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Business Ethics News from Ethikos
America's 100 Most Trustworthy Companies
Forbes has published its annual list of the 100 most trustworthy companies in America. Don’t expect a lot of household names.
NetSuite, a California-based software firm, for instance, took top honors in the ‘large-cap’ company group, achieving a near-perfect score.
The Top 10 in the ‘large cap’ (biggest companies) group — compiled for Forbes by GMI Ratings — in fact, is dominated by relatively obscure real estate and insurance firms:
“In order to rank companies from the most to the least trustworthy, we look at over 60 different governance and forensic accounting measures,” GMI Chairman James A. Kaplan, tells Forbes. “Those companies that persistently display the most accounting transparency; have the lowest incidence of high-risk events; and have appropriate Board supervision are typically ranked the highest. Companies on this list reflect these practices.”
GMI penalizes companies “for unusual or excessive executive compensation” as well as high levels of management turnover, for example. The most trustworthy companies do not, moreover, “play games with revenue and expense recognition, or with asset valuation.”
To qualify for the roster, the 100 companies must all have market caps of $250 million or more at the time GMI prepared the list in early March 2013. The firm examined more than 8,000 companies traded on U.S. exchanges.
“I am surprised how many real estate-related companies made this list, especially in light of everything that the sector has experienced over the last decade,” commented Morgan Brennan, Forbes Staff, upon reading the story. “Was there a larger factor that contributed to these kinds of companies doing so well?”
According to GMI’s Kaplan, there are good reasons why companies should strive to be seen as trustworthy. “The cost of capital for the most trustworthy companies is lower because their level of transparency is recognized in the marketplace.”
“Also, we have found evidence that, on balance, the most trustworthy companies outperform their peers over the long term,” says Kaplan. “Of course the greatest benefit to a well-managed company is that their risk of negative events is minimized.”
To see the full list, click here
(Posted March 19, 2013)
At Boeing, Ethics Advisor is an elevated position
Since the early 1980s, Boeing Company has been a leader in the corporate ethics movement, and it continues to impress with programs like its ethics advisor program.
Boeing has approximately 60 ‘Ethics Advisors’ — experts in the field who provide ethics and compliance support for the aerospace giant’s approximately 170,000 employees worldwide — and it’s a full-time job.
“At Boeing our advisors are 100% devoted. They don't have a day job,” says Ellen Martin, Vice President, Ethics and Business Conduct, speaking at Ethisphere’s 2013 Global Ethics Summit last week. At most companies the position is part-time; the advisor typically has a full-time job in human resources, or legal, or one of the operating businesses.
Such a position might seem difficult to fill, but according to Martin the ethics advisor is a desirable position — many of Boeing’s VPs have served as ethics advisors.
“We consider them (the ethics training programs) development programs for our new leadership,” says Martin. That is, potential executives are brought in on two year rotations — to round out a few extra skills.
They work with the office of internal governance, and possess excellent communication skills, but with a giant organization like Boeing, which is based in over 150 countries, just 60 people can be spread thin. “We do shuffle resources a bit” to ensure that advisors can be on hand in all regions.
Ethics advisors undergo a lengthy training program, says Martin, at the Summit panel, ‘Employee engagement in ethics programs,’ which focused on how ethics officers can engage a global workforce. Boeing’s advisors are put through a twelve week ethics training program overseen by officers approved by the management team.
Panelists stressed that when it came to encouraging employee-wide engagement with your organization’s ethics program, it was important to have people on site, and to keep them in the loop.
“If you don't have a local face on ethics then often you don’t know what's going on,” notes Ethisphere’s Jay Mumford, former Ethics and Compliance Program Director, for Accenture.
Nancy Higgins, Chief Ethics & Compliance Officer for Bechtel, agrees. “When I started the helpline was seen more like 1-800-Snitch-Line--” That is, employees would call, provide information, hang up, and never learn what became of their report. “What employees need to know is that their reports are substantiated.”
Otherwise, Higgins warns, employees experience what is called “drive by ethics moments.” That is: an employee approaches their manager in the hall to ask an ethics issue, but the manager, inattentive or distracted, goes ‘Oh, it’s fine.’ “Often with no clue as to the importance of the issue at hand,” says Higgins. A valuable moment of communication is therefore lost.
Higgins encourages managers to ‘just shut up’ when employees come to them with a report.
It is a similar situation at Boeing. Boeing’s Helpline is managed internally, and managers who take these calls are often reviewed. One of the notes that is often left on their reports is ‘WAS’ “Which is short for ‘Why Are You Speaking?’”
Boeing also puts together ‘Ethics Reports’ which are sent out regularly to employees. These reports contain accounts of actual ethical issues faced by Boeing employees — and it’s often the case that if Boeing had an incident which involved a manager, that instance will be the lead story of the report. “So employees know that managers are not special. And they get a sense of social justice,” says Martin.
Higgins agrees this is important. “Employees often feel that ‘managers get cancelled, employees get fired.’” But in her experience, managers are disciplined in the same way as employees — employees just need to know this.
In addition, it’s not just the bad. Mumford recalls Accenture would often have ‘true crime’ ethics stories in which one item would detail an ‘Ethics Zero’ (Someone who did something wrong) — but another would illustrate an ‘Ethics Hero’ — someone who did the right thing.
“It’s important to share the good things as well,” says Higgins. “We had a site in Chile, where an employee in transfer & logistics saw something that didn’t have a receipt attached.”
The employee called the local vendor. The vendor, unwilling to corroborate the receipt, shrugged it off as likely being the local term for a bribe. “The employee immediately reported it — it resulted in a HUGE investigation.” It was eventually discovered that the person who she had called had just been lazy. The responder hadn’t wanted to go looking for the receipt. Still, Bechtel went out of its way to thank this employee and reward her for her willingness to follow up on her concern. “We invited her to headquarters. We gave her an award. It was a big deal.”
Martin recalls another positive story. A Boeing employee who had been seeking a contract from a potential customer was present at an industry presentation. One of the presentations began to display proprietary information. With the customer present, the Boeing employee got up and left the room. The customer asked them why they had left, and the employee explained that they were not allowed to see such information by company policy. The customer ultimately was impressed by this particular behavior.
Important then, to note that the positive ethics story can be just as useful as the negative: “They’re harder to find, but they’re really worth it,” says Martin.
— Alexandra Theodore
A longer version of this article will run in an upcoming print edition of Ethikos
(Posted March 12, 2013)
Expect More from SEC, Goelzer tells Ethics Summit
March 5, 2013—Individuals need to be properly informed before they can make good investment decisions. Historically, it has been the Securities & Exchange Commission’s (SEC) role to ensure investors receive ‘significant information’ when securities are offered for sale and to prohibit ‘deceit, misrepresentations, and other fraud in the sale of securities.’
But today Congress expects more of the SEC.
It has been pushing the agency to weigh in on non-traditional matters like ‘conflict minerals,’ foreign corruption, and companies that are doing business with Iran—that is, “influencing corporations on issues of social or national concerns,” observes former SEC general counsel Daniel Goelzer, speaking at today’s 2013 Global Ethics Summit in New York.
The “capstone” of what Goelzer sees as a renaissance of SEC enforcement has been the naming of former prosecutor Mary Jo White to be the Chairman of the SEC. “It's the first time I've recalled that anyone with a real prosecutorial background has been appointed as a head of the SEC. If nothing else it is a symbol of a commitment to enforcement—and I suspect it will be more than just a symbol,” he told the Summit, hosted by Ethisphere and Thomson Reuters.
The SEC has been through a very difficult five or six years, particularly since the Madoff scandal broke, notes Goelzer. The agency prided itself in being the best of regulators; the best known, the most sophisticated—all of that reputation was swept away by the Madoff revelations.
“I think that in the last four years, five years, Mary Schapiro and Rob Khuzami have really taken some major steps to redeem the agency’s reputation. The enforcement arm has been reorganized.” The organization has been flattened, “making it less bureaucratic; obviously complaint processing has become a much more focused and organized function than it was before Madoff.”
There is more cooperation now between the SEC and the Department of Justice, particularly with regard to Foreign Corrupt Practices Act (FCPA) enforcement. There's been at least one FCPA case (Morgan Stanley) where the firm’s compliance program led to the decision not to take action against the company, he notes.
(When Garth Peterson, a managing director for Morgan Stanley’s real estate business in China, pleaded guilty for his role in evading internal controls required by the FCPA, DoJ declined to bring enforcement action against the company, noting that “Morgan Stanley [had] constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials.” (The SEC announced civil charges and a settlement with the errant managing director.)
“I think you're likely to see more of that,” said Goezler, who was also a founding board member of the Public Company Accounting Oversight Board (PCAOB). He returned to law firm Baker & McKenzie as a partner in January.
Goelzer delivered the opening remarks at the two-day Ethics Summit, where audit issues loomed large. Indeed, half of the attendees at the conference (made up of compliance experts) report directly to their audit committee.
“There's an opportunity to use the auditor-audit committee dialogue about risk,” said Goelzer, while admitting the auditors were still playing catch-up in the wake of the Great Recession.
“I think that in ways that aren't always obvious, there's something of a crisis of relevance for auditors”—at least as far as how auditors were unable to catch the financial crisis. “Audit involvement in things like sustainability, corporate governance, corporate ethics—I think that's all coming eventually. The audit function will expand to include non-financial information,” he told the gathering.
(Posted March 5, 2013)
U.S. business demands ‘affirmative defense’ option re FCPA
In the wake of the Department of Justice’s (DoJ) and the SEC’s jointly released guidance on the Foreign Corrupt Practices Act (FCPA), the U.S. Chamber of Commerce has demanded more clarity, arguing that while the guidance has done well to clarify some points of concern, numerous areas remain where the business community has been “left guessing.”
Further provisions are needed with regard to organizations with already existing compliance programs or that have voluntarily disclosed potential FCPA concerns to the government, argues the Chamber in an open letter addressed to Assistant Attorney General Lanny Breuer and SEC Acting Director of Enforcement George S. Canellos. While the letter acknowledges that the guidance has effectively described specifications of an effective compliance program, it offers “little assurance” in instances where an employee acting alone might circumvent already existing controls.
“Such assurance should be provided through legislative reform of the FCPA to add an affirmative defense that would permit a company, if charged with an anti-bribery violation, to rebut the imposition of criminal liability if the individuals responsible for the violation circumvented compliance measures that were otherwise reasonably designed to identify and prevent such violations and implemented with appropriate vigor,” argues the letter.
The Chamber also acknowledged that while the new guidance does provide some information regarding the DoJ’s stance on FCPA violations that might be “inherited” from recent acquisitions, where it notes that: “DOJ and SEC have only taken action against successor companies in limited circumstances, generally in cases involving egregious and sustained violations or where the successor company directly participated in the violations or failed to stop the misconduct from continuing after the acquisition.” The Chamber argues that this clarification comes from the DoJ’s actions regarding organizations that, prior to the acquisition, conducted an investigation “on a scale equivalent to a massive internal investigation” — something the Chamber argues may be unrealistic for most organizations.
The Chamber has also demanded more information to be released regarding “declinations” — instances in which the DoJ had opted not to pursue charges against an organization — arguing that there is no way to determine whether a case was declined on the grounds that the company was found to have sufficient controls, and voluntarily disclosed the violation, or whether regulators were unable to find enough evidence to pursue the case. The Chamber argues that making a clear delineation between these two instances would be a step towards providing clearer examples that “remedial measures can result in a declination for a company even when certain employees or agents of that company have committed a meaningful violation of the FCPA.”
For a full PDF copy of the letter, hosted by the U.S. Chamber Institution for Legal Reforms, click here
(Posted February 26, 2013)
Pharma Self-Regulation a ‘Ruse’ — Journal of Health Politics
Marketing drugs directly to consumers is prohibited in most countries, but it is allowed in the United States—in large part because pharma companies have agreed to abide by certain principles when marketing their drugs—on television, say.
The industry’s efforts to self-regulate with regard to marketing, however, amounts to little more than “an industry-sponsored ruse,” according to a recent study released by the Journal of Health Politics, Policy and Law.
The study’s authors deplore pharma companies’ blanketing of the television airwaves with erectile dysfunction (ED) advertisements, for instance, at a time when children may be watching.
“We were surprised by the findings,” said Denis Arnold, one of the co-authors and a professor of business ethics at UNC Charlotte. “We did not expect this level of non-compliance. It is troubling to discover that executives at these companies are engaged in this level of duplicity.”
Although pharmaceutical companies often have certified compliance with the “PhRMA Guiding Principles,” developed by the Pharmaceutical Research and Manufacturers of America (PhRMA) trade organization and first introduced in 2005, few companies keep to these principles, according to Arnold, Associate Professor of Management and Surtman Distinguished Scholar in Business Ethics in the Belk College of Business at UNC Charlotte, and his co-author, Jim Oakley, Associate Professor of Marketing at Montana State University.
While these guidelines dictate that the company must commit to internal processes in order to ensure compliance with the principles, complete an annual certification of compliance, and submit a document to PhRMA signed by the CEO and chief compliance officer, the study found that rather than make a serious effort to facilitate the education of consumers, companies often ignore these principles.
“Violations of the ‘Pharmaceutical Research and Manufacturers of America’s Guiding Principles for Direct to Consumer Advertising for Prescription Medicines’ by Pfizer, Eli Lilly, Bayer Healthcare, GlaxoSmithKline,and Schering Plough/Merck were routine during the four-year period of our study,” according to the paper, which focused in particular on the industry’s marketing of anti-impotence drugs such as Cialis, Viagra, and Levitra.
Indeed, “Noncompliance resulted in children being exposed to sexually themed promotional messages more than 100 billion times,” note the authors. The pharma companies’ erectile dysfunction (ED) advertisements, moreover, “give children and teens inappropriate messages about sex and sexuality at a time when they are not being taught well in school sex education programs,” according to the American Academy of Pediatrics.
The authors found that of the nine principles assessed for compliance, there was a consistent pattern of noncompliance among the direct-to-consumer advertising for all three ED brands under the study. Furthermore, researchers discovered that PhRMA does not make public the violations of its guiding principles, “nor does it sanction members for violation of the principles, nor did it respond to comments that were filed.” In fact, the fax number indicated that the report line was found to be disconnected. Similarly, while the guidelines dictated that consumers be made aware of alternative treatments in light of potential side-effects the brands in questions may incur, none of the advertising campaigns examined were found to list any such alternatives.
More worryingly, the study suggests that most self-regulatory efforts are in place to head off potential federal regulation, noting one particular instance in which Congress introduced a potential act that would have “restricted the hours during which erectile dysfunction advertising may be broadcast to between 10:00 p.m. and 6:00 a.m. (Moran 2005).” The Act was allowed to “die in subcommittee after Representative Moran received a commitment from pharmaceutical company executives to self-regulate these advertisements.”
The PhARMA guidelines dictate that direct-to-consumer advertising (DTCA) have regulations in place to prevent minors under the age of 18 from being exposed to advertisements with adult content.
In 1997 the US Food and Drug Administration (FDA) relaxed its policy on pharmaceutical marketing efforts, effectively permitting direct-to-consumer prescription pharmaceutical advertising via television commercials, note the authors. “Presently, direct-to-consumer advertising (DTCA) of prescription pharmaceuticals is permitted only in the United States and New Zealand.”
The authors analyzed the entire audio transcripts of twenty-four television advertisements aired during a four-year period. The ED drugs examined were Viagra, Cialis, and Levitra. In terms of violating Principle 13, which deals with age appropriateness of the viewing audience, they found that at “no point have the three brands in this category successfully complied with this guideline at a rate better than 50 percent for the total category.” Cialis (manufactured in the U.S. by Eli Lilly), was found to be consistently the most compliant of the three brands, however.
“Our conclusions provide evidence to support the idea that self-regulation can be utilized as a way to prevent new governmental regulations while allowing companies to engage in practices consonant with their independent strategic aims through a collective blocking strategy.”
The study notes that until now little attention has been paid to health care industry self-regulation, and based on the authors’ recommendations, they probably won’t mind seeing less self regulation. They suggest that Congress might empower existing agencies to penalize firms for making false claims about their advertising, and they also call for “more rigorous enforcement of statutory requirements” on the part of regulatory agencies.
— Alexandra Theodore
For the full study, 'The Politics and Strategy of Industry Self-Regulation: The Pharmaceutical Industry’s Principles for Ethical Direct-to-Consumer Advertising as a Deceptive Blocking Strategy,' click here.
(Posted February 19, 2013)
Ethics simply ‘business as usual’— UK research report
While a majority of managers in the United Kingdom rated their organization’s treatment of stakeholders as ‘very ethical,’ over half of those surveyed in a recent study skipped questions related to what a ‘moral or responsible’ business approach meant to them, according to a study released by research institute Roffey Park.
A third of respondents indicated that their organizations considered ethics ‘business as usual,’ and a small percentage relegated ethics to the category of ‘compliance with regulations’ -- “suggesting, perhaps, that this is not something that was at the forefront of their mind,” according to the report, which surveyed 1,460 managers in the UK.
(Posted February 12, 2013)
Ethics simply ‘business as usual’— UK research report
While a majority of managers in the United Kingdom rated their organization’s treatment of stakeholders as ‘very ethical,’ over half of those surveyed in a recent study skipped questions related to what a ‘moral or responsible’ business approach meant to them, according to a study released by research institute Roffey Park.
A third of respondents indicated that their organizations considered ethics ‘business as usual,’ and a small percentage relegated ethics to the category of ‘compliance with regulations’ -- “suggesting, perhaps, that this is not something that was at the forefront of their mind,” according to the report, which surveyed 1,460 managers in the UK.
