From the January/February 2011 issue of Ethikos
Kraft Foods Fortifies Its Code of Conduct, Ethics Portal
Once an innovation, the corporate code of conduct is now standard fare at most large public companies. That doesn't mean the book is closed with regard to ethics codes, though. Much work still awaits in terms of content and presentation.
It's critical to make clear to employees your expectations with regard to ethics and compliance and to say all this in plain, simple language, observes Robert Herst, vice president & chief compliance officer, Kraft Foods, Inc. (Northfield, IL).
In early 2009, Kraft Foods rewrote its code of conduct. It was later translated into 32 languages and distributed to its employees situated in 70 countries.
Kraft, the world's second-largest food company, was spun off from the Altria Group in 2007. It has annual revenues of some $48 billion and its brands include Oreo, Nabisco, Trident gum, Maxwell House coffee, and Kraft cheeses. With its February 2010 acquisition of Cadbury, the U.K.-based confectionary company, Kraft has some 140,000 employees.
Around the time that it rewrote its employee code, Kraft Foods developed a separate code for its non-employee directors. This, in many ways, mirrors its primary code of conduct.
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Ten Rules
The primary code, a relatively brief 15 pages, has 10 simple rules. Some of these are peculiar to the food industry, such as Rule No. 1: "Make food that is safe to eat." Others are more wide ranging and apply to business in general, such as Rule No. 2, "Market responsibly" and Rule No. 4, "Respect the free market."
Still others apply beyond business-to relationships generally, like Rule No. 3, "Treat people fairly" and Rule No. 6, "Respect the environment."
Kraft employees are encouraged to apply these rules, "and where these don't apply, revert to our values," says Herst. "Inspire trust" is one core value (indeed, "the most essential one," according to the company). Trust needs to be embedded in everything the company does, he says1.
All salaried Kraft employees receive online training in the code of conduct, says Herst. About 32,000 to 35,000 workers have taken it already, and 15,000 more (including Cadbury's employees) are expected to complete the module-bringing the total close to 50,000.
Origins in the early 1990s
Kraft's compliance program (which embraces the ethics function, too) traces its origins to the early 1990s when Kraft was part of Philip Morris Companies (renamed Altria Group in 2003). Under the spur of the U.S. Sentencing Guidelines for Organizations, Philip Morris developed a program to mitigate risks in six critical areas common to all its operating divisions, including antitrust, environment, and worker safety. In the early 1990s, Philip Morris established a corporation-wide Integrity Helpline, one of the earliest non-defense companies to do so.
Philip Morris/Altria also set up separate compliance groups in each operating company. "Every unit did it differently," recounts Thomas Giller, senior director, Regional Compliance & Investigations. Kraft Foods, for instance, had a dual program-one for North America and another for its overseas businesses. In 2004 the two Kraft programs were consolidated. Compliance at Kraft reported through the General Counsel's office-which it still does. The basic ethics/compliance structure, in fact, was in place when Kraft Foods was spun off from Altria in 2007.
Regional compliance officers
The compliance office today has nine full-time people in its Northfield, Illinois, headquarters, as well as five regional compliance officers (RCOs), four based overseas. The full-time RCOs report to the company's regional vice presidents for law. Their activities are centered in two primary areas: 1) issue resolution and 2) "proactive" issues, like training, risk assessment, and communications.
Issues resolution involves fielding compliance questions such as: "What do I need to disclose?" and "Can I accept this gift from a business associate?" and "May I give this gift to a business associate?" as well as handling allegations of misconduct, which range from the mundane (e.g., "My boss is a jerk") to the more serious (e.g., "I think the SVP is taking money from someone").
RCOs don't usually conduct investigations themselves. Their job is to ensure that correct investigatory processes are followed--that investigations are assigned to the right functional area (e.g., audit, security) and that investigations are carried out in a timely manner. If allegations are substantiated, the RCOs often advise corrective or disciplinary action.
RCOs are also responsible for ethics and compliance training, and communications. What training needs to be conducted in a given year? Will it be e-learning or live training? Sometimes the RCOs conduct training themselves; sometimes it is done by others, such as human resources managers.
The extent to which live training is used depends on the employee audience, says Herst. In the FCPA (Foreign Corrupt Practices Act) sphere, for example, a salesperson or marketing officer who deals with foreign government officials in some capacity would surely be given live training. Salespeople who have no contact with foreign government officials would probably receive FCPA training online. A somewhat similar path would be followed with Kraft's finance professionals. Most Kraft employees, however, take no FCPA-specific training at all, since this is a relatively specialized area.
One obviously reaches much larger groups of people with e-learning (versus live training), notes Giller, "but it is not as interactive as getting people in a room and having a discussion." About 7,500 Kraft employees receive live compliance training, usually for those specialized areas cited above like antitrust, insider trading, food safety, responsible marketing, and anti-bribery issues.
Kraft generally uses "off-the-shelf" online training modules, i.e., modules produced and sold by outside vendors.
Roughly speaking, an RCO spends about half of his/her time on issues resolution (e.g., dealing with allegations of misconduct), and about half on 'pro-active' areas like training and communications and risk assessment, although the time spent on each varies depending on region.
As noted, the RCOs also play a role in the company's risk assessment process. They assess risks in their business unit, including (although not exclusive to) compliance and ethics risks. They also look at enterprise risk issues, such as business continuity.
Three of the four overseas-based RCOs are lawyers. The fourth has a human resources background. Past RCOs have had backgrounds in logistics, security, and audit. All report through the general counsel's office.
Kraft Foods' four overseas regions are Central and Eastern Europe, the Middle East and Africa; Western Europe; Latin America; and Asia-Pacific. North America is the fifth region.
Change in helplines
In the late 1990s, the Kraft helpline was managed by an in-house lawyer. He sent callers to the appropriate function, whether it be human resources, legal, or some other area. Tracking wasn't sophisticated-an Excel spreadsheet sufficed. There were no guidelines for conducting investigations and no training for investigations, recalls Giller.
In recent years, Kraft moved to an outside vendor, Ethics Point, which enables Kraft to take helpline reports via the phone (Helpline) or Internet/email (WebLine). They can "populate a report immediately," says Giller, an advance over the old system.
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WebLine reports comprise only about 10 percent of portal reports-the balance (90 percent) is by telephone-but the WebLine share "will increase significantly" in the future, says Giller. A Web report is less interactive than a call to a helpline specialist, admittedly, but the company wants to provide as many channels as possible.
In September 2010, EthicsPoint, in conjunction with the Ethics and Compliance Officer Association's (ECOA) Annual Conference, recognized Kraft Foods in its third annual Best Ethics and Compliance Portals contest. It was one of eight "portals" selected.
When it comes to reporting wrongdoing, employees are also encouraged to talk to their supervisor where appropriate. However, as the company explains on its Website, there are several alternatives:
There are many ways to report a concern or suspected misconduct, including discussing it with your Kraft Foods supervisor, your supervisor's supervisor, another member of management, a company lawyer, your Human Resources representative, or your Regional Compliance Officer. You also may contact the Integrity HelpLine - for example, where you are unsure where to go, are uncomfortable reporting the issue elsewhere, have raised your concern with the contacts above and have not been satisfied with the response, or wish to report the issue anonymously.
The company has since developed investigation guidelines and investigations training, too. It's critical that employees have "confidence in the fairness of the process" when it comes to reporting wrongdoing, says Giller, even if they don't agree with the eventual result or outcome.
Kraft received between 400 and 500 Integrity Helpline contacts in 2010, i.e., allegations of misconduct or wrongdoing.
Why use an outside helpline vendor? As noted, Kraft operates in 70 countries. "As a practical matter it's a necessity," says Giller. "It provides 24 hour service in any language. It provides a more secure venue."
Yes, some employees may be less comfortable because a Kraft employee is not answering the phone, but just as many, arguably, are more comfortable if an outside firm is handling reports because it is more likely to preserve their anonymity, at least in the employee's mind. And, in fact, EthicsPoint is contractually protected from having to compromise anonymity regarding an employee report. "We want to be sure that if employees have an issue, they feel it has been addressed fairly and competently," says Giller.
As the company notes, however, the integrity helpline is only one "speaking up" channel:
In 2008, our compliance and integrity group received approximately 1,500 contacts from around the world through our 'Speaking Up' channels. Many of these contacts were questions about our compliance policies and program or matters that we referred to other departments for handling. Last year, we received nearly 600 reports of misconduct that required investigation. Some of these matters resulted in disciplinary action, including the separation of 78 people from the company.
In 2009, Kraft launched a new Ethics in Action program to recognize employees who act with ethical courage and "lead with integrity." One award went to an accounts payable manager in Shanghai, China. "When faced with what he suspected to be fictitious invoices, improper payments and fake premiums, he stood up for what was right and protected our company," according to the company in its corporation responsibility report (Kraft Foods Responsibility Report: April 2010).
Cadbury Controversy
Kraft Foods' acquisition of Cadbury in early 2010 was not without controversy. "Kraft's proposed takeover of Cadbury has raised widespread fears that the US food group will abandon a landmark deal by the British confectioner to buy only Fairtrade cocoa beans for its Dairy Milk brand," noted the UK's Guardian (January 20, 2010). The Guardian continued:
Todd Stitzer, Cadbury's chief executive, appeared to bitterly criticize Kraft's business ethics at a fair trade retail conference last September when takeover hostilities were in their infancy. Without naming Kraft directly, he attacked the "unbridled" capitalism of large, heavily indebted firms, and urged shareholders to keep Cadbury independent. He said "principled capitalism [was] woven into the very fabric" of his company. Without it "you risk destroying what makes Cadbury a great company," he said2.
The New York Times reported:
[T]he prospect of a takeover of Cadbury, the 186-year-old British company, especially by an American multinational like Kraft, sent shudders throughout Britain and prompted a wave of public protests.
The Mail on Sunday, one of the biggest-selling British newspapers, ran a 'Keep Cadbury British' campaign3.
Asked about the apparent cultural clash, David Foster, who came to Kraft's compliance unit from Cadbury, told us:
"My sense is that the processes and the procedures are very close." Cadbury had a "huge history" of fair trade that goes back 100 years, but Kraft is not breaking with the tradition. Foster, who confesses to "purple blood in my veins" (i.e., he is Cadbury through and through) notes that when Kraft acquired Cadbury, a thorough investigation as to operations and compliance was conducted, and it was concluded that these processes were largely the same.
It is more of a "perception issue" Herst agrees. When all is said and done, the programs aren't that different.
A code of conduct for the Board
As mentioned, Kraft Foods introduced in 2009 a code of conduct for its non-employee directors administered by the Board's Nominating and Governance Committee, with principles similar to those in the code of conduct for Kraft Foods employees. It, too, set forth 10 important rules like the employee code-some similar, some "tailored" for stewards of the organization. 4
Among the similar rules:
Rule No. 10 for employees is: "Give Kraft Foods Your Complete Business Loyalty." Rule No. 1 for directors: "Give Kraft Foods Our Complete Business Loyalty."
Rule No. 9 of the employee code: "Never trade on inside information." Rule No. 2 of the directors' code: "Never trade on inside information."
Rule No. 8 of the employee code is: "Keep honest books and records." Rule No. 5 of the directors' code: "We provide accurate information to Kraft Foods."
Others rules, however, are applicable to directors alone:
Rule No. 9 of the directors' code: "Address Reports of Concern About Director Behavior."
Each Kraft director must acknowledge in writing the receipt, review, and understanding of the code. The eight-page document is signed and dated by each.
Overall, "The key [to building a good ethics and compliance program] is to have people feel comfortable bringing issues forward," observes Giller.
Which is where Rule No. 10 of the Code of Business Conduct and Ethics for Directors might prove helpful: "We Encourage Others to Report Concerns and We Do not Retaliate."
— Andrew Singer
1The other company values are: "We act like owners," "We keep it simple," "We are open and inclusive," "We tell it like it is," "We lead from the head and the heart," "We discuss. We decide. We deliver."
2 Carrell, Severin, "Cadbury takeover raises doubts over Kraft's business ethics," guardian.co.uk, January 20, 2010.
3 De la Merced, Michael J., "Kraft to Acquire Cadbury in Deal Worth $19 Billion," New York Times, January 19, 2010.
4 See http://www.kraftfoodscompany.com/assets/pdf/Code_of_Business_Conduct_and_Ethics_for_Directors.pdf.