the corporation itself suffered no penalty.
Indeed, that investigation proved beneficial for his program, Parsons asserts, because it led them to look anew at what they were doing with training, confidentiality agreements, and some other compliance areas.)
When an inquiry came from the FBI on an export matter, by comparison, Parsons elected not to retain outside counsel. "We were not the target" of the investigation, he recounts.
First moves
When Parsons begins an investigation, he asks, "Where are the sources of information for me?" He acts to preserve those information sources immediately. This could mean seizing a computer hard drive, for instance.
E-mails are a rich source of information in corporate investigations, although malefactors are getting better at covering their tracks. Travel records in travel and entertainment (T/E) cases, too, can be invaluable.
Above all, "I look for a story that makes sense," says Parsons.
Seeking an interview with the individual who is the 'target' of an investigation is among the last steps Parsons takes. He'll plan out interviews with others leading up to the target, always asking: Will they alert the target if he [Parsons] contacts them?
"You never go into that interview [with the target] unprepared," says Parsons.
A case of 'free' travel
A recent case arose with regard to an employee soliciting inappropriate travel from a supplier. The person under question was a long-term employee, respected in the company. But Freescale Semiconductor had recently changed vendors. The old supplier, having lost the account, was upset and brought the allegation against the Freescale employee.
Parsons was initially somewhat skeptical. Why did the shunned supplier bring this up now? Was it just sour grapes?
He had to take the allegation seriously, though, and he began looking at travel records, among other things. He discovered a plane ticket written for two people in the employee's name. This is the sort of inconsistency that an investigator often fastens upon. A ticket for two suggests the employee may have brought along his wife or girlfriend.
Parsons also scanned e-mails. Within the archives Parsons found a discussion between the supplier and employee about entertainment—i.e., entertainment that the Freescale employee might expect to enjoy during the upcoming trip. Significantly, the destination was Amsterdam, a city where the supplier had no factories or offices, suggesting a pleasure journey rather than a business trip.
Even though Parsons now began to believe that the employee had indeed solicited travel from the supplier as the supplier alleged, he still wasn't ready to confront the employee. He approached the new vendor. Had anything similar been demanded in that firm's dealings with the Freescale employee under question?
The new vendor was cooperative. After all, he wanted to keep Freescale Semiconductor as a client.
Yes, the employee had solicited travel from this firm, too.
Parsons spoke with the CEO of the new supplier. The CEO hadn't been told about the solicitation from the Freescale employee, the CEO said. "This won't happen again," the supplier vowed. Parsons explained further, "We need your help."
He requested that the supplier examine its travel and entertainment records and e-mail archives. Did the Freescale Semiconductor employee offer to reimburse the vendor for the travel he was soliciting?
He did not.
It was time to confront the 'target' employee whose position now seemed increasingly tenuous. Parsons still couldn't assume his guilt, however. All sorts of explanations might be offered; anything can happen in an investigation, after all. He wondered, "What bomb are they going to drop?"
He met with the employee. It was a long interview. The employee emphatically denied the allegations. Yes, he had made the trip, but he had paid back the vendor.
Parsons moved the discussion on to the new vendor. He recounted what he had discovered. It was the same story, but this time it had occurred recently, over the past three weeks. Memories were still fresh.
This revelation caught the employee by surprise. "You can sometimes see on someone's face when they know it's over," recalls Parson. An admission of guilt soon followed.
When the interview concluded, Parsons told the individual, "You should go home, and we'll be in touch." The employee's computer didn't go with him.
As for discipline, it is the management team that usually delivers the word to the employee. In this instance, the individual was terminated. (He was not criminally prosecuted, however, since he didn't steal anything from the company, and vendor #1, who was complicit, was not interested in pursuing matters.)
Some Dos and Don'ts
Asked about 'dos and don'ts' when conducting an ethics investigation, Parsons emphasized the need to review privilege issues related to the reporting and documentation of investigation results.
Parsons notes that he is both a lawyer and the company's ethics officer. That can make for some confusion. Before each investigation, he has a conversation with the law department in which he makes clear that "my role is investigator, your role is attorney." This helps clarify things with regard to legal 'privilege.' As the investigator, Parsons may be called upon to testify in a court of law. His conversations are not protected.
He also explains this to employees. Because he has been with the company for a fairly long time, employees sometimes assume that he is there to help them through the investigatory process. That is not his role here. His role is to gather the facts.
He always makes sure that another person is in the room when he conducts interviews. That person serves as a potential witness and also takes notes while he, Parsons, concentrates on the subject. (The individual who usually accompanies him works in the company's security unit.)
Questions regarding appropriate discipline and/or corrective action need to be answered at the end of an investigation. Parson decides in each instance who within the company is the decision maker. It could be the target employee's direct manager. It could be the head of the employee's business group. It might be the director of human resources, or someone else.
Parsons will typically make recommendations with regard to discipline, but he is usually not the formal decision maker. (In point of fact, however, his recommendations are often accepted.)
Systemic problems are relatively rare
In the vast majority of cases (about 90 percent) the investigated misconduct is a function of "rogue employees," he notes. But in those instances where there is a systemic problem, Parsons will make suggestions regarding how systems and processes might be improved.
He makes sure to keep the company's board of directors up to date on investigations. Because of the relatively manageable size of the organization, Parsons is able to meet regularly with the legal committee of Freescale's board and provide that group with a short summary of every matter that he has investigated, flagging the most important ones (e.g., the SEC investigation). If he investigates 10 to 20 cases a year, most of them might be presented as four- to five-sentence summaries.
About 14 people report to Parsons. They include import/export experts and professionals working in the company's Environmentally Preferred Products (EPP) program, which tries to incorporate environmentally friendly materials and design features in the company's products. Only three of his direct reports are general compliance professionals. Parsons also oversees a labor employment attorney and a paralegal who focuses on training and communications, mostly. Like every department, Parsons' office has been hit by cost-cutting recently.
Ideally, he would like to have a staff of investigators, one for Latin America, say, and another for Asia. But given that the company's work force has shrunk in recent years, Parsons has had to cobble together an investigations capacity. He does note that if it's just not practical or appropriate for him to do an investigation himself, he has no qualms about hiring outside counsel.
The company doesn't have a formal training program for investigators, but some informal training takes place. Parsons might sit down with an HR officer before that manager conducts an investigation and talk the individual through the process, e.g., "Here's my view how it should work…" The HR professional might conduct only one or two investigations a year so this sort of guidance is useful.
Avoiding 'paralysis'
Overall, it's important to pay attention to details, particularly when preparing an investigation. But at the same time, you can't let yourself become "paralyzed" by the amount of data "so the investigation goes on for months and months," says Parsons. You have to sift through the details and keep things moving.
In the case described above, two-and-a-half weeks elapsed from the initial vendor report to the climactic interview with the target employee. "I thought we moved very quickly" in this case, comments Parsons. "We could have spent another month reviewing e-mails and travel expenses," but that is not the best way to proceed in most investigations.
"Don't let the perfect overcome the good," he advises.
It reminds Parsons of a scene from a recent film in which the protagonist is learning to surf and his instructor is shouting to him from the beach: "Do less, do less…"—until the person on the surf board is not moving at all. "No, you have to do more than that!"
Finally, "Don't get locked into your initial view of the facts and subconsciously steer your investigation to support that view," says Parsons. "Follow the evidence and don't ever be surprised by what people are capable of doing."
— Andrew Singer