The study found a “worrying” lack of faith in leadership among UK managers. A fifth of all respondents rated their organizations leadership as ‘poor.’ Almost half of respondents (45 percent) said they received “low levels of support” from their organizations for their managerial efforts, yet they faced an increased use of “stretch assignments” and enhanced responsibilities.
In regard to ‘changing organizational culture,’ just 36 percent of managers who rated the effectiveness of their culture change initiatives reported that their efforts had been “very or fairly” successful. Thirty-eight percent found that it was only ‘somewhat’ successful or ‘not at all’ successful. Managers in the public sector were found to be the least likely to rate their initiatives as successful. In organizations where managers reported higher leadership these initiatives were considerably more successful— 59 percent were reported to be ‘very or fairly successful.’ In sum, “Where culture was rated as a positive influence on organizational performance, efforts to change the culture were regarded as far more successful.”
The issue of cost versus efficiency is a tension most UK managers are feeling, found the survey, but they also report a greater emphasis on Corporate Social Responsibility and community activity across ‘all sectors.’ “A manager in the construction industry, for example, reported that contracts increasingly include a requirement to ‘add value’ through local employment and training (particularly hiring apprentices and people from disadvantaged groups), community engagement activities, work experience for students, or enhancing the school curriculum.”
In addition, managers reported increasingly higher expectations related to transparency and accountability in relation to regulatory demands— although some managers find drawbacks to a reported shift in their organization’s attitude towards risk. “There appears to be a shallow side, with some saying that, as an organization’s appetite for risk reduces, so does its ability to move fast and innovate.”
Employees were noted to be the stakeholder group most likely to be treated unethically, in the institute’s annual Management Agenda report. “This may reflect the impact of austerity, redundancies and pay freezes, or perhaps asking managers to do more with less,” suggests the study, which went on to note that organizations in the public sector were more likely to rate themselves as less ethical towards their employees. Thirty percent of respondents in the public sector rated themselves as ‘very ethical’ in their treatment of employees, versus the 49 percent in production and management, and the 51 percent in private services and not-for-profits.
For more about the Roffey Park report, 'The Management Agenda 2013,' click here.
(Posted February 12, 2013)
Don’t underestimate the value of due diligence after a merger
Compliance and ethics (C&E) is something that is relatively new to the conversation when it comes to mergers and acquisitions, according to experts in a recent Corpedia webinar -- and it’s a conversation that can’t end upon the completion of the deal.
“We’ve talked a lot about the ways in which compliance and ethics should be involved. There’s also a very important role for the C&E department to play after the acquisition or merger takes place,” says Corpedia’s Erica Byrne. “That’s the point where the program has to pick up and integrate employees into the new company.”
In the past year, companies have seen a large amount of overseas activity when it has come to mergers and acquisitions. This growth has involved European companies, Chinese companies, and many smaller companies--many of which are not familiar with the tighter regulatory scrutiny that comes with being a publically traded concern. Similarly, Byrne notes, many of this year’s DPAs (deferred prosecution agreements) or regulatory actions have been focused on companies that inherited problems from acquired businesses.
A lot of these missteps were because the firm’s compliance and ethics department didn’t want to get in the way of the sales program. “And they didn’t want to get in the way so much that they didn’t exercise proper controls,” says Byrne. The result was that companies ran afoul of the Foreign Corrupt Practices Act (FCPA) and paid heavy fines. With that in mind, it behooves a company not to underestimate the value of due diligence both during and after the merger.
“It’s amazing how often things can go wrong for these companies,” remarks Mark Ohringer, partner with Jones Lang LaSalle, a firm that has handled many mergers and acquisitions over the years.
“Integrating the acquisition is really when the tough stuff begins. It’s a mistake to assume that due diligence has done all the work,” says Ohringer. “That’s only a third of the work that has been done -- as hard as that can be to accept.”
It’s vital to have someone in place who recognizes that high emotions can be involved when employees undergo such a process. It’s easy to roll one’s eyes at that idea, admittedly, but “a lot of the softer stuff is where these things go wrong,” remarks Ohringer. It’s important for the organization to have plenty of people involved who are psychologically attuned and understand it’s not ‘just business’ for the people at the company.
“Someone once told me: It’s as if your wife came home one day and said ‘Honey, I’m bringing home a new husband and you’re going to like him,’” recalls Ohringer. “That’s the feeling of the acquired company.” Jones LaSalle typically appoints a transition leader for the acquisition, “someone with good emotional intelligence.”
The idea is to treat both sides of the acquisition as an equal. For example, calling one side Team A and the other Team 1. “In India they had Team Ein and Team Stein’ --even they think about small things like that. Transition leaders need to be tasked with thinking about this where successful integration is the goal.”
Overcommunicate everything. “Whatever you don’t say, people fill a vacuum and it’s never good when they do that.” Even if you think it may seem obvious, it's still important to spell it out. “Tell people how glad they are they’re part of the company.”
Similarly, in a situation where a larger company has acquired a smaller company, it’s easy to lapse into a oneway communication.
“You sort of revert to thinking that the big company did everything right, and these other guys are just going along with it,” says Ohringer. Companies need to remember that the smaller company was successful, that’s why you bought them. “Don’t be arrogant about it. Listen to them. Solicit their input. Don’t just tell them what to do.”
To learn more about the webinar “Governance and Compliance: Onboarding Employees After Mergers & Acquisitions,” click here.
(Posted February 5, 2013)
How Parker Drilling Built an Effective Compliance Program in the Wake of an Investigation
Parker Drilling, the Houston-based oil and drilling company, had a compliance function for many years, but things changed in 2008, when the company fell under investigation by the U.S. Securities and Exchange Commission and the Department of Justice in response to allegations of Foreign Corrupt Practices (FCPA) violations in several regions, including Kazakhstan and Nigeria
Dan Chapman, Chief Compliance Officer & Counsel, was brought in in 2009 to handle the investigation. Since that time Parker Drilling has significantly revised its program--not just in connection with anti-bribery concerns but also in international trade compliance, a high risk area for the energy industry.
“When it began, it [the compliance program] was largely a ‘one man show,’” Chapman, former counsel for Baker Hughes, tells Ethikos. Chapman was tasked with building a new integrated program, with new policies, new code of conduct, new training programs, new reporting systems — in short, everything. He built it mostly from scratch.
Parker Drilling recently emerged from an investigation by the Office of Foreign Assets Control (OFAC) regarding international trade compliance — following a voluntary-disclosure. OFAC ultimately chose not to take action upon review of the case. “I like to think because they saw we had a strong program in place,” says Chapman.
Prior to the FCPA investigation, Parker Drilling had no separate compliance department — instead the function fell under the finance and legal departments. After the FCPA investigation, Parker gave the function its own department, and its own independence — in addition to reporting to the the “Audit Committee” of the Board of the Directors, the chief compliance officer reports to the CEO — a structure that has been much encouraged by government enforcement agencies of late.
This independence has its benefits, says Chapman. “It raises the program to another level. It creates greater independence for making compliance based decisions.”
The program has since expanded, both in staff and in reach. This past year Parker has provided compliance training to its entire employee base –no small task for an energy company operating out of many remote regions. Employees are trained both online and in a live training format.
The program focuses around a mandatory course, which includes options in English and in the local language. It includes material for new employees, as well as a refresher course for employees who have already received the training.
The greatest challenge has been bringing compliance training to remote regions that often don’t have access to technology or even the basic literacy to take written tests — in which case Parker has been willing to adapt, sometimes sending officers out with computers to these areas.
“We conducted one course in Papua-New Guinea where our officer hooked up the computer to a generator next to a barbecue pit,” recalls Chapman.
The emphasis is on pushing out this training to all employees, using whatever means possible, audio, video, digital, and interactive. A combination of live-training and electronic is ideal, in Chapman’s view. Utilizing a button to answer a question is useful up to a point, but so are discussions conducted during live training. It’s also important to include real examples —scenarios of compliance concerns that have actually happened at the company or at least scenarios that could happen.
“I think that when working with groups, the best questions are not the ones with a ‘yes’ or ‘no’ answer,” says Chapman. “The best training you can get is if you use some sort of grey area” — where there is no clear, unambiguous answer.
— Alexandra Theodore
The above is an excerpt. An extended version of this article will run in the upcoming March/April edition of Ethikos
(Posted January 29, 2013)
Avis Drives Greater Distances with New European Business Ethics Initiative
When it comes to developing an effective business ethics and compliance program, Avis Budget Group (Parsippany, NJ) finds that it is a message that needs to be delivered on all levels.
“Thomas Gartland, president of our North American branch, has travelled across the country. He visits 92 locations, and every place he goes he talks about our company values,” Robert Muhs, Avis Budget Rental Group’s Vice President of Government Affairs, Corporate Compliance & Business Ethics, tells Ethikos. “It’s a big thing to have your CEO get off a bus and talk with 400 employees about family and doing the right thing.”
Delivering the message is more critical today given the company’s recent expansion into Europe. “We only recently acquired our European business a year ago,” says Muhs, a 19-year-veteran of the 29,000-employee vehicle rental company.
“We’ve drilled out a new anti-corruption program that all our employees are now being trained on,” including senior management. In the past, Avis relied on webinars, e-newsletters, and frequent discussions with employees in all branches across the world to address issues of ethics and compliance. While Muhs foresees doing that in the future too, Avis’ most recent effort is an online video, 29 minutes long, which focuses on global ethics and compliance concerns. “We’ve driven it out in Australia, Canada, and some countries in Europe, already.”
It will continue to be rolled out as they get the translations. The video is to be watched by all employees from station manager up -- employees that could find themselves in the position where FCPA or UK bribery concerns might come up.
“One of the benefits of the video is its trackability,” says Muhs. Avis is able to tell when employees have clicked the video, how many have viewed it. It’s also good in that it gives employees flexibility for when they choose to engage the material -- as opposed to having to clear their schedules to have a half hour discussion with Muhs, although he does note that that has its place as well.
The video uses actual issues that might be encountered by Avis employees. “One of the better examples shows an employee waiting for certain automotive parts. They’re told it's stuck in port, but if they make a quick payment it can be rushed along -- this is something that could theoretically happen.”
Employees are asked to answer questions based on these scenarios. “It’s a quiz that goes along with the video.” For example, if an employee says they would make the payment, they get a little red ‘x.’
Avis tries to incorporate compliance in all aspects of its communication with employees -- regular e-newsletters that will discuss present compliance issues, such as a recently completed risk assessment of Avis’ new European branches.
Another issue addressed in Avis’ training programs is just what constitutes a government employee. Many employees don’t consider, for example, that members of an international relief organization could fall under that definition.
With the advent of the UK Bribery Act, understanding the differences is more important than ever.
Muhs places great trust in Avis and their new European partners. “I was over in Europe in the last year and one of the questions was ‘Are we donating to the Olympics.’” Participation in the 2012 London Olympics has been a big issue for companies overseas — donations in return for tickets and other benefits has brought up ongoing debate whether or not such participation could fall under the auspice of the UK Bribery Act. As for Avis’ response?
“The answer was very much ‘no! We’re not [donating]!’” Avis’ European team had never even considered it -- although if they had, processes were in place to review such an intention -- employees would have to go through the legal team before such an action could be even considered.
“We have a good legal team in Europe,” says Muhs. “The president, Larry De Shon, has worked with us five or six years and he knows just what to do.” De Shon is president of the Europe, Middle East & Africa (EMEA) division of Avis.
“Gail Jones, head of our legal group over there, certainly knows how to broach the issue with understanding. She’s the voice of compliance in our European branch.” Muhs and Jones work in close correspondence.
“One of the biggest challenges is the cultural differences,” says Muhs, who admits as an American he has struggled with the European concept of works councils -- works councils are the way in which European countries guide and regulate employment programs. These guidelines are very different from U.S guidelines. While a U.S code of conduct can be laid out and enforced -- i.e. an employee can be terminated for violating the tenets of this code, that's not the same process employed by a works council.
“So we’ve had to really tailor the code of conduct to be adaptive,” says Muhs, including clear definitions of the role of business ethics.
Muhs sees business ethics as something that has and will continue to be an integral part of overall business practices. “We don't want to be seen as the police. We try to be facilitators. We want to be a part of the business program of any initiative.” It’s about being able to approach potential partners, say, Lockheed Martin, and say that they [Avis] go ‘above and beyond.’
“If you see the old ads, you see customers going ‘I can fix it, I’m an owner,’”says Muhs, referring to Avis’ shareholder initiative programs — programs intended to place an emphasis on consumer trust, important for an organization which deals frequently with customer data.
“All of our people take great pride in that,” says Muhs. Avis has a “robust” code of conduct that everyone in the company reads and is trained on, as well as a vendor Code of Conduct that is freely available on their website — these vendors are expected to meet Avis’ standards.
Doing the right thing has been Avis’ make-up for a long time, notes Muhs, who finds that when it comes to creating an effective program, he has had an advantage:
“I’ve been blessed in two facets: the first is a board and senior management that gets compliance,” says Muhs. The second is a corporate culture that has understood from the beginning the value of ‘doing the right thing.’ Avis has specialized in vehicle rentals since the eighties, and it has always had a customer-oriented approach.
— Alexandra Theodore
The above is an excerpt. An extended version of this article will run in the upcoming January/February edition of Ethikos
(Posted January 22, 2013)
Recognizing ‘red flags’ at CH2M HILL
CH2M HILL (Englewood, CO), the design, construction, and engineering firm, does business “in some of the most difficult places on the planet (as rated by Transparency International),” according to the $6.4 billion (annual revenue) company, which is why its anti-corruption training program is viewed as so critical.
In workshop training sessions, the firm’s employees are taught how to recognize certain “red flags” that could be evidence of possible corrupt business activities.
These include such telltale phrases, Neil Holt, Director, Ethics & Business Conduct, International Operations, tells Ethikos, as:
What they all suggest is a lack of openness or transparency in the way business is being conducted, which can be costly—both financially and in reputational terms—for a company that operates in 50 countries across five continents.
The above are “personal red flags,” continues Holt, but there are also company red flags that can put the organization at risk of Foreign Corrupt Practices Act (FCPA) or UK Bribery Act violations. If the firm is bidding for work in a foreign country, and a potential client recommends that it hire a local business partner to “help the strength of your bid” – that would amount to “a very big red flag,” in Holt’s view. At the least, the company would have to explore in depth the relationship between potential client and recommended local business partner.
They could still do the deal. The client might have only been saying, in effect, “This is the best local consultant.” On the other hand, the subtext could have been: hire my brother if you want the contract. The level of required due diligence rises substantially in such instances.
Another red flag is if the prospect talks extensively about local “customs,” as in “we do things another way here.”
A ‘big’ red flag would be a supplier wanting to be paid through a secret bank account. CH2M HILL doesn’t see this too often, Holt concedes—maybe because the company’s reputation for not paying bribes precedes it.
[CH2M HILL appears to be doing something right. In March, it was recognized for the fourth consecutive year by the Ethisphere Institute as one of the ‘World’s Most Ethical Companies.’]
CH2M HILL’s overseas reps typically begin a conversation with a potential client by explaining “the way we do business.” This tends to scare away some potential malefactors and has proved “hugely beneficial” in terms of avoiding anti-corruption and bribery missteps, suggests Holt.
‘The crime that had no name’
With regard to anti-corruption and bribery generally, the climate has changed substantially in parts of the world. In the United Kingdom (where Holt is based), one did not speak publicly about bribery and corruption seven years ago. It was the “crime that had no name,” according to Holt, who worked at Halcrow, which was acquired by CH2M HILL in 2011. If you talked about the issue, it was assumed that you were embroiled in some form of corruption and bribery.
When the UK Anti-Corruption Forum (www.anticorruptionforum.org.uk) was founded seven or eight years ago, many companies said they didn’t want their names on the website, Holt recalls. A few companies were happy to be publicly associated with the forum, which includes organizations and companies with interests in the domestic and international infrastructure, construction and engineering sectors. “Our company was happy to stand on the platform and talk about business ethics,” recalls Holt. “But we were in the minority.”
All that has changed, and one big reason has been the UK Bribery Act, many years in the drafting, “but worth waiting for.” (Holt was among those who worked with the ministry drafting the legislation.) Crucially, the Bribery Act “encourages companies to do the right thing for the right reasons.” Bribery ultimately hurts the payer of bribes as well as the receiver of bribes, and it distorts and darkens the overall business climate to the detriment of all.
As noted, CH2M HILL has been designated among the “most ethical” companies four years in a row by the Ethisphere Institute. Even allowing for questions regarding the awards’ methodology—companies must complete a long survey to be considered, which means they must apply for the designation--four years can’t be overlooked, suggests Holt. He draws an analogy with the Oscar awards. Is a bad or mediocre actor typically nominated for the film industry’s most esteemed award four years in a row? One year, maybe, but four? Unlikely.
“There is some rationale behind it,” he says of the Ethisphere designation. “We do have a sustainable, well-embedded ethical culture.” Employees know they won’t be punished when they do the right thing, even if it hurts the company’s financial performance, i.e., causes it to lose money.
As Lee McIntire, the firm’s CEO, says, it took a long time and effort to build the firm’s ethics reputation, yet one can lose it in a moment. Constant vigilance is required.
“Our reputation has real value in a business sense,” adds Holt. “Our clients tell us that.”
The above is an excerpt. An extended version of this article will run in the upcoming January/February edition of Ethikos
(Posted January 15, 2013)
IRD appeals to its employees’ ‘sense of fairness’
Compliance training may not be the first thing that comes to mind when one thinks of International Relief and Development (IRD), the not-for-profit organization responsible for implementing relief, stabilization, and development programs worldwide. But the IRD, which operates in 42 countries, has to overcome its share of cultural differences when it comes to training its nearly 3,000 employees.
“It’s a lot of talking to people,” Jean Hacken, chief of compliance, who conducts the training, tells Ethikos. “In America, we’re not perfect, but we know if we get pulled over by a police officer on the road we're not going to be asked to pay a bribe. We know that a police officer who does something like that will get in trouble.”
“And people actually appreciate it,” she notes, referring to the two hour discussions held with new employees. “It does appeal to their sense of fairness.”
A first step in improving IRD’s compliance training regimen was the simplification of the organization’s Code of Ethics and Conduct. Technical language can be difficult to translate into other languages. Take the term ‘whistleblower.’ It doesn’t translate well into cultures with only a limited understanding or context for what it means to ‘speak up.’ In its place IRD has a section in its code related to non-retaliation, explaining that if an employee wishes to bring up issues of wrongdoing, they do not have to fear being punished for it. In essence, this is about whistleblower protection, but explained in more universal terms.
“People have to be able to read it and understand it,” says Hacken.
Culture looms large in all this. “We've developed an introductory module and it’s an open-ended set up.” The initial compliance training at IRD consists of a two hour discussion held with employees, in which one of the first subjects broached is cultural differences.
“We talk about cultural aspects, of time, and family, and business.” It's discussed with employees what those differences are, and why they are different, and how and why things are going to be done the way they are with IRD.
“We requested assistance from American University,” recalls Hacken. “They have a whole program for it,” i.e., discussing cultural differences. American University’s International Communications program includes a certificate in Cross-Cultural Communication. American University’s is just one of such programs.
Fairness is, in fact, the jumping point when it comes to engaging in a conversation about ethical behavior. “We'll sit down with people and say, ‘All right, what are some of the instances where you’ve witnessed wrongdoing?’ And they’ll talk about it, sometimes very heatedly, as I’m sure you can imagine!”
A relief organization must be involved in all aspects of a region. While the chief compliance officer of a corporation may find him- or herself focused on company involvement in its main sector, IRD’s must concern themselves with a bevy of local challenges: building healthcare facilities, water treatment facilities, roads, and schools. They work with construction contracts. They work in the agricultural sector. To say nothing of the security concerns -- many times in conflict zones, or regions that have been hit by a natural disaster. It’s not just about construction, either.
‘Rather than just delivering clean water to residents of the Horn of Africa, IRD tackles the underlying problem of upgrading community water storage and management systems,’ says IRD, in its mission statement. ‘Rather than handing out seeds and fertilizer in Afghanistan, IRD trains farmers in improved agricultural methods that increase jobs, incomes, and confidence of Afghans in their government.’
When it comes to working on a local level, IRD is working with people who have literally lost everything. “People in desperate straits,” says Hacken. “People looking for new homes, new occupations, new lives, basically.”
In that respect, IRD is by its nature an organization that works on a local level. “I think the big twist on this is that we operate ‘on present,’” says Hacken. Most of its branches seek to establish a staff and a facility run mainly by individuals in the 42 countries where IRD operates. “We hire locally. We are a part of the community.”
It is not a mode without challenges, with the hiring and training of personal on such a large, international scale. “Their business practices are different from ours. In the US, we hire based on merit and qualifications.” This is a luxury that may not be enjoyed in other countries, where procurement practices can be heavily weighted toward ‘Who can pay to get the job.’
“We try to stay vigilant,” says Hacken. It’s often an uphill battle, but she finds from experience much is to be gained from simply speaking to people.
— Alexandra Theodore
The above is an excerpt. An extended version of this article will run in the upcoming January/February edition of Ethikos
(Posted January 8, 2013)
An Animated Approach to Business Ethics
When Texas University’s McCombs School of Business set out to create a set of educational ethics videos for students of business, the visual component was critical.
“We realized a lot of our students are visual learners,” Robert Prentice, professor of business law and business ethics in the Department of Business, Government & Society, told Ethikos. “They respond to visual cues, they love to watch videos on YouTube.”
With that in mind Prentice and his colleagues decided to create a series of ‘short, to the point’ videos to explain important ethical issues to its students. The result was Ethics Unwrapped, a series of free ethics teaching videos ranging from a documentary featuring disgraced lobbyist Jack Abramoff to more than a dozen animated shorts. The shorts, each approximately five minutes long, feature experts and students discussing ethical issues such as ‘role morality’ and ‘conflicts of interest’ — all punctuated by a series of animated cartoons, often humorous in nature.
This was not the first concept McCombs had in mind. “When we first had our idea for this series, we had a more ‘talking heads’ approach,” says Prentice. The idea was to have the videos be a series of interviews with experts in the field, in which they would talk about current issues in business ethics -- an approach which Ethics Unwrapped’s project director, documentary filmmaker Cara Biasucci, nixed.
“She said ‘no, no, no, talking heads don’t work,’” recalls Prentice. It was decided that the project needed a more visually arresting way to grab students and keep them engaged with the material. To that end, McCombs turned to illustrator and cartoonist Joel Hickerson, an artist who had worked in ‘how to do’ drawing programs for kids’ programming on PBS in the 90s.
Why short videos? Some of it is simply that the intended audience is more used to condensed material, with today’s student having a shorter attention span than they might have in the past. “They like having things chopped up for them,” says Prentice, and video use to emphasis lessons has been growing both in colleges and business.
Still, when it comes to getting business students engaged with the material, the time has never been better, says Prentice.
“Generally students are more receptive to business ethics than they were in the past,” he notes. Overall, students of business ethics are more aware today of scandals of the past. “Enron may seem to be ancient to these students, but they’ve seen the dot com scandal, the sub-prime [mortgage] scandal.” They also hear more from their parents about scandals in the past, and that has imparted on business students a greater willingness to confront these issues.
Contributors to the web-series included the Washington University Olin Business School’s Lamar Pierce, an associate professor of strategy; Babson College’s Mary Gentile, author of ‘Giving Voice to Values’; and Deni Elliott, professor and the Eleanor Poynter Jamison Chair in Media Ethics, University of South Florida.
The series covers a variety of topics, but a large emphasis in the first few videos have been on behavorial ethics, a ‘hot area’ in the field, says Prentice.
Why behavioral ethics? “Well, I think it’s because we know so much more about people today,” says Prentice. He cites Daniel Kahneman and Amos Tversky’s work in the 1980s into the anatomy of how people come to decisions as a forerunner to understanding why employees might make the wrong decisions in business today.
It’s important, especially as greater access to visual media means that young business students confront these scandals on a more human level than ever before. “They see these people. They see these white-collared criminals doing the perp walk. And then they see these interviews with their neighbors, their friends, their families, talking about: ‘Oh, what a nice guy he was!’ and students then wonder how someone like that could have wound up in prison.”
It’s not just students who ask these questions. Businesses have also found the Ethics Unwrapped videos useful, providing an easy-to-digest supplement to their training programs.
The videos have drawn interest beyond the business ethics and compliance community. Prentice recalls a conversation with one of his colleagues, a professor of finance, after showing his students the Abramoff documentary. “She ran into me in the hall and said ‘Oh, that’s relevant, I’ll show my students.’” She showed the documentary to her students — which inspired an ‘animated’ discussion on Abramoff, ethics, and wrongdoing.
The above is an excerpt. An extended version of this article will run in the upcoming print edition of Ethikos
(Posted December 18, 2012)
A case for ‘scenario-based’ ethics training
Nearly 40% of UK employees do not report receiving any training on standards of ethical conduct, according to the Institute of Business Ethics (IBE). Yet such training is an essential element of a corporate ethics program. “Businesses that train their staff to understand and implement codes of ethics have also been found over the long term to outperform financially those that do not,” according to the UK research organization.
When it comes to ethics and compliance training, scenario-based training can be a particularly effective tool, according to the IBE’s recently released Good Practices Guide.
“Scenario-based training is a means to sensitize staff to the ethical dilemmas they may face in their day-to-day work and gives them the confidence to deal with those dilemmas in a manner which is consistent with the organization’s ethical values,” according to the guide, which offers more than 15 sample scenarios, as well as case studies from companies such as AWE, Best Buy, Raytheon, RWE npower, Serco and Stryker on how this training is utilized.
Scenarios used in business ethics training typically present an ethical dilemma and encourage trainees to look at issues from different ethical perspectives. “Some may also raise awareness of company policies, codes, rules and procedures.”
IBE focuses on what companies can do to ‘build’ these scenarios. “Often organizations begin with a fictional scenario,” notes the guide. “As an ethics program matures and becomes more sophisticated, those tasked with delivering ethics training may find they have enough material based on ‘real’ situations.”
Creating a fictional organization
One example is the medical technology company Stryker, which created a fictional organization with a history, mission, and organizational chart. Employees from Stryker were then given a scenario in which a manager is attempting to convince a young woman in the finance department to improperly process a payment. It then maps the effects of this interaction throughout the organization.
“Trainees were then asked to take the Stryker code of ethics and go through the story to see where the code was being broken. At the end of the day, they were then asked what they thought of this fictional company, and it was unveiled that these dilemmas were based on actual ethical problems that had occurred in the medical device industry in the past.”
Humor is a ‘valuable tool’
‘Style,’ is also a key element in building training scenarios, according to the guide. Humor, in particular, can be a valuable tool. For example, Cisco’s cartoon-based fake reality show “Ethics Idol” or humorous live-action training videos, such as Second City Communication’s Real Biz Shorts, are good ways to “break the ice” and promote a level of engagement that might be difficult to attain with just a Powerpoint presentation -- although IBE warns that even with this lighter approach, striking the right tone is important:
“Although eliciting a laugh can be a great way to connect with participants, and for them to connect with one another, it should be used with caution,” notes the report. “Not all forms of humor produce the same effect, satire and mockery may have the opposite effect than intended. It goes without saying that any humor should not be based on racism, sexism or anything that goes against the ethical values of the company.”
Geography is also a factor. “Also, be aware of cross-cultural differences when it comes to humor; what may be funny in one territory may not translate well in another.”
One way to achieve a “gentle level of humor,” suggests the guide, is to make the situation or characters extreme. “These caricatures still represent the dilemma, yet portray it in a humorous way. Using fictional names will also help.”
Be aware that some audiences may feel that using humor trivializes the subject. For example, if training is part of a workshop designed to build organizational trust following a corporate crisis, emotions may still be too raw to look at scenarios that portray similar events in a comical way. “A scenario for senior managers in the wake of a crisis may require more gravitas than a video for recent graduate recruits.”
— Alexandra Theodore
For a full press release with information on how to obtain the IBE Good Practice Guide, click here.
(Posted December 11, 2012)
Whistleblowing Behavior ‘Unchanged Since 2011’ — IIA Survey
Despite new SEC whistleblower provisions, internal auditors at corporations are seeing virtually no change in employee whistleblowing behavior, according to a recent survey conducted by the Institute of Internal Auditors (IIA).
Indeed, just 2 percent of chief audit executives expressed concern that employees could bypass their organization’s whistleblowing process in favor of external parties, such as the SEC, where they could potentially earn millions for reporting wrongdoing.
In recent years, internal auditors have been asked to play a more proactive role as part of the ethics and compliance structure, observes IIA President Richard Chambers: “The internal audit profession has played a crucial role helping organizations identify instances of unethical employee behavior as well as providing recommendations that have enhanced detective and preventive controls.”
The IIA’s biannual ‘Pulse of Profession Survey’ polled 545 chief audit executives and internal audit directors. “Given the visibility of the post Dodd-Frank whistle-blower provisions, we were a little surprised to learn that employee whistleblowing remains virtually unchanged since 2011,” says Chambers.
Since the SEC’s whistle-blower program was established in August 2011, nearly 3,000 whistleblowers have contacted the agency. The Pulse of Profession Survey, conducted in October of 2012, asked participants to identify their level of concern with employees taking whistleblower claims directly outside the organization.
Most survey participants indicated they have little to no concern (78 percent) about employees circumventing already established reporting processes. Fortune 500 respondents were a bit warier, with 41 percent expressing “some concern.” All told, however, Fortune 500 participants indicated little to no concern (58 percent). Just 1 percent expressed ‘high concern’ in relation to the potential for whistleblowers to bypass their internal reporting mechanisms.
In addition, the survey asked respondents “to identify whether the risk of whistleblowers bypassing the organization’s internal processes has changed since the advent of the SEC’s whistle-blower program in August 2011.” The vast majority of survey participants (82 percent) indicated that the perceived risk has stayed the same. Just 15 percent said the risk has increased. Once again, risk levels were slightly different among Fortune 500 participants: most Fortune 500 respondents (66 percent) said that the risk has stayed the same since August 2011; 30 percent believed the risk has increased. “This difference could be attributed to the increased exposure and attention placed on large companies and the reward incentives built into the whistleblower rules,” notes the report.
Whistleblower hotline activity doesn’t appear to have changed markedly. When respondents were asked to identify whether hotline claims had increased in their organization since August 2011, the majority (84 percent) stated that the number of claims has stayed the same (including 78 percent in the Fortune 500 sector).
In terms of complaints handled annually, most organizations represented in the study receive anywhere from one to 10 complaints per year (37 percent), while a similar percentage of Fortune 500 respondents (36 percent) identified that their organization handles more than 100 complaints annually.
When asked to list the general distribution of hotline/whistleblower complaints in their organization across several categories, personnel management was identified as the No. 1 hotline complaint, followed by company/professional code violations.
Twenty percent of all respondents work in Fortune 500 companies. Most internal audit departments represented in the study consist of 2—5 (35 percent) or 6—10 (25 percent) internal auditors. Seven percent of the respondents came from departments with more than 50 internal auditors.
The fact that the October 2012 survey did not find any earth-shattering news pertaining to employee whistleblowing can be taken a number of different ways, the report notes. “Positively, it could well mean that for most organizations, internal hotline practices have been working successfully and the advent of the whistleblower provisions from Dodd-Frank simply helped to remind organizations to continue ensuring their internal processes are adequately robust,” says Richard Chambers.
“However, with the number of cases the SEC has self-reported, and with only the first of an expected volume of future financial payouts, only time will tell if internal audit’s general lack of concern is warranted.”
For a full copy of the IIA’s Pulse of the Profession Survey, click here.
— Alexandra Theodore
(Posted November 27, 2012)
‘Don’t sweat the small stuff’ in FCPA Investigations, says Deloitte
While the U.S. Department of Justice’s (DoJ) new guidance on Foreign Corrupt Practices Act (FCPA) enforcement has been long anticipated, few elements in the document released last week are likely to surprise anyone who has been following FCPA enforcement over the past five years. Still, according to Matt Birk, partner in Deloitte Financial Advisory Services LLP, the guidance offers a clean, coherent summary that is easy to follow.
As for whether the guidance will have an effect on future FCPA cases as the Act approaches its 35th anniversary this December, “Time will tell,” Birk tells Ethikos. The guidance does provide one particularly good piece of advice for individuals who might be worried about that lunch they had with a government official: ‘Don’t sweat the small stuff.’
“What the government is doing is establishing a focus on higher risk areas,” says Birk. The nature of what those risks are has changed in the past ten years.
The biggest change — and the biggest difficulty — in FCPA enforcement is the way in which payments are made to foreign officials. “It’s not dropping off the bags with the millions of dollars in them anymore,” says Birk, who notes that payments made to foreign officials now come in smaller, more easily hidden forms: “Like paying for the education of a foreign official’s child.” These violations are much harder for a company to uncover.
What’s more, technology may also be an issue when it comes to how companies handle potential FCPA violations. Data security risks, Birk notes, are higher than they’ve ever been.
A recent poll released by Deloitte found that while corporate leaders are still concerned about FCPA compliance, the use of technology to manage increasingly expansive programs remains low. Just 6 percent of executives say their companies use data visualization and analytics effectively for anti-corruption purposes. More than one-third (36.1 percent) do not use analytics at all as part of their anti-corruption programs, according to the poll, which queried more than 2,100 professionals from industries including financial services, consumer products, industrial products, technology, media and telecommunications who responded to questions during the recent webcast, “The Foreign Corrupt Practices Act: 35 Years of Focusing on Anti-corruption.”
“The DOJ and SEC expect companies to take a risk-based approach to employing technology to support their FCPA programs,” said Bill Pollard, a partner in the FCPA consulting practice of Deloitte Financial Advisory Services LLP, in a Deloitte press release. “Throughout the new 120-page guide they provide examples of companies utilizing technology to monitor gift payments or conduct and monitor third party due diligence.”
More than one-half of executives polled plan to improve their companies’ corruption prevention and detection programs in 2013, while nearly one-quarter of respondents (23.2 percent) believe the cost of developing and maintaining those programs will be the biggest challenge companies will face in the next year. Twenty percent viewed dependence upon third parties to adhere to corporate anti-corruption compliance programs as the greatest challenge in 2013.
What are some of the ways companies can avoid violations? “Generally the biggest thing to do is to keep third parties off your payroll,” Birk told Ethikos. Third parties need to be carefully listed, and companies need to be extremely vigilant. Due diligence is paramount.
“At the end of the day, it’s knowing who you’re doing business with,” says Birk. When it comes to doing business in emerging markets, it’s about getting the right referrals, and asking the right questions.
When it comes to enforcement, many countries have begun to follow the U.S lead. China in the past year has rolled out a ‘FCPA-like’ law. “Mexico, too, just put in something else. There’s Canada. And the UK now has its bribery law.”
Germany, too, has been seeing greater enforcement of its anti-bribery legislation, Birk notes. “We’re seeing more countries conducting their own investigations.”
FCPA compliance remains a challenge in many emerging markets.
“Certainly there are some countries where bribery and corruption has become part of their culture. Safety is also a consideration,” admits Birk. “For example, we’d think twice before sending teams to Venezuela to investigate corruption.” Local governments can be overtly hostile to outside investigations, even putting at risk investigators’ safety. Data privacy is also a concern. In some cases Deloitte investigatory teams must consider the safety of bringing their laptops with them out of concern that it could be stolen and sensitive information lifted.
Much of the environment has improved when it comes to working with third parties in other countries — at least where compliance with U.S. laws and regulations is concerned. “A lot of the third parties understand it now, they understand the problems now.” More importantly, they understand that if they want the business, compliance is paramount.
Still, when things do go wrong, and a company finds itself embroiled in an investigation, ‘feet on the ground’ may also be paramount. “It’s important to always have a local team in an investigation,” says Birk.
It’s also about knowing where to focus the investigation.
“When faced with an investigation the top thing a company needs to do is really isolate the allegations at hand. It’s doing the interviews, pulling the emails, reading the thousand of invoices. It’s starting small and trying to get a feel of the situation, based on interviews, of what approach needs to be taken.” A company doesn’t want to take too broad an approach, and launch a global investigation when the biggest concern is a regional one — wasting critical time and money in the effort. This is where technology can prove a boon. A well-entrenched analytics system, Birk asserts, can better isolate problem areas.
With the FCPA’s 35th anniversary looming next month, what has most changed in the corporate world when it comes to anti-corruption compliance? “FCPA concerns are now being addressed at much higher levels in the company,” says Birk.
That senior management involvement is crucial. The companies who are most likely to come out ahead in relation to the FCPA are the ones that are willing to take the hard line with their employees when it comes to anti-corruption efforts. It’s tone at the top, yes, according to Birk, but reinforcement is key. Companies need to publicize their anti-corruption efforts, both good and bad, letting employees know what measures the company has taken against employees who are caught doing something wrong.
“Reinforcement over and over again,” says Birk. It’s about “leading from the front.”
— Alexandra Theodore
(Posted November 20, 2012)
In Growing A C&E Program From The Ground Up, Monsanto Gets Resourceful
Monsanto Company’s Business Conduct Office has a staff of just seven. On its own it would be hard-pressed to manage the compliance concerns of a company with an employee-base of over 25,000 in 65 countries.
Instead they enlisted the help and support of human resources (HR), global security, finance, and other departments within the St. Louis-based biotechnology firm. Their goal? To leverage an effective global ethics and compliance program spread across the globe.
“Much about our program was shaped by the DPA,” John Santangelo, Assistant Director of the Business Conduct Office, tells Ethikos, referring to the three-year Deferred Prosecution Agreement the firm entered into in response to allegations of improper payments made in Southeast Asia. Following the terms of the DPA (which ended in 2008), Monsanto had to build a new business conduct program from the ground up.
Today, “Each of our nine world areas are supported by legal counsel and an FCPA [Foreign Corrupt Practices Act] coordinator. Our anticorruption program has 88 non-dedicated employees (coming from various functional areas) supporting it on a worldwide basis,” says Santangelo. “Our training and investigation programs likewise have 100 and 61 such employees, respectively.”
Monsanto has no less than ten or twelve people behind due diligence initiatives – people not full-time members of the business conduct office, but rather employees under internal audit, legal, or HR functions. When potential corruption allegations are reported to the business conduct office, they are often passed along to senior heads of HR, who then delegate the task to a regional team with the specific training and, when it all is said and done, the results of the investigation are then brought back to the business conduct office.
“We did something like that with our training program,” notes Santangelo. Regional HR heads are utilized to conduct compliance and ethics (C&E) training, providing the ‘nuance’ needed in countries where language and cultural differences may be difficult to address without on the ground experience.
“In 2005 I came from the global training program, and I was the only person with an understanding of our online training program.” There was just a 60 percent completion rate for these online programs—many Monsanto employees did not have access to computers, e-mails, any of the resources required to utilize these programs.
Santangelo turned to Steven C. Mizell, executive Vice President of Human Resources.
“I said: ‘Steve, we have all these people who need to be trained, and we’ll need the people to train them. Can you get me these people?’”
The answer was ‘yes.’
This is the participation that is vital to a program with this sort of structure. Regional heads were established throughout all of Monsanto’s territories. HR leads that work — and coordinates with the Business Conduct Office.
Has it helped? “Oh, by far. I could pull up a report for any of our training programs and our completion rate’s now over 90% — 99.7%. Our goal is 100%, but no one’s perfect.”
But the difference, says Santangelo, was like night and day.
“As you can see, this enables our C&E programs to utilize non-dedicated resources to become more effective and robust without added head count,” says Santangelo.
In fact, when it came to receiving the resources necessary for this program from company leadership, the DPA proved vital to the overall structure of Monsanto’s resulting program. “We really couldn’t have done it without it,” recalls Santangelo. A key component to Monsanto’s ability to leverage these non-dedicated employees came from leadership’s willingness to ‘buy in’ to the importance of such programs – the DPA proved the incentive senior officers needed.
In the terms of the DPA, Monsanto was required to retain a consultant to review and make recommendations concerning the company’s FCPA compliance policies and procedures. This third party consultant proved vital in creating the structure of a lean, broad-reaching business conduct program that nevertheless covers a great deal of ground.
— Alexandra Theodore
This is an excerpt from an upcoming story in the November/December (print) edition of Ethikos.
(Posted November 13, 2012)
Prudential’s CECO Leads With Ethics
You don’t become a high integrity organization through compliance and rules, says Lee Augsburger, Chief Ethics and Compliance Officer (CECO) of Prudential Financial, Inc. (Newark, NJ). “I think of myself as Chief Ethics Officer first.” If you focus on that first, everything else (e.g., compliance) falls into place, he says.
The giant insurance company has some 50,000 employees, split about evenly between domestic and overseas employees. It’s not a homogenous culture. To reach them all, “you have to hit the programmatic elements,” says Augsburger, like a code of conduct, helpline, training—but these are “minimum bids—alone they won’t move the cultural needle.”
The CEO can speak about integrity and ethics at town hall meetings, and that is useful. “But culture is what happens when the boss leaves the room.” Seventy percent of misconduct is typically reported to one’s direct manager—not to the helpline or the corporate ethics office
“Employees perceive ethical behavior [or misbehavior] fast and more clearly than just about anything in their business experience,” Augsburger tells Ethikos in a recent interview. They have an immediate, almost visceral reaction to unfairness or dishonesty. Discerning fraud, by comparison, is often more difficult—requiring more time and reflection.
Prudential’s ethics organization was formed in January 1994, the compliance organization was formed in November that same year. The company’s chief compliance officer retired in 2006, and Augsburger was asked to assume that role, becoming global chief compliance officer in 2007. In 2009, Prudential’s chief ethics officer retired, and Augsburger assumed that position as well.
As CECO, Augsburger oversees 375 staff worldwide, but the vast majority of these are in the compliance area. His ethics team is much smaller: six professionals (not including himself) and an administrative assistant.
Business ethics officers in the field
“You have to have leverage” if you are going to have an impact in a company of 50,000 employees, and the way they do this at Prudential is to “deputize senior individuals in the businesses.”
Prudential has about 50 of these “business ethics officers,” who work part-time in that role and who report to the senior leader of the business unit. They come from a range of backgrounds, including human resources, risk management, and line management, and they sit at the unit CEO’s elbow, tendering ethics advice, so to speak.
They present a written ethics plan each year, and they also manage their units’ ethics communications, training and ethics rewards programs. Augsburger provides a performance evaluation of them at the end of the year that is taken into account in their annual evaluation process.
He feels fortunate that “the people we have are people who raised their hands, who said ‘we really want to do this.’”
They can’t just raise their hands to get the position, of course. They must also have a “track record” for integrity within the organization. But there is some variety. Some are exceptional communicators, for instance. Others are more “quiet,” but they may be wise and skilled at providing words to the CEO of the units, and the CEO then communicates that message. You also need people who are good in execution, who will make sure that plans are executed in the course of the year.
The role doesn’t require an inordinate amount time. Augsburger estimates that it absorbs about 5-15 percent of the part-time business ethics officer’s overall work load. The business ethics officers usually have at least 10 years with the company. “It’s hard to just parachute into an organization and understand all the cultural expectations.”
They typically are not lawyers or compliance officers. This is partly a result of the way Prudential is structured. Compliance and legal report through the general counsel who reports directly to the CEO. “We want ethics to be owned by the business units.” The tendency is to see a lawyer as advisor to the business (a tendency accentuated by the reporting structure), and one common view is that the lawyers “don’t have enough skin in the game.” Again, he emphasizes that this may be “unique to our structure.”
Augsburger meets with these business ethics officers twice a quarter and they discuss ‘best practices’ and other relevant matters. The bottom line for all this: “Ethics has to be owned by the business leaders” in the operating units.
This is an excerpt from an upcoming story in the November/December (print) edition of Ethikos.
(Posted October 31, 2012)
‘The U.S. will not be a safe haven for corruption,’ Lanny Breuer tells Ethikos
DoJ’s Kleptocracy Asset Recovery Initiative hasn’t received much attention to date, but that could soon change. More ‘forfeitures’ are coming, Lanny A. Breuer, head of the Justice Department’s criminal division, tells Ethikos, though he declined to name a time or place.
First announced in 2010, the Initiative seeks to “target and recover the proceeds of foreign official corruption that have been laundered into or through the United States.” The first forfeiture was announced in June 2012—$401,931 in assets traceable to the former governor of Bayelsa State, Nigeria.
Does Breuer anticipate another forfeiture within the next six months? “I’m hopeful, but it’s hard to know,” he told us in an interview last week. Much depends on the leads, the evidence, and the strength of cases as they develop.
There is an idealistic element in all this. Properly speaking, what business is it of the U.S. government what a corrupt African official does with the money that the official has skimmed in his own country? “I think that’s right,” he told Ethikos. “We do it for idealistic reasons.” It behooves the U.S. to be a moral leader in world affairs, to put itself on the right side of history, he suggests.
But there is more. “It isn’t just pie in the sky. It’s consistent with what we do. We are upholding the rule of law.” The only difference is that “I may not be able to incarcerate you if you are a [corrupt] foreign official”—but the U.S. won’t allow you a safe haven either.
Beyond idealism, and upholding the rule of law, there are also economic reasons for the Initiative. “We [in the U.S.] do best when there is a level playing field,” when American firms can compete fairly. If they close off the U.S. to corrupt leaders, making the U.S. country “less hospitable” to corrupt foreign leaders, then “it encourages good governance, promotes justice.” Companies win contracts because of price, quality and service—not because of whom they’ve paid off.
What has been the response from his law enforcement counterparts overseas—support, surprise, befuddlement? The Assistant Attorney General typically gets a “lot of reaction” from his FCPA activities, and a “lot of reaction” from his department’s criminal investigations. “This is new enough that there is not a huge interest from my counterparts,” he admits, though it continues to reinforce the sense that the department (DOJ) “is an active one.” His counterparts are watching, however, “some more, some less” and appear to get the message: “the United States will not be a hiding place for the ill-gotten riches of the world’s corrupt leaders.”
In grasping the Kleptocracy Initiative, it may be useful to look at the Foreign Corrupt Practices Act (FCPA). The FCPA was, at its core, an idealistic act when it was legislated in the 1970s: if you’re a U.S. firm, you can’t pay off a foreign official to secure business contracts. For years, there was really nothing like it in the world. U.S. firms complained bitterly that it put them at a disadvantage when operating overseas, creating an uneven playing field.
Today the world is catching up. Many nations now have their own FCPA-like laws, and a growing number are enforcing them.
“Yes, it will take some time to take hold,” says Breuer of the Initiative, first announced by Attorney General Eric Holder in July 2010. It took time for the FCPA to gain traction, “before it was widely enforced in the U.S., and many years especially before other nations finally fell into step.”
DoJ obviously faces some limitations. The first forfeiture was brought against the former governor of Bayelsa State, Nigeria, Diepreye Solomon Peter (DSP) Alamieyeseigha, who was impeached for corruption in 2005 after holding office for six years and accumulating some $15 million worth of assets while serving as governor. (His official salary for that period was only $81,000.) According to Breuer in a 2011 World Bank speech, “He acquired at least four properties in the United Kingdom worth approximately $8.8 million; he had money in bank accounts around the world.” The amount seized by the U.S.—about $400,000—was from Alamieyeseigha’s banking assets in the U.S., including accounts in Florida and Massachusetts. Obviously, the assets seized comprised but a small portion of the total assets stolen by the former Nigerian official.
“We were able to bring these cases, even though DSP long ago absconded to Nigeria, because the law permits us to bring a civil action against the corrupt proceeds themselves rather than against the person to whom they belong,” he said in that speech.
Another key element of the Initiative is that it seeks to “repatriate the recouped funds for the benefit of the people harmed.”
Some believe the Initiative breaks new ground in the global anti-corruption struggle. The Kleptocracy Initiative “marks a new chapter in anti-corruption enforcement: targeting the recipients of corrupt payments,” note Thad McBride and Cheryl Palmeri, Sheppard Mullin Richter & Hampton LLP, in July 2012 in JDSupra.
Are there implications here for U.S. companies? “More and more, the FCPA has gotten into the DNA of companies,” Breuer says. The Kleptocracy Initiative is “another way” to show the U.S. is serious about corruption, one more reason for companies to refrain from paying bribes to secure business, to mind how their employees and agents conduct themselves when operating overseas.
Breuer says that this is just the beginning—a period of growth and investment. The Initiative has the full support of Attorney General Holder and Breuer anticipates a sustained effort on the part of the U.S. “These issues have always been incredibly important to me,” he told us. “We hope to continue to break new ground, and hope other countries will follow.”
— Andrew Singer
The above article is an excerpt. A longer version of this story will appear in the upcoming November/December 2012 (print) edition of Ethikos.
(Posted October 23, 2012)
German companies, rather than German government officials, are urging the ratification of the U.N. Convention Against Corruption (UNCAC), warning in a letter to lawmakers that failure to do so risks harming the reputation of German firms abroad, The Washington Post reported in August.
So what is it that has led to a rare moment in which large companies are asking for more regulation? Part of it is simply a natural progression, according to Peter Y. Solmssen, head of Corporate Legal and Compliance at Siemens AG.
“To be clear: German anti-corruption law is already quite comprehensive,” Solmssen tells Ethikos. “It would, however, be helpful if Germany would give official credit for the existence of effective compliance structures when assessing the fines to be levied on companies in the event of breaches.”
Germany is one of just a handful of nations whose parliament has not formally approved the UNCAC—though the government signed the treaty in 2003. Other holdouts include Sudan, Japan, Syria, Somalia, Saudi Arabia and the Czech Republic.
The letter, written by CEOs of large German companies, including automaker Daimler and engineering giant Siemens, noted that one of the hurdles to ratification is the absence of clear legislation in Germany that would punish bribery of lawmakers.
In the letter written to the German parliament in Berlin, 35 chief executive officers, including Deutsche Bank AG’s Juergen Fitschen, DaimlerAG’s Dieter Zetsche, and Allianz SE’s Michael Diekmann, asked lawmakers to drop their opposition to the convention. Members of the chamber have balked at signing the charter since 2003 because they say it might, among other things, curtail their freedom to meet lobbyists.
Parliament’s refusal to sign the convention “hurts German companies’ reputation” in overseas business and raises the country’s legal vulnerability, according to the letter dated June 29, a copy of which was obtained by Bloomberg News.
“Honest parliamentarians have nothing to fear from tighter rules,” the CEOs wrote in their letter.
A clear signal
It is a trend that corporations welcome, Solmssen tells Ethikos, and one that started in the United States with the Federal Sentencing Guidelines for Organizations.
“The ratification of the U.N. Convention Against Corruption by Germany would send a clear signal to the international community that Germany as a whole is committed to clean business and would back the efforts of the German industry to level the international playing field,” says Solmssen.
The ratification of this convention would also enable Germany to participate in the Conference of the Parties to UNCAC and thus “strengthen its influence in the international anti-corruption discussion,” says Solmssen, who notes that Germany has already outlawed national and international corruption. Germany has ratified the OECD anti-corruption convention and is a signatory to the UNCAC; however, the ratification of the UNCAC has been suspended because of its provisions relating to bribery of members of parliament.
“German criminal law would need to be revised to meet the requirements of UNCAC,” says Solmssen, who notes that this is not without its complexities. “How this is to be accomplished is for the German parliamentarians to debate and to decide. We (Siemens) advocate a ratification of the U.N. Convention and thus welcome any initiative which would enable such ratification.”
Solmssen asserts that more anti-bribery legislation globally is to the benefit of corporations in the long run. “Globally consistent anti-bribery legislation reinforces sustainability and efficiency. Companies concentrate on competing on quality and price,” he notes. “Also, society benefits from clean business. Clean business promotes efficient resource allocation and fosters economic progress.”
The above article is an excerpt. The full article will be available in the upcoming fall print edition of Ethikos.
(Posted October 16, 2012)
Trust, in a sense, is “the holy grail—what every company shoots for,” says Craig Cash. You can build a business that is “better, faster, and cheaper” in a highly trusted organization, says Cash, director, Ethics and Business Conduct, Lockheed Martin Corp. (Bethesda, MD), the giant global security and aerospace company.
Few would quarrel with that assessment, but how does one actually do it? Are there specific, practical steps an organization can take to build trust?
At Lockheed Martin’s Office of Ethics and Business Conduct, one innovation that has enhanced employee confidence is a ‘reporting party’ survey.
When an employee comes to the ethics office to report a ‘concern’—a perceived act of wrongdoing within the organization, say―the ethics office investigates, and action may or may not be taken. After the process has been completed, however, the office then surveys the ‘reporter’: “How did we do in the investigation? Did we deal with your concerns fairly, effectively?” And so on.
After analyzing this data, the office shares its findings with the ethics officer who conducted the investigation. “It’s a great vehicle to build trust within the ethics office,” Cash tells Ethikos.
Isn’t such a survey, however, tough on the ethics officer who conducts the investigations?
“Being measured is always tough,” but the office and company need that performance feedback, answers Cash. “Some people [i.e., ‘reporters’] will never be happy, but you factor that into your model.”
Many employees with ‘concerns’ come to the ethics office “scared,” and following up goes a long way to allay those fears and build organizational confidence.
[Earlier this month, Cash presented at the Ethics & Compliance Officer Association’s (ECOA) annual convention in a session titled, “Trust-Building Tools and Techniques ... A Full-Spectrum Approach,” along with co-workers Randolph Dziendziel and Jessica Hoffman.]
In a larger sense, how does an organization build trust? You pick your leaders carefully, and you give them some tools, Cash told us in an interview prior to the ECOA conference.
One such “tool” at Lockheed Martin is the company’s annual employee survey that began in 1995. The corporation’s entire population is surveyed—some 123,000 employees—annually or biannually. “It’s a way to gauge how we’re doing,” says Cash.
There are four components of the survey: 1) ethics and integrity, 2) the employee experience, 3) diversity and inclusion (they want people to feel part of a community), and 4) leadership excellence. The ethics and integrity component “gets the strongest response every year,” says Cash.
The company has seen increases year after year in the ethics and integrity metrics, Cash reports. There have been no “trending down” questions. In last year’s Employee Perspectives Survey, for instance, employees said they were more willing to report unethical behavior, “while the percentage of those observing misconduct was at its lowest level since the corporation began collecting this data,” according to the company’s website.
The company has found that ‘trust’ correlates closely with positive answers to three survey questions: 1) Does the subject feel valued as an employee? 2) Do managers treat individuals fairly? 3) Do senior managers set an example for integrity?
If an organization scores well on these three questions, positive results usually follow, suggests Cash. Employees will tend to feel more “attached” to and identify with the organization, for instance.
The survey is useful for other feedback, too, like gauging the effectiveness of a new ethics training program.
— Andrew Singer
The above article is an excerpt. The full article will be available in the upcoming fall print edition of Ethikos.
(Posted October 9, 2012)
When it comes to ethics and compliance training, global technology company eBay has never really fit the mold.
“We’re really a people-based company,” says Amyn Thawer, Senior Counsel, Global Compliance & Regulatory Affairs , responsible for eBay’s Office of Ethics and Compliance. “Our employees really feel like they make a difference in the world, and that really resonates with them.” With that in mind, ethics and compliance becomes about having “The right kind of conversation with our employees,” says Thawer, who reflects on how in the last 18 months eBay has been setting up a better way to communicate and conduct training in their employee base of over 30,000 worldwide.
One of these efforts has been to present a new business code of conduct. “Make it more readable, less ‘legalese,’” Thawer tells Ethikos. Otherwise people often won’t read it. Thawer notes that eBay’s employees are on average very tech savvy, intelligent individuals — very likely to “just click through” anything too long or ponderous. The company has been revising its training programs with these characteristics in mind.
“At the beginning we had pre-packaged training modules,” says Thawer. “But our employees just weren’t feeling it.”
Thawer likens the disconnect employees had with these modules to a general difference in ‘east coast vs. west coast’ business culture. EBay is a California-based company, and in a general business sense — at least in the respect for general office culture and dress — is often more casual compared to the Northeast image of suits and ties. Therefore training videos that showed serious men and women wearing suits and sitting around conference tables were just not familiar to the average eBay employee.
“And they want to see something familiar,” says Thawer.
To that end eBay is in the process of developing a training module alongside its compliance vendor that better bridges that gap. “We’re taking the somewhat novel approach of making it animated.” The short presents eBay’s CEO and Vice President as animated characters speaking to employees about company values.
“As far as eBay goes we’re a bit of a different bird than most companies,” says Thawer. EBay has grown quickly, as a company which has become a household name among people looking to sell just about anything online. By nature it’s a young company — one which only became a publically traded company in the 1990s, and has since continued to expand.
“It’s been a sudden ascent for us,” notes Thawer. With that rise eBay has needed to find methods to keep its people-oriented, values-based climate.
As a commerce company, one which specializes in providing an outlet for online sales among small businesses, entrepreneurs, and the average individual, eBay doesn’t fit into the traditional structure in the way that, say, the healthcare or financial industries would, when it comes to company culture. In many ways, when it comes to insuring good conduct, the company manages itself. Employees are quick to fall back on what Thawer feels are the company’s basic good policies, seeing the company Code of Conduct as ‘the constitution.’ “They always go back to our touchstones.” As such making sure that Code of Conduct is clear and accessible is a strong priority.
EBay also takes into account the fact that they are primarily a technology company. “Our employees are a little younger,” says Thawer. “So with that in mind we’ve created a gaming component.” The idea is to keep employees engaged in their training.
To that end, eBay is working on a ‘Super Mario Brothers-esque’ game called Cube Culture in which employees are asked to navigate a little digital world in which they are presented with a series of cubes. Employees navigate their character towards each cube — which represents a person with a specific issue.
The CEO, Thawer notes, also receives a ‘cube.’ The notion is that employees on all levels are equal. eBay prides itself in an ‘egalitarian’ approach — showing that even top governance employees are a part of the process.
Employees playing these training games may also encounter an animated desk filled with items that represent the different ethical issues they may have to face. Employees may click through these items to get information on specific issues, for example file that says ‘confidential’ will open to inform them about company policy related to data privacy.
The program is in the process of being developed. It hasn’t rolled out fully. “We’re just getting some of the wrinkles out — one thing about being a technology based company, our employees don’t have a lot of patience for glitches.” However the initial feedback towards the program has been positive. It’s an approach that keeps employees engaged and interested.
— Alexandra Theodore
The above article is an excerpt. The full article will be available in the upcoming fall print edition of Ethikos.
(Posted October 2, 2012)
Eighty one percent of Americans do not believe the government has done enough to stop corporate wrongdoing, and 77 percent say politicians favor corporate interests over the interests of their voters, according to the results of a survey released by Labaton Sucharow. Moreover, 61 percent of Americans will significantly factor a candidate’s commitment to rooting out corporate wrongdoing in their voting decision in November.
“More Americans have witnessed corporate misconduct. More Americans fear retaliation. Real and pervasive doubts about employers’ integrity persist and there is wholesale disappointment in the government’s response to corporate wrongdoing,” says the report, Labaton Sucharow’s second annual Ethics & Action Survey, which surveyed more than 1,000 Americans on corporate ethics and wrongdoing.
The survey found that 54 percent of respondents have personally observed or have firsthand knowledge of wrongdoing in the workplace — a 20% rise from the firm’s 2011 survey.
Americans are now increasingly of the belief that the government should spend more to combat corporate wrongdoing. “It’s one thing to argue that the government should do more to combat corporate greed,” notes the report. “It’s quite another — particularly in such challenging times when most Americans are experiencing major financial stress — to state unequivocally that the government should spend more to fund the fight.”
Overall, the report sought to gauge the impact of corporate misconduct on the economy, government’s role in its repair and the impact on their voting decisions in November.
Sixty three percent of respondents believe that the government should allocate more dollars to financial regulators and law enforcement organizations to combat corporate wrongdoing. This sentiment varied among respondents of different income levels: “70% of those earning less than $35K annually believe the government should allocate more funds to combat corporate wrongdoing, compared to 65% ($35K-$50K), 69% ($50K-$75K), 54% ($75K—100K) and 60% (over $100K).”
Sixty four percent of Americans polled believe that corporate misconduct was a significant factor in bringing about the current economic crisis.
“In these difficult economic times, Americans are mad as hell about corporate wrongdoing and are going to do something about it in the November elections and beyond,” said Jordan Thomas, partner and chair of the Whistleblower Representation Practice at Labaton Sucharow, in a press release. “At the federal, state and local level, politicians who fail to demonstrate a credible commitment to stopping corporate corruption are likely to be looking for new jobs.”
Still, when it comes to reporting on corporate misconduct, Americans remain uncertain. One in four of those surveyed admitted a fear of retaliation should they report the observed wrongdoing. This fear varies by region: “Residents of the Northeast region of the United States have the highest fear of retaliation (29%). And, at 32%, Hispanic respondents are a full 10 points more fearful of retaliation than White respondents.” As well as level of income: “29% of Americans with annual income less than $35K fear retaliation, compared to 14% of respondents with income greater than $100K.” Education also plays a factor in confidence of reporting: while 28% of high school graduates would fear reporting wrongdoing, the figure dropped to 20% for Americans with some level of college education.
In spite of these fears the overall attitude towards whistleblowers is now largely very positive. 84 percent of Americans polled reported to having a positive perception of whistleblowers that report illegal or unethical conduct. Eighty three percent of Americans would report wrongdoing with protections and incentives such as those offered by the SEC Whistleblower Program - though only 28 percent are aware of the new investor protection program, which includes a replenishing Investor Protection Fund to ensure that adequate funds are available to pay awards.
“Americans have, by and large, demonstrated a greater willingness to stand up against corporate wrongdoing. For many, being a whistleblower no longer carries the negative stigma that it used to,” notes the report. “We are certain that this new desire to have a voice, the desire to be heard, the desire to make a difference—at work, at the polls, at large—will be the engine of necessary corporate reform.”
For the full download of Labaton & Sucharow’s Second Annual Ethics & Action Survey: Voices Carry, click here.
(Posted September 25, 2012)
September 13, 2012 -- Boards are putting a greater importance on ethics and compliance -- two-thirds of corporate directors say their companies placed greater emphasis on employee awareness of ethics and compliance policies in the past year, according to a recent survey released by PwC.
“Another 42 percent increased reporting of compliance-related issues to the board,” noted the report. “The bottom line: Ethics and compliance and corporate culture were significant concerns for boards this past year.”
The 2011 enhanced whistleblower rules mandated by Dodd-Frank remain a concern among directors, although the full impact of these rules has yet to be seen, according to PwC's 2012 Annual Corporate Directors Survey, which draws from the input of 860 public company directors, 70 percent of whom sit on boards of companies with more than $1 billion in annual revenue.
When asked what actions their companies have taken in response to the 2011 whistleblower rules, 66 percent of directors reported their company has placed a greater emphasis on employee awareness of ethics and compliance policies. However, issues of bribery and anti-corruption compliance remain a lower priority: Just 36 percent of directors reported expanding the role of internal audit for bribery and corruption compliance, and 10.9 percent of directors scheduled more board discussions regarding bribery and corruption. What’s more, just 31 percent say their companies increased employee training on anti-retaliation against whistleblowers.
Issues of fraud have also become a growing concern among boards. When asked what their boards have done in the past twelve months to reduce fraud risk, nearly half of directors (46 percent) say their boards have held additional discussions about the “tone at the top” of the company; 38 percent increased the amount of time spent on discussing risks embedded in compensation plans; and 31 percent have interacted more frequently with members of management below the executive level.
The survey found that directors are discussing crisis-management – that is a company’s response to events such as natural disasters, geopolitical upheavals, data breaches, product recalls, and supply chain meltdowns – less frequently than the previous year.
“Directors have a significant level of discomfort overseeing their company’s approach to crisis communications,” notes the report. “More than half (57%) are not comfortable with their understanding of the company’s social media response plan in the event of a crisis.” Still, 37 percent of directors would like to increase their time spent on this subject in the future.
Directors at larger companies are discussing crisis management more often than those at smaller companies: 79 percent of directors at the largest companies (more than $10 billion in annual revenue) have discussed the crisis response plan in the past 12 months, compared with 66 percent at smaller companies ($500 million or less in annual revenue).
Overall, “With the SEC’s whistleblower rules in effect and a sharp increase in bribery enforcement, directors are taking specific actions overseeing compliance programs designed to reduce fraud,” says the report. “They have progressed by adopting a number of leading practices like spending more time discussing ‘tone at the top’ and focusing on the risks embedded in compensation plans.”
For the full results of PwC's 2012 Annual Corporate Directors Survey click here.
(Posted September 18, 2012)
In the past year, Austria, Australia, and Canada have moved from ‘little enforcement’ to ‘moderate enforcement’ in regard to enforcement of the OECD’s Anti-Bribery Convention, according to a new report released by Transparency International (TI).
Of the 37 countries that participated in the OECD Convention, just seven pursue anti-bribery cases with enough frequency and resulting sanctions to be considered “active enforcement” countries, according to the report, “Exporting Corruption? Country Enforcement of the OECD Anti-Bribery convention.”
The US leads as far as pursuit of anti-bribery cases: The US had 275 cases and 113 investigations in 2011— up from previous years, TI reports. Germany was second most active in this regard, with 176 cases and 43 investigations (the number of investigations has doubled since the previous year). Other countries in the “active enforcement” category include: Denmark, Italy, Norway, Switzerland, and the United Kingdom.
Active enforcement is defined by the report as: “Countries with a share of world exports of two per cent or more [that] have at least 10 major cases on a cumulative basis, of which at least three must have been initiated in the last three years and at least three concluded with substantial sanctions. Countries with a share of world exports of less than two percent must have brought at least three major cases, including at least one concluded with substantial sanctions and at least one pending case which has been initiated in the last three years.”
‘Active enforcement’ does not always equal effective enforcement, stresses the report. In the case of Italy, it is noted that while 32 anti-bribery cases have been pursued in the past year, and five cases have been concluded, two of these concluding cases were dismissed due to a lack of grounds to prosecute and two more dismissed due to the expiration of the statute of limitations under Italian law. In the remaining concluded case, pertaining to alleged bribes paid to Libyan officials by an un-named oil company, “the Court of Milan in September 2011 acquitted two individuals and sentenced a third to three-and-a-half years’ imprisonment. The convicted person has appealed and it is likely that the sentence will not be enforced as the limitation period expired in January 2012.” According to the OECD, “although 60 defendants have been prosecuted and 9 cases are under investigation, final sanctions were only imposed against 3 legal persons and 9 individuals, in all cases through patteggiamento (settlements).” The tendency towards long, drawn-out cases and “the inadequacy of the statute of limitations” is the biggest limitation in Italy’s anti-bribery efforts, says Transparency International.
By contrast, Canada, has shown positive improvement as of 2012 — having 34 anti-bribery cases underway, according to the report, “marking a sharp increase in investigations by the Royal Canadian Mounted Police, the national investigative agency.” In 2011, Canadian-based oil and natural gas exploration company company Niko Resources Ltd., pleaded guilty to one count of bribery under the Corruption of Foreign Public Officials Act (CFPOA) for bribing an energy minister in Bangladesh in 2005. The company paid $9.5 million in fines as part of the plea bargain with the Royal Canadian Mountain Police (RCMP), and agreed to three years’ surveillance to ensure the completion of compliance audits.
“This case marked Canada’s first resolution of a foreign bribery investigation with a plea bargain agreement. In addition to the fine, the Alberta Court of Queen’s Bench imposed a probation order on the company requiring that, interalia, the company adopt a detailed anti-corruption compliance program, and that it appoint an independent auditor to review implementation of the program and report annually to the Court, the RCMP and the Attorney General of Alberta,” notes the report.
Australia, another country that has gained moderate enforcement status in this past year, is also pursuing its first prosecution under its own foreign bribery legislation, related to alleged bribes paid to foreign officials by Australian companies Securency International Pty. Ltd. and Note Printing Australia Ltd. Austria was similarly upgraded for the pursuit of significant anti-corruption cases, as well as “significant changes to its organizational system.” It was reported in 2011 that certain 2009 amendments to the Penal Code could be considered “genuine progress in terms of the sanctions for corruption offenses, but a step back in that they narrowed down the circumstances in which different categories of persons are liable for bribery.”
While these changes are encouraging — last year’s report saw no change in the enforcement levels of most countries under the OECD convention — the report goes on to note that overall level of enforcement remains inadequate. There have been no additions to countries in the ‘active enforcement’ category. “The level of government support for the Convention must be strengthened to resist business pressures to relax enforcement,” advised the report. “The impact of OECD monitoring reviews has been uneven, as indicated by the large number of countries with inadequate enforcement. OECD reviews have resulted in improved enforcement in countries where there is high-level government support. However, they have had limited impact where political support is weak, notwithstanding repeated reviews. To raise the level of enforcement, stronger government support must be developed in countries with inadequate enforcement.”
For the full report, click here.
(Posted September 11, 2012)
Retaliation Grows — Even in Companies with ‘Strong Ethical Cultures’
September 4, 2012 -- Employees in management positions are more likely to experience retaliation for reporting company misconduct, even more so than employees in non-management positions, according to a report released today by the Ethics Resource Center (ERC).
In fact, senior management experienced the greatest jump in retaliation among those surveyed in the ERC supplement, “Retaliation: When Whistleblowers Become Victims.” The report, which draws from the results of the 2011 National Business Ethics Survey, found that employees in senior positions were more likely to experience ‘traceable’ forms of retaliation.
“Traceable forms of retaliation are those that leave proof of having happened: physical harm, online harassment, harassment at home, job shift, demotion, cuts to hours or pay,” notes the report.
Of senior management who reported some form of retaliation, 80% reported that retaliation took one of these forms. By contrast, non-management employees experienced less overt forms of retaliation — just 63% of non-management employees reported experiencing traceable forms of retaliation.
In general, employees who have often been considered ‘protected’ from workplace retaliation--management, senior employees, and union workers--have grown more likely to experience retaliation in recent years. In the past, members of unions, were found only somewhat more likely to experience retaliation than their non-union coworkers. In 2011, the percentage of union employees experiencing retaliation doubled, resulting in a 25 percentage point difference between union and nonunion workers.
The ‘traditional sources of security’ (that is, financial and personal security) offer little protection to reporters of misconduct, the report suggests. “Retaliation is significantly more common among whistleblowers whose financial situation has become more secure over the last two years (31 percent) than among those whose situation is less secure (22 percent) or about the same (19 percent).” The report found a similar increase related to employees who reported feeling strong support for their actions when they initially came forward. “As reporters’ personal support becomes stronger, the likelihood of experiencing retaliation increases from one in seven, to one in five, and finally, among those with the strongest personal support, to one in two.”
A striking change
Rates of retaliation have risen faster than the rates of reporting—a trend that is especially dramatic in companies that have reportedly strong ethical cultures. The connection between heightened support, financial security, and the likelihood of retaliation culminates in one of the 2011 NBES’ most surprising discoveries: “While retaliation rates are up across the board, the most striking change is in companies with strong ethical cultures. In workplaces where employees at all levels demonstrate a commitment to integrity and ethical business conduct, the rate of retaliation is nearly four times as high as in 2009.” Reports of retaliation have gone up comparatively little in weaker ethical cultures — a fact that may be attributed to these companies having had high rates of retaliation to begin with.
Overall, however, the report finds a high-stress environment the most likely culprit behind the increased reports of retaliation. In difficult financial times, companies under severe pressure to take retrenchment measures are more likely to turn that pressure on to their workforce. Employees may find themselves more likely to be asked to compromise their ethical standards for the ‘greater good’ of the company.
“Employees in companies with recent mergers and/or acquisitions are at far greater risk of experiencing retaliation,” notes the report. “At companies in transition, one in three (34 percent) reporters experienced retaliation; this is more than twice the number in more stable workplaces where 16 percent of whistleblowers experienced retaliation. Retaliation rates also rose considerably when management responded to the recession by creating an environment of increased pressure and compelled compliance.”
Nevertheless, a strong ethics and compliance program does make a difference. The ERC defines the ‘standard program elements’ as 1) written standards of ethical workplace conduct, 2) training on the standards, 3) company resources that provide advice about ethics issues, 4) a means to report potential violations confidentially or anonymously, 5) performance evaluations of ethical conduct, and 6) systems to discipline violators. A seventh element is a stated set of guiding values or principles. One in three whistleblowers at companies lacking these elements reported experiencing retaliation. At companies with ‘comprehensive ethics and compliance programs’ just one in fifty reported experiencing retaliation. “Preparedness” for the possibility of witnessing misconduct also decreased the likelihood of retaliation. Employees who are trained to handle situations where misconduct might arise are better prepared to address said misconduct — similarly, such training may better educate employees in what does and doesn’t constitute retaliation.
The report stresses that, while instances of retaliation against whistleblowers have gone up significantly in companies with strong ethical cultures, “It is still true that there is less retaliation in companies where employees at all levels share a commitment to integrity ... [R]etaliation declines precipitously when top management and supervisors make ethics a priority and model ethical conduct. In such workplaces, retaliation rates are half of those at companies with weaker ethical commitments. The ethical commitment of coworkers also has an impact in retaliation rates, albeit a less significant one.”
What should companies take from this?
“Addressing workplace retaliation should be a high priority for business leaders,” observes ERC President Patricia J. Harned, in a recent press release. “When an employee experiences retaliation for reporting misconduct, companies have two new problems. A second form of misconduct has been observed, and the reporter is now a victim. Additionally, retaliation can create an environment that is cancerous to the organization.”
For the full report, “Retaliation: When Whistleblowers Become Victims,” click here.
(Posted September 4, 2012)
Internal Investigators Shouldn’t Give Up Too Soon
While it is difficult to gauge if corporations have been conducting more internal investigations these days, most agree that the stakes associated with such investigations have risen.
The Dodd-Frank Act of 2010, after all, provides strong financial incentives for employees to report wrongdoing externally if they believe their complaints are not being heard.
When allegations are made, therefore, it behooves an organization to look into matters quickly and thoroughly, says Andrew Foose, vice president of the Ethical Leadership Group, part of NAVEX Global (Portland, OR), and a former Department of Justice (DoJ) trial attorney.
Investigators should know that they can’t simply give up if and when they are confronted with a “he said, she said” circumstance, for instance. There are ways to make assessments, Foose tells Ethikos. For internal investigators, “credibility determinations are an important part of the job.”
Look at an interviewee’s demeanor, for instance. This encompasses more than just body language—it also takes into account an interviewee’s word usage, tone of voice, and rapidity of speech. If the interviewee was speaking slowly earlier, is that person speaking rapidly now?
With regard to demeanor, there are no hard and fast rules, suggests Foose. You can’t assume that because someone doesn’t look you in the eye that that person is lying. That individual might just be shy.
That’s why experienced investigators often begin an interview asking easy questions, questions about the subject’s company background, say: “How long have your worked as XYZ Corporation?” The answers to such queries are already known—the investigator has done his/her homework prior to the interview, after all. The idea here is to observe the subject and establish a baseline by which to compare later responses.
Does the individual look the investigator in the eye? Does the person speak quickly or slowly? Later, when the questions bear more directly on the matter at hand—and are potentially more threatening—does the subject’s demeanor change? That person who had been answering questions with such assurance is now pausing four to five seconds before answering—why? Here the investigator may want to push the subject to be more explicit — which may bring clarity and understanding, but it could also give rise to a contradiction, undermining credibility.
There’s a lot of psychology at play here, obviously. “A lot of listening carefully and watching carefully,” says Foose.
There are other factors that can be used to determine credibility. One is inherent plausibility. Does the story make sense—ring true? Are there contradictions in the story?
Another is corroboration. What does the rest of the evidence say—does it support the interviewee’s accounts?
A fourth factor is motive. Could the individual be telling a tale to get out of trouble? To protect a friend, a boss?
An interviewee’s past record is a fifth factor. Does the individual have a history of raising complaints? Were complaints raised against this individual in the past—suggestions of having fudged sales numbers, for example, or allegations of sexual harassment?
Some less experienced investigators may feel uneasy using these criteria, acknowledges Foose, especially demeanor. But these are the sorts of judgments that people make all the time. When we meet someone at a party, we often quickly assess whether there are credible, worthy of our attention. More critically, it’s what we ask juries to do—and they have no professional training at all. “Listen to their story — see if it makes sense” juries are instructed by the judge. “Be mindful of motives.” Is someone testifying because they are getting a plea bargain? Is an expert witness being paid?
We use these factors in everyday life, in other words, often with justification.
The complete version of this story will appear in the upcoming September/October print edition of Ethikos.
(Posted August 14, 2012)
More than half of employees at Fortune 500 companies observed misconduct in past year
Observed misconduct is more common in Fortune 500 companies than at the average business in the U.S.—although not dramatically so.
Fifty-two percent of workers in the Fortune 500 companies observed misconduct in the past 12 months, compared with 45 percent among all companies in the U.S, according to the Ethics Resource Center’s (ERC) National Business Ethics Survey of Fortune 500 Employees.
While the ERC’s 2011 National Business Ethics Survey focused on all U.S. companies, the 2012 report is the first to focus exclusively on employees at Fortune 500 companies. The ERC surveyed 2,172 employees working for U.S.-based, for-profit/commercial companies that had annual revenue of $5 billion or more. What were some of the differences?
Overall awareness is a factor. “We found in 2011 that workplace misconduct (within U.S. companies overall) was lower-- and reporting of misconduct was higher than we’ve ever seen,” ERC President Patricia Harned tells Ethikos. These results were more pronounced in Fortune 500 companies.
The biggest difference, Harned found, was the extent to which employees in these larger companies observed and reported misconduct. Similarly, employees of Fortune 500 companies showed a greater awareness of their company’s code of conduct, and had very structured ethics and compliance programs in place.
Among all US companies (not just Fortune 500), “60-70% surveyed said they were aware of their company’s code of conduct,” said Harned. “In Fortune 500 companies, that number was 90%--that’s very high.”
Why so high? “I think part of it is the regulatory environment,” says Harned, noting that 70% of Fortune 500 companies are publically traded – large global enterprises which have been subject to increasing scrutiny in recent years. “Sarbanes-Oxley has gone a long way, and frankly I think that you need these programs.”
Structure plays a part too. Large companies typically have more structure in their ethics and compliance programs, with clearer lines of reporting than is found in small to mid-sized organizations. This can work both for and against company. “I think it’s double edged sword,” says Harned. “There are a lot of advantages: You have strong systems in place, there’s a clear code of conduct, a comprehensive system to build on.” The disadvantages, however, are that employees are often faced with a more complex organization – there may be too many channels, too many departments, too many division heads, and more challenges to address. An employee might find it hard to be heard in a large organization where there is sometimes less of a connection to an immediate supervisor.
One surprise in the 2012 survey was found in the area of retaliation. In the 2011 survey, which focused on companies overall, 22% of employees reported having experienced some form of retaliation on the job. In the current survey, 24% of employees affiliated with Fortune 500 companies reported some form of retaliation.
“It’s hard to say why that is,” said Harned, who noted that the ERC intends to focus more on these numbers in future surveys. “But part of it is that we’re dealing with companies that are much larger.” The more people reporting, the more retaliation is likely – and retaliation has been an active concern in the past year.
Reports of retaliation against whistleblowers was lowest among Fortune 500 companies with the highest revenue where, just 14 percent of reporters said they had experienced retribution. Among the Fortune 500 companies with the lowest revenue, a quarter of reporters (25 percent) experienced retaliation and the incidence of payback stood at about one-third (33 percent and 34 percent) among the middle groups of companies.
Reporting patterns appear to be similar among small, medium, and large companies. An earlier ERC study found that when faced with having witnessed misconduct, most employees would prefer to report to their immediate supervisor rather than to an external source. This reasoning has remained largely the same. In large companies, too, most employees who witnessed misconduct chose to go to supervisors rather than company hotlines.
When employees do eventually turn to the helpline, however, a higher percentage do so at larger companies. The deciding factor in this often has to do with the type of misconduct being reported. “Employees will go to the helpline when they feel they can’t go to their supervisor,” says Harned. Misconduct most often reported by employees at such companies includes delivering goods not up to specifications, stealing, abusive behavior, and health/safety violations, the report noted. Other types of frequently reported misconduct are sexual harassment, conflicts of interest, falsifying time reports, and breaching employee privacy. An employee is most likely to turn to outside reporting when the supervisor is involved in such misconduct.
The 2012 report also focuses on the ‘pressure of earnings.’ The more that companies are fixated on company share earnings, “the higher the observation of misconduct tends to be,” Harned says. Employees in companies that are focused on earnings often feel more pressured to break the rules. “It’s probably likely that 90% [of employees at companies that fixate on stock earnings] observe misconduct,” says Harned, though she hesitates to name it a trend. It’s hard to say if it’s size or increased scrutiny that results in higher reports of misconduct.
This may have an effect on reports of retaliation as well. “In addition to increased misconduct, in high-pressure environments, those who report misconduct are more likely than reporters who do not feel pressured (53 percent vs. 12 percent) to experience some form of retaliation from either co-workers or management,” states the report.
For access to the full ERC survey, click here.
— Alexandra Theodore
(Posted July 31, 2012)
BASF, BG Group and Statoil Tops in Anti-Corruption Reporting — Transparency International
With regard to corporate anti-corruption programs, three European companies achieved maximum possible scores (100 percent) in a recent Transparency International study: BASF, BG Group and Statoil.
The study examined corporate reporting on a range of anti-corruption measures among the 105 largest publicly listed multinational companies. AstraZeneca and Westpac (at 96 percent) rounded out the top five.
Top U.S.-based firms were Abbott, ExxonMobil, Intel, Oracle, and UPS (all at 88 percent).
There is significant room for improvement, according to the study, “Transparency in Corporate Reporting: Assessing the World’s Largest.” For example, “few indicate that facilitation payments are prohibited and reporting on monitoring procedures tends to be weak.”
The report has three elements, or “dimensions”:
- Public reporting on anti-corruption programs, which includes bribery, facilitation payments, whistleblower protection and political contributions
- Organizational transparency, which includes information about corporate holdings
- Country-by-country reporting.
Regarding the last, “most of the companies disclose little or no financial data on a country-by-country basis,” notes TI.
Among the most troubling areas uncovered within the anti-corruption dimension is the issue of facilitation payments. Of the 105 companies surveyed, just 23 companies reported on having prohibited facilitation payments. By comparison, 97 companies out of the 105 surveyed say they report on their company's compliance with all relevant laws (in relation to their anti-corruption programs). Ninety-four companies report on having a code that applies to all their employees, and 85 of companies answered in the affirmative to having a confidential reporting channels for anti-corruption concerns.
“Some companies report having updated their policies on facilitation payments by introducing a full prohibition during or after completion of the research, while others have revealed that relevant updates will be adopted and published soon. Overall, however, results on the prohibition of facilitation payments were disappointing,” notes the report.
Overall, Statoil (Norway), Rio Tinto (Australia/UK) and BHP Billiton (Australia/UK) achieved the top three positions in the index. “These were also the only companies that scored in the top 10 in each of the three dimensions of transparency.”
Given the recent financial crisis, a special section of the report is dedicated to financial sector companies. The results are less than encouraging. “As the single largest sector in the sample, financial companies vary in terms of their results, but in general their performance is poor: as a group they performed below average in all three dimensions of transparency.” The financial sector scored particularly low with regard to facilitation payments -- only two banks posted a positive score in this area of the 24 companies surveyed.
Technology companies didn’t fare so well, either: U.S. giants Amazon, Apple, and Google all ranked near the bottom in the overall rankings. Of these three, Apple fared the best—the company ranked firmly in the middle when it came to reporting on its anti-corruption programs (62%), poorly in overall organizational transparency (33%), and had no form of country-to-country reporting at all.
The healthcare industry fared better -- only the Israeli pharmaceutical company Teva received a score below the sample average. “Still,” warns TI. “Weak performance on disclosure of political contributions in the healthcare industry should be noted.”
Still, the report found some encouraging trends. Companies have improved in their reporting of anti-corruption programs from an average of 47 per cent in 2009 to 68 percent in 2012. In relation to whistle-blowing, 72% reported providing channels through which employees can report potential violations of policy or seek advice in 2009; that number rose to 82% in 2012. Similarly, in 2009, just 66% of companies said they had non-retaliation policies in place. In 2012, 80% reported such policies. In addition, companies who said they train their employees on anti-corruption issues jumped from just 37% to 77%. Seventy-nine percent of companies now say they have some policy related to corporate gifts (up from 69% in 2009), 89% say these policies apply to all employees (up from 74%), and 59% extend such policies to business partners — just 39% said they did so in 2009.
For The Full Study, “Transparency in Corporate Reporting: Assessing the World’s Largest,” click here.
(Posted July 24, 2012)
FCPA ‘the Biggest Challenge’ to International Investigations—FTI study
The Foreign Corrupt Practices Act (FCPA) will be the number one challenge for corporate international investigations over the next five years, according to a recent report conducted by FTI Consulting, “E-Discovery Strategies for International Anti-Bribery Investigations.”
The report surveyed over 114 experts, mostly legal and accounting professionals who have handled e-discovery matters--that is, investigations focused on electronic information--for either multinational investigations or cross-border litigation.
“Reflecting the belief that anti-bribery enforcement will only continue to rise, more than 50 percent of respondents in FTI’s survey answered that the biggest challenge to international investigations over the next five years will be the FCPA,” reported the white paper.
Other challenges (in descending importance) were whistleblowers, cloud data, international data privacy, and the UK Bribery Act.
“We’re going to see continued vigorous enforcement” of the FCPA, noted Gary DiBianco, a partner at Skadden, Arps, Slate, Meagher & Flom LLP. “Now that this has been a high profile topic for the last three to four years in the enforcement community,” these investigations are going to continue, “and companies and boards are very attuned to it.”
When it comes to conducting investigations, companies need to “act quickly,” the report emphasized. “In an anti-bribery probe, the Department of Justice will not look kindly on companies that fail to secure relevant documents and data. If litigation is involved, discovery schedules can be tightly organized, and the process of collecting and reviewing documents can become a race against the clock. Numerous concerns must be addressed right away.”
“Assess who may have been involved in the allegation,” says Veeral Gosalia, a Senior Managing Director in the FTI Technology segment. “Who may be committing the actual bribery? Develop a custodian list, or a list of employees from whom you will collect data.”
Investigations involving China often require special care. “If an investigation leads to China, companies should plan to conduct on-site document review. That’s because local companies, which often have some kind of tie to the Chinese government, can invoke ‘state secrets’ rules to prevent documents from being taken out of the country,” says Jim Walden, co-chair of the White Collar Defense and Investigations Group at Gibson, Dunn & Crutcher LLP.
Companies find themselves focusing investigations on emerging markets, often areas which have also been consistently surveyed as holding the highest risk for companies looking to expand. Five out of the ten top countries most investigated were located either in Asia or Latin America, and a full 48% of respondents have said they had to collect data from China.
“These investigations are inherently cross-border and that creates challenges” notes Kimberly Parker, a partner at Wilmer Cutler Pickering Hale and Dorr LLP. “It creates challenges in terms of access to witnesses and evidence and also in terms of data privacy regimes in other countries. And while those issues may be present in other investigations, they are the essence of an FCPA investigation.”
An understanding of legal confidentiality laws is important, too, for any company that may find itself under investigation for FCPA violations. Information that may be protected under US law would not, for example, be protected by Italian law, says the report.
“I can’t emphasize enough how important it is for companies to start thinking about FCPA compliance before an investigation, not after,” says Gosalia. Among the experts surveyed, just 40% reported spending more than $500,000 on e-discovery for multinational matters, and 33% admitted not knowing how much was spent on their investigations.
Meanwhile, fines exacted by the SEC and the DoJ have been in the millions.
“An internal investigation and/or DOJ or SEC probe can be much more costly than implementing proper controls and compliance from the beginning,” says the report. “And if prosecutors do take an interest in a company, they will give credit in settlement negotiations to those that can show they had serious controls and compliance procedures in place.”
For the full report and accompanying webinar, click here.
(Posted July 17, 2012)
As Europe plots its Ethics and Compliance course, French University sheds light
When France’s Université de Cergy-Pontoise (UCP) considered creating a master’s degree in Law and Business Ethics, it did not find much precedent.
“Benchmarking showed that there were no programs in the world with a master’s program focused purely on business ethics,” says Roxana Family, dean of UCP’s School of Law and Co-Founder of the school’s Chair of Excellence in Law and Business Ethics. “There were modules, but we found no full programs,” she tells Ethikos.
The concept of business and ethics is still a very young one, according to Family. It was still considered young when UCP created the Chair of Excellence in Law and Business Ethics in 2007. “We wanted to bring together experts from various fields of law.”
The Chair gained support from a number of European entities, gaining partners such as L'Oreal Group, EADS and ALSTOM and, more recently, the Organization for Economic Cooperation and Development (OECD), which collaborated with the Chair in it’s 2011 European Symposium of Ethics and Governance.
These partners have proven invaluable to UCP’s new Master in Law & Business Ethics program (accredited in 2009). “One of the most innovative aspects of our program is that students do their internships at the same time (as they take their classes),” Family recounts. “Students will spend three days at corporations involved in their CSR [corporate social responsibility] programs, their HR Programs, etc.”
Students typically then spend another two days a week in intensive courses in law and business ethics. Completing the UCP Master program (the university is based about 20 miles west of Paris) takes a bit over a year — with more than 700 hours of coursework. The program offers two majors: in Finance & Responsible Investments; and Human Resources & Responsible Employment; and two minors: in Environmental & Energy Law; and Compliance & Healthcare.
In addition to their internships and intensive coursework, students travel around the world to learn more about different ethics and compliance programs, and what is being done from a structural standpoint. “Last week we were in the States meeting with organizations and companies,” Family told us in an interview in New York City in late June. In Washington, D.C., for instance, they met with experts from the FBI and the IMF.
Family explained that the Master program is also compromised of short programs and longer programs. The short includes ‘Business Breakfasts.’ “We invite a ‘big personality.’ It can be a CEO or a government official. We pick a topic—like the cost of environmental programs--and they spend the morning discussing this issue with students.”
For longer programs, “We organize a day [long] program that focuses on one or two issues. Since last year, we've also held a symposium, bringing in experts from all industries to focus on three or four issues.”
Symposium at OECD Headquarters
The last symposium took place at OECD Headquarters in Paris over the course of two days. It focused on four themes: Conflict of interests, performance and compensation, rating agencies and social business. Participating experts included compliance officers and judges from the highest offices.
“The OECD proved very useful for this program,” notes Family. Since the success of the 2011 symposium, UCP has signed an agreement with the OECD to work more closely to create more collaborative programs. The next European Symposium of Ethics and Governance is scheduled to be held at the OECD in 2013.
The key to success with the Master program is to teach students to have ideas.
“Alumni can't just be alumni,” says Family. The notion is that those who complete the program go on to become junior compliance officers.
Just who are these students? Generally most seeking the degree are fifth year law students (in France, legal education starts immediately after high school), with a few coming from business schools.
What issues are they expected to tackle? “They work a lot on anti-corruption, CSR, personal data privacy--they all get a specialization in corporate government and compliance.”
They’re asked to participate in case study programs—four-hour programs in which a compliance officer from a major company presents them with a problem faced in his or her own career. Students are given three hours to consider how they would respond to the issue faced. In the end, they discuss with the compliance officer what that individual did and why.
The learning trips work in a similar fashion. Students visit companies and learn about the programs they have in place. “They try to find out why they work the way they do,” and if it works for that particular industry. Students see a number of different types of compliance programs and compare them to the companies where they are presently interning.
They see a broad range of approaches.
“Many look at the financial industry--which is very heavily regulated,” Family notes. Financial institutions are typically focused on the ‘compliance’ side of things. “When you go to other industries, you have larger companies and these are more values-based. It gives them the ability to discover the efficiency of the program they're interning with.”
The students complete their internships in human resources or finance sections of their companies, depending on their major. The human resources major is closely related to corporate governance. Students work with company directors of CSR, for instance. The students who major in Finance & Responsible Investments work with financial officers.
The most important thing that students are asked to take away from their experience is the philosophy of a program—something that is supplemented in their coursework: “They get a lot of classes in the philosophy of ethics, the linguistics of ethics.”
Importance of ‘soft law’
It’s about showing law students the importance of issues that often fall under the category of ‘soft law.’ “Soft law can have the same legal value as hard law,” says Family, who finds this to be one of the big issues in France.
“Employment law is very strict in France. We're still learning what compliance is about,” says Family. “What does it cover? Can there be values and standards we can integrate into our programs?”
— Alexandra Theodore
A longer version of this article will appear in an upcoming print edition of Ethikos
(Posted July 10, 2012)
The business ethics and compliance industry has been rife with mergers and acquisitions this past year—most recently the combination of EthicsPoint, Global Compliance Services, ELT, and Policy Technologies International to form NAVEX Global (Portland, OR).
But this is only as it should be, according to Shanti Atkins, President and Chief Strategy Officer of NAVEX. The field was too fragmented, she tells Ethikos.
“The function (ethics and compliance) is really maturing. Five years ago, 10 years ago you saw a much more ‘siloed’ and ‘fractured’ effort,” says Atkins, formerly CEO of ELT, which specializes in online legal compliance training.
“When it came to compliance efforts, you’d often have HR working on one end, compliance on another, audit on another—however today the ethics and compliance function has become a much more solid and understood role in the company. It’s become understood that we need to start connecting those functions.”
Only a few years ago, the purchaser of conflicts of interest training may have been under a different budget than, say, the person in charge of implementing discrimination policies in a company.
“There should be a blurring between ethics and compliance,” adds Atkins in an interview last week. Treating ethics as a separate issue can lead to “a lot of lip service paid to this concept”—but not much action.
“You have to have a good culture.” But what does this mean? “Culture is not words on a page. Culture is action. Culture is what you experience as an employee at the company. For example, if your company has committed to ‘not retaliating against employees’ it should show that in every aspect.”
‘Culture can be how you discipline’
“To your employees, culture can be how you discipline.” How a company chooses to address the wrongdoings of a top-level employee can say a lot—employees need to see what happens to people who violate the code.
It doesn’t have to be all negative. “It’s really about championing the program.” Atkins recalls a client who holds annual ethics championships--“where they actually have a monetary award.”
A company’s commitment to non-retaliation also says something about its culture. Among employees, complaints of retaliation within a company are now the top complaint, exceeding even complaints related to racial discrimination, says Atkins.
“Too often companies take a ‘check the box’ approach,” says Atkins. “Well, if you’ve ever actually dealt with an employee reporting internally—it’s a deeply emotional experience—so having a visible system in place is important.”
A huge component in building that system is to educate employees on just what they can and should look out for. “Not just dedicated high-end education, but rather having almost an internal marketing program that tells employees ‘you are the eyes and ears of the company.’”
It needs to go beyond a written mission statement.
All too often “if an employee comes forward, they’re [viewed as] a frequent ‘complainer.’” All too often, the company launches an investigation and is absolved of all wrongdoing.
“If you asked experts, ‘Can that employee charge the company for retaliation?’ ninety-nine percent of experts would say ‘no,’” says Atkins. “But in fact, the answer is yes.” The idea of what constitutes retaliation has become better understood in recent years as more government enforcement activity has brought the details of such cases to the forefront. “Retaliation is a whole lot more than firing someone.”
Overall, companies like NAVEX Global have come to represent a desire on the part of the ethics and compliance industry for a more ‘integrated’ system, says Atkins. This includes data systems and case management, but it also means a more integrated approach to ethics and compliance as a whole.
Riverside Company, a private equity firm, acquired EthicsPoint (Lake Oswego, OR), a provider of hotline and web-based ethics reporting systems, in February 2012 and merged it with two rivals--Global Compliance Services and ELT Inc. Idaho-based PolicyTech, a policy software provider, joined the group at the end of June. Corporate headquarters remain in Lake Oswego, a Portland suburb.
Mark Reed, formerly CEO of EthicsPoint, is now CEO of NAVEX Global, which will have a workforce of more than 450 employees and a client base of more than 7,500 organizations, including “nearly three-quarters of the Fortune 100 and half of the Fortune 1000,” according to the company.
— Alexandra Theodore
A longer version of this article will appear in an upcoming print edition of Ethikos
(Posted July 2, 2012)
For the third year in a row, Rockwell Collins (Cedar Rapids, IA) was cited (in March) as one of the World's Most Ethical Companies by the Ethisphere Institute.
One must always take such designations with a grain of salt. But one guesses that the Ethisphere judges were impressed, among other things, by the aerospace and defense company’s ethics and compliance (E&C) training programs.
Unlike many other large concerns, Rockwell Collins develops all its training internally. They write their own scripts based on actual events within the company and are committed to a “home-grown approach,” Dorene A. MacVey, Senior Director, Ethics and Business Compliance, tells Ethikos. Indeed, “If I did something off the shelf, it would be obvious.”
Surely, this is more difficult to do than using an outside vendor, say?
“Without a question, it takes more time and effort than customizing an off-the-shelf course,” MacVey answers. “And it takes coordination.” Many people are involved in this process. “It starts with writing our own scripts. We draft the content by working with ‘subject matter’ attorneys. In addition, our general counsel [Gary Chadick] is very active in this process – he reviews each script and sits through two formal reviews, offering input and feedback along the way.
“We craft each script to have a high degree of interactivity, such as incorporating knowledge checks, and use lots of examples and scenarios with multiple choice answers. We work with in-house graphic designers and CBT [computer-based training] developers to create our courses. We have a communication and training professional on our team who focuses on helping coordinate this process.
“And we’ve got to be creative, too, so employees don’t get bored. We have to come up with new concepts for our ethics training each year to keep employees engaged.”
One example of this “creative” approach is the “passport” training used in last year’s E&C training. The video module focused on three fictional travelers flying to a Rockwell Collins business meeting in Melbourne, Florida. Each confronts one or several ethics issues before, during or after their flight.
“Meet Jason,” begins the first scenario. “Jason is a new Rockwell Collins employee based out of Cedar Rapids, Iowa and is traveling to his first business meeting in Melbourne, Florida...”
After check-in, Jason waits in the terminal for his flight to board. He pulls out his laptop to tie up some loose ends. Just then he overhears three people (not Rockwell Collins employees) discussing workplace issues. Jason glances over to the three figures, each depicted initially as a black cut-out figure on the computer screen. “Click on each person to hear their story,” interjects the audio.
A trainee can click on the black cut-out figure of a woman holding hand luggage, and she comes to life (wearing a green shirt and tan slacks): “You would not believe what happened at a our team meeting yesterday….our team leader started yelling and swearing at people…I couldn’t believe the things he was saying...”
This case of “harassment” is followed by other scenarios (unprofessional conduct, sexual harassment) as the trainee clicks on the figures on the screen.
Then: “Click on Jason’s computer to learn how those issues would be viewed at Rockwell Collins.”
Later, trainees are invited to “Test your knowledge of our policies by matching violations in one column to the applicable policy in the other column.” The trainee drags the violation from one column to match the applicable policy in the other column.
When this is done correctly, the video responds: “Congratulations, you’ve earned the first stamp in your passport.” When the employee receives three passport stamps (other scenarios feature Nadja, a fictional Rockwell Collins employee from Germany, and Chang, a Rockwell Collins manager based in China), the employee has passed the training.
Rockwell Collins conducts annual ethics training that is delivered to all employees—about 20,000 employees world-wide. “This is audited each year for compliance, and we ensure each employee has completed this training,” says MacVey. “We get 100 percent compliance to this annual requirement.”
Developing the training from scratch is important for several reasons, MacVey tells us. “We believe it is important for employees to see the commitment we have in ethics and compliance. The investment we make in training helps our employees to see this commitment.” It also enables them to use examples and scenarios from within the company. “The training is based on our policies.”
A longer version of this article will appear in an upcoming print edition of Ethikos
(Posted June 26, 2012)
When it comes to dealing with potential whistleblowers, one common mistake companies make is not keeping (internal) reporters informed about ongoing investigations.
This isn’t always intentional on the company’s part. “The Old World idea is that if someone reports misconduct, you don’t tell them about the ongoing investigation,” says Jordan Thomas, partner and head of the Whistleblower Representation Practice at Labaton & Sucharow, and former assistant director in the SEC’s enforcement division. “But that no longer works,” he tells Ethikos.
There was no particular legal precedent for this practice, aside from a general preference for not sharing potentially volatile information within the company. However, with the SEC’s whistleblower program, which Thomas helped to develop, companies have had to rethink the general blackout policy on such issues. It is no longer considered a best practice to keep silent with your employees about whether or not an internal investigation is taking place.
“Whistleblowers struggle with whether or not to come forward. If nothing happens then that person and everyone (within the company) that that person knows will believe that nothing will be done to address their concerns,” says Thomas.
Many potential whistleblowers feel loyal to the company, want to do well by it, and would like to report internally. However, if they feel their concerns aren’t being addressed, they may seek out external channels, he suggests.
So what can companies do to make it clear to their employees that they can come to them first? Thomas identifies a number of areas companies should focus on.
“On the base level—and this sounds a little touchy feely—is to establish a sense of community.” This means a level of engagement with the company. If employees feel invested in the company, and believe that they have a strong channel of communication, they will be more likely to report internally.
Another is a compelling vision: “Something that inspires people is to believe that everyone is responsible. They (companies) have to inspire employees to make choices.” Good training programs, codes of conduct, and clear guidance with regard to dealing with thorny issues also help. “The organization should look to integrate its values” into every aspect of the company culture.”
A third area is accountability. “This is critical,” says Thomas. “People need to be held accountable. It doesn’t need to be, ‘I’ve just fired Sally.’ It can be as basic as providing a report that states, ‘Here’s the most recent matter we looked into.’” Reports that heighten employee awareness of misconduct within the company — and showcase the company’s response—reminding them what actions can lead to investigations or potential termination, say—can be positive.
Another key area is transparency. “This is where just coming and saying ‘Thank you for coming forward, we’ve hired a firm to investigate the issue’ can make a difference,” says Thomas. “You haven’t really told them anything compromising, but you’ve let them know that something’s been done about it.”
Along these lines, “How often has senior management thanked employees for bringing their concerns forward?” Thomas asks. Companies can even take this a step further if they like—offering ethics awards for employees who have brought matters to the attention of their supervisors, for example.
When the SEC whistleblower program came into force last year, many companies were concerned that the provisions would undercut their internal programs. They’re still worried. “Any time an organization feels as though they’re losing control, it makes them nervous,” says Thomas.
However the attitude that the whistleblower program exists to invalidate a company’s internal programs is a common misconception on the part of companies.
“Organizations mistakenly view the SEC program as a competitor when it should be seen as a collaborator,” says Thomas. “If they looked at it with a sense of ‘this is a way to help,’ I think it might have a positive affect.’”
This is especially true given growing evidence that few whistleblowers are really the ‘disgruntled employees’ of whistleblower lore—as was often feared.
“More than half of my clients report internally first,” says Thomas. Most often you are dealing with employees who are very conflicted about uncovering misconduct within their company, and feel a strong loyalty to the company. “They’ll say ‘Look, I’ve been here for years, and I love my company and I want it to do well.’”
The factors that cause these conflicted individuals to become whistleblowers are weighted in internal communication. “It’s about organizations not giving people comfort.”
To that end, the SEC program has forced organizations to look inwards.
“Corporations around the world have been reevaluating their programs.” However, not all companies have used it as an opportunity to improve their systems: “There are some organizations—not many, but a few—who have been discouraging those (external) whistleblower reports,” i.e. writing things into employment agreements. “And I think organizations that do those things will come to regret them.”
— Alexandra Theodore
A longer version of this article will appear in an upcoming print edition of Ethikos
(Posted June 19, 2012)
When it comes to reporting wrongdoing, whistleblowers prefer to report internally. Fifty-six percent of employees who report misconduct bring the report to someone they know and trust inside the company, according to a recent study released by the Ethics Resource Center (ERC), “Inside the Mind of a Whistleblower.”
Far from the disgruntled, ‘rogue’ employee, the report finds the average whistleblower is often someone who would, in fact, prefer to use the internal reporting channels, provided they are given the agency to do so. Nor are they particularly swayed by the promise of monetary awards, such as those provided by the Dodd-Frank incentives: The study found that across almost all demographic groups surveyed, only about 1 in 20 individuals (5 percent) would be motivated to report outside the company by a monetary reward.
The supplemental report, which drew from data collected from the ERC's 2011 National Business Ethics Survey (NBES), found that 82 percent of initial reports of misconduct are directed either to the reporter’s immediate supervisor (56 percent) or to a more senior manager (26 percent).
“Higher management received more than one in four (26 percent) of all first reports. Of those who had not already reported to higher management, an additional 30 percent of subsequent reports went to them, resulting in the highest percentage of subsequent reports. When we take into account both initial and subsequent reports, 83 percent of all reporters tell their supervisor about observed misconduct at some point, and 65 percent tell someone in higher management,” noted the study.
This suggests a strong preference for employees to go to someone who is more immediate in their chain of command, as opposed to going over their heads to report the concern. In fact, the relationship between the employee and who they report to may make all the difference when it comes to an employee’s decision to come forward. “The data shows that employees would rather sacrifice anonymity and report to someone they know and trust.” In fact, just 16% employees surveyed said they brought their concerns to hotlines, which would have preserved their anonymity.
The level of trust is important. The ERC found that reports that go directly to higher management will increase when employers have weaker perceptions of their supervisors’ ethics.
“We tend to think that whistleblowers go outside the company because they do not trust their employer,” said ERC President Patricia Harned. “But in most cases, employees actually turn to their management first. Many see whistleblower as a derogatory term for a disloyal employee, but we’ve found that the whistleblower is often forced to go outside, either by fear, inaction, or both.”
Many things spur employees to come forward internally when they witness wrongdoing within the company, but one of the strongest is whether or not their actions will be acknowledged within the company. 72 percent of employees who agreed their companies reward ethical conduct did report observed wrongdoing, but that number dropped to 57 percent among employees who do not find their company rewards ethical conduct. Similarly, employees’ confidence that their company will follow up on their reports is also often a deciding factor. The typical employee who brings concerns to a company’s attention believes the company will take action, and that is their main motivation for bringing it forward. By contrast, the average employee who witnessed wrongdoing and said nothing cited the belief that no action would be taken in response; that was their main reason for not reporting.
This places a great deal of importance on the company’s internal ethics and compliance systems.
“Employees who have the courage to raise their hand and report wrongdoing form the front line of a culture of compliance,” said Michael McLaughlin, Chief Ethics and Compliance Officer at Dell, Inc. “At Dell, we ask our team members to act as owners and speak up when they see things that aren’t in line with our core values of winning with integrity and doing the right thing each time, every time. And we applaud them when they do.”
So what about the employee who does report externally -- to government agencies?
The numbers speak for themselves: “In companies where employees trust senior management, 86 percent make only internal reports, while in companies where senior management is not trusted, 70 percent make only internal reports and 30 percent report internally and externally or externally only,” said the study. “Companies that extol the importance of working together see 85 percent of reporters talk only to internal sources, 13 percent tell someone inside as well as outside, and only 1 percent go exclusively to an outside location. Where advice seeking and cooperation is not encouraged, 62 percent of reporters keep their reports internal, 19 percent tell someone inside and outside the company, and 20 percent talk only to an outside source.”
The study notes that while an employee’s financial position within the company may factor in whether or not they report, the promise of a whistleblower’s bounty is generally the last on the list of motivating factors as to whether or not an employee will come forward. Of both reporters (employees who saw misconduct and said something) and non-reporters (employees who saw misconduct and did not say anything) the largest deciding factor is the severity of the misconduct: 83 percent of reporters and 84 percent of non-reporters would report externally if they had witnessed a very serious crime. 78 percent of reporters and 81 percent of non-reporters would go to external agencies if the action witnessed had the potential to harm people.
After that, deciding factors included concern for the environment, followed by concern that the company could get into trouble. Potential monetary reward came up last in the list of motivating factors: It was a factor for 55 percent of non-reporters and 42 percent of reporters.
That may seem high: “Using the ‘[I’d report] only if there were a chance for a substantial financial reward’ response, we were able to look more deeply into the decision to report to the federal government specifically. We found that, across almost all demographic groups, only about one in 20 individuals would be motivated by a monetary reward,” noted the study.
For more on the supplemental report and access to the 2011 NBES, click here
(Posted June 5, 2012)
Most agree that business needs better ethical decision-making. With its new certificate program, St. Louis University’s Emerson Ethics Center looks to assist companies in that aim—while bringing academic rigor to the process.
The school’s Certificate Program in Corporate Ethics and Compliance Management (CECM) was created a year ago in response to feedback from industry experts. The online program draws on twenty-five advisors and specialized professionals, each covering specific modules i.e. trade compliance, Federal Sentencing Guidelines, OSHA regulations, environmental compliance, healthcare compliance, pharmaceutical compliance, and so on.
The program had no single industry in mind when it was conceived. “It’s not specifically about healthcare or pharmaceutical ethics,” Nitish Singh, Associate Professor of International Business, and CECM program leader, told Ethikos in a recent interview. Program participants, who include chief compliance officers, general counsels, risk managers, human resource officers, accountants, among others, are first given a broad schooling in ethical decision making, and U.S laws and regulations, to set a basic groundwork.
From there, “We funnel down to CSR [corporate social responsibility], and then we go on to how to create a culture of compliance: How to manage and prevent wrongdoing. How to implement a whistleblower program. Anti-corruption, trade compliance. How to do fraud compliance. How to go about environmental compliance.”
The online program offers a number of simulations, based on real-life instances where a compliance or ethics officer might be required to make some form of decision in the face of an issue like, say, the recent Walmart bribery scandal.
A session can be made up of an online video, a PowerPoint presentation, topical readings, and finally an interactive portion where the student is asked to come to a decision.
The main emphasis is, ‘What should you do?’ It’s about making an ethical decision, yes, but it’s also about discovering what the participant’s particular decision making style is. The program analyzes how they respond to questions, and then gives them feedback identifying their style of decision making, what their strengths are, and what ‘blindspots’ they will need to look out for.
What defines an ‘ethical decision making style’? There are a lot of ways to quantify it: broad theories, justice theory, the basic foundations of decision making psychology, relationship lenses, etc.
However, Singh notes, “These are executives and professionals. Just theory isn’t good enough.”
In deciding how they would solve a particular simulation, for example, they are shown at the end of the simulation the alternative methods they might have chosen. “So basically there is no right or wrong answer.”
It’s interconnected. They also learn, for example, what the FCPA is, where or what are the compliance ‘nightmares,’ the ins and outs of anti-bribery law, and other matters.
“We have our sections on how to communicate from the top to bottom,” for example, how to communicate ethics to an employee in a distant outpost like, say Morocco—areas that are hard to get to, but often the first place where a company can run afoul of regulations or laws if they haven’t put resources into training personnel.
“Before we launched this program we did research,” noted Singh. He and his colleagues found that while there were a lot of private programs that focus on this sort of training, the methodology was much too rigid. Singh likens the approach of these programs to the Meyers-Briggs personality test, a psychological assessment which identifies personality traits based on responses to a series of questions. This may be good for identification, but the analysis leaves little room for flexibility.
Most existing programs are not associated with universities. The Society of Corporate Compliance and Ethics (SCCE) offers a certification program that requires two days on site with a test at the end. Singh noted that while there was nothing wrong with this particular approach (in fact, he has recommended healthcare specialists to SCCE programs), he found that two days might not necessarily be enough to instill a broader understanding of ethical decision making and ethical culture.
St. Louis University’s certification program can be completed in eight months. Each online module is five to six hours long and designed to instill a ‘rigorous academic’ structure that will help the participant explore how they approach ethical issues as a whole. Participants of the program are actively monitored over the course of their study.
The program tracks what modules were accessed, what videos were watched, how participants responded to questions. At the end of the program, they take a proctored exam.
“They are evaluated,” says Singh. “We see how seriously they take it.”
— Alexandra Theodore
A longer version of this article will appear the upcoming July/August print edition of Ethikos.
(Posted May 30, 2012)
The pendulum is swinging from prevention to investigations in corporate compliance programs, suggests Microsoft’s Director of Compliance, Odell Guyton.
With the new government incentives for employees to report wrongdoing outside the corporation, a compliance officer’s job becomes more problematic — “because you never know if it’s a real allegation or if it’s someone just seeking some reward,” says Guyton, speaking at the recent 2012 Dow Jones Global Compliance Symposium. “We must keep in mind that the benefit of a compliance program is on the preventative side—but now it’s become about ‘well, how good were you at your investigations?’”
The result has been a shift of priority when it comes to deciding how to divvy up your organizational resources. “Now you have to decide, ‘how much do I put in programmatic and how much do I put into investigations?’ It becomes a real challenge,” says Guyton.
The job of compliance officer is a tricky position. “The fact of the matter is it is stressful,” Guyton admits. “I always joke that the compliance officer is always the last one to know—and when the long knives come out they’re pointed at us.”
The whole point of a compliance program, according to Guyton, is to help the company create tools with which to detect and prevent wrongdoing, and address problems as they come up. When Microsoft established its compliance program in 2001, they created two positions: chief compliance officer, and Guyton’s position—director of compliance. “And that was actually ahead of the recommended guidelines,” Guyton notes.
Of course, when it comes to due diligence, one can never be sure when enough is enough. “There was a show years ago called ‘Lost in Space,’ and there was this robot. It had sensors and whenever there was danger he’d yell, ‘Danger, Will Robinson!’ I like to take the ‘Danger, Will Robinson’ test—I give many people the compliance hat, and I send them around the world as sensors, and I want to hear back from them. ‘Danger, Odell Guyton! Danger!’”
In many ways Microsoft’s code of conduct is stricter than the law. It has to be. “Should there be an incident, we want to hear it first before our boys run off to the government,” says Guyton.
And when your organization has stumbled and uncovered internal wrongdoing? The ‘cover up’ is often more problematic than the initial wrongdoing. At what point should an organization self-report to regulatory watchdogs? “You don’t want to be making that decision! It’s a complex question. It’s one based on ethical concerns. It’s one based on legal concerns. It’s one that the company as a whole has to make. It’s one that the board has a hand in as well—so, regardless of personal concerns, as a compliance officer you can weigh in on a decision but you may not be the person responsible for that decision.”
It’s a decision that can carry heavy costs for government contractors, Guyton notes, where self-reporting can bring the risk of disbarment.
With all that in mind, it’s in a global organization’s best interest to have compliance officers embedded in all regions. “We leverage as much as we have to and can—we have some people who are dedicated to compliance, but usually on the investigative side, in different geographies.” In addition, Microsoft has a number of collateral units, that is, control units, who are not expressly compliance officers but act as an additional safeguard against wrong-doing.
Of course, even with those measures in place, Guyton echoes the general sentiment that present regulatory enforcement hasn’t done enough to recognize when a company under fire does have its best preventative measures in place.
“Over the years, I have rarely come across a company or team of people that are deliberately trying to violate the law. Companies get it. Companies are trying to do better. They’re putting in programs, and they’re getting better,” says Guyton. “The one thing that does concern me is that in spite of these efforts there can be an allegation lodged against the company—in spite of your program. The government investigates it secretly, and you won’t know about it until the axe falls. You don't know in such cases how much your program weighs in their decision.” He would prefer more clarity regarding the investigatory process, and a clearer understanding of what credits companies will receive for the efforts that they do make.
(Posted May 15 2012)
Panel asks: Is Your Company Really Ready For Whistleblowers?
When it comes to the issue of whistleblowers, companies agree that they would like to encourage employees to come forward internally first, but just how that works has been the topic of debate.
The value of anonymity, in particular, has come up again, and again.
“I think a lot of ethics and compliance folks have a problem with anonymous reports because it makes it a lot harder to follow up,” says Carolyn Renzin, Managing Director at investigative firm Guidepost Solutions, speaking at the Dow Jones 2012 Global Ethics Symposium.
Technology has begun to solve some of the problem. An anonymously reporting employee can be issued a ‘code,’ and communications can be continued under that code—but even here anonymity might hinder an internal investigation, notes Renzin, and companies should tell employees that follow-up will be more difficult if they report anonymously.
The temptation to seek out an anonymous tipster’s identity can often be strong. This should be resisted, however. “You should respect that anonymity,” says Sarah Bouchard of Morgan, Lewis, and Bockius. A company can’t become too preoccupied with the source of a report.
Stephen Kohn, Executive Director of the National Whistleblowers Center, an advocacy group, believes seeking out a whistleblower’s identity should be absolutely prohibited. “That should be considered a sanctionable offense up to termination.”
This was a repeated issue during the implementation of Dodd-Frank, he notes, where it was often observed, “If you blow the whistle on Wall Street, you could never get a job again.” This is a powerful argument in favor of anonymous reporting, i.e., even with protections in place, whistleblowers might not be safe from retaliation.
Fear of retaliation is certainly a limiting factor for a company that wishes to encourage its employees to report internally before taking their complaints to an outside enforcement agency. It proved a contentious topic at the Dow Jones’ panel, titled “Hello DOJ? Is Your Company Really Ready For Whistleblowers?”
“People are fearful to come forward,” notes Julie Kane, Vice President, Ethics and Compliance at Novartis. “I think most large companies or small companies require employees to come forward. But you have to do whatever you can in an organization to make sure they feel safe.”
This is the single most important aspect of an effective internal reporting program.
PwC’s Barbara Kipp agrees. “First of all it’s well researched that good compliance and ethics programs drive culture. Ultimately culture drives behavior--behavior of following the rules of the company.”
As you focus on your internal processes, she argues, don’t focus only on your hotline process--you should really be thinking about how matters are brought to your attention. Who is taking these calls? Are they prepared to deal with it?
Should internal reporting be a mandatory step? Kohn argues strongly against the idea that an employee should be required to come forward immediately the moment the person spots wrongdoing. “Those [sorts of rules] are used against employees,” he says, noting that often in cases involving whistleblowers, companies will use the fact the whistleblower reported to them and not the SEC as an argument against them being considered a whistleblower—and therefore (diabolical as it might sound) not subject to protection under the Dodd-Frank Act.
“I totally agree that it should be safe to blow the whistle. But I think the eight hundred pound gorilla in the room is that it is not safe for employees to blow the whistle in every country,” adds Kohn.
Kohn cites a recent case in which a GE executive claims he was fired for telling his supervisors about potential violations of a U.S. anti-bribery law. The executive, Khaled Asadi, claims GE was in violation of the anti-retaliation provisions of Dodd-Frank and has filed a civil suit seeking damages and recompense for his legal costs. The result has been a hot debate on whether or not Asadi’s actions give him whistleblower status.
“In this case, because this employee went to his supervisor and ombudsman, he was let go,” says Kohn. “The first step in building a true [ethical] culture is for all companies to cease this type of legal action.”
Morgan, Lewis’ Bouchard disagreed that this is an indication that whistleblowers are still without protection: “Whistleblowers have had protection for years,” she argues. “I can say that there's a very strong argument that the Dodd-Frank provisions should only apply to those who go to the SEC and report retaliation. [The] Sarbanes-Oxley [Act of 2002] has reinstated whistleblowers who have been retaliated against. They have received back pay.”
She notes that most people take complaints to their supervisor. She does agree, however, that “There should be protection for people who report to their supervisors and are retaliated against.” She believes the key to avoiding cases such as the General Electric one is properly training supervisors to respond to these concerns. Better dialogue may prevent potential misunderstandings.
— Alexandra Theodore
(Posted May 8, 2012)
The Federal Sentencing Guidelines for Organizations (FSGOs) have surpassed almost all expectations in their furtherance of corporate ethics and compliance programs in the U.S. — indeed, across the world — over the past 20 years.
That said, organizations should not rely on the FSGOs alone in structuring their individual ethics and compliance programs. “Companies shouldn’t be waiting on the government for guidance,” Patricia Harned, President of the Ethics Resource Center (Washington, DC), tells Ethikos. “We know the FSGOs work.”
Rather companies need to embrace the “intent” of the Guidelines’ diligence standard and “implement compliance/ethics programs that are part and parcel of the business fabric and not the result of mere box-checking.”
That, in fact, is one of the recommendations of the ERC in its report, The Federal Sentencing Guidelines for Organizations at Twenty Years, released today. (A preliminary version was released in November.) Boards of directors and senior executives should demand compliance/ethics programs that are effective in preventing and detecting misconduct and help build ethical and law-abiding cultures. The board should ensure that the chief ethics and compliance officer is a senior corporate officer with sufficient empowerment, autonomy, resources, and access to senior management and the board of directors to be effective.
The final report isn’t shy about making recommendations. It has them for the U.S. Sentencing Commission, the Department of Justice, the U.S. Congress, the Courts, even the President of the United States, in addition to the private sector.
“We’re urging enforcement agencies to bring consistency to the guidelines,” Harned told us--in particular how the guidelines factor into prosecutions. If there is greater clarity on their role in how agencies will treat companies related to these guidelines companies will get a better sense of their importance. In this way the government has a very strong role in influencing company conduct.
ERC’s studies have shown that the guidelines have had a positive effect on companies and that those that do build their programs around these have seen a lessening of misconduct and company culture. To better integrate these guidelines would be to place a stronger importance on internal company conduct.
“Ethics is successful,” says Harned, noting that studies have shown and proven the return on investment when it comes to good conduct. There is no reason for organizations to wait.
The report was conceived in light of the FSGO’s twenty year anniversary. “I think it’s timely, now. We know the Department of Justice is preparing their guidance (related to the FCPA). We’re seeing a lot of challenges.”
One of the challenges put forward in the report was that often a compliance and ethics program may fall short of their potential due to the FSGO’s lack of clarity on several key areas. “The language has been very good,” notes Harned, however there are a few key issues that have gone under-emphasized.
Incentives is one of them. The current guidelines don’t really have any firm definition of what those incentives ought to be.
The second issue and the one that has been the most reported to the ERC through their surveys has been clarification as to the exact role and function of the Chief Ethics and Compliance officer, and that individual’s relationship with the board.
The third is clarification of some of the outcome methods, and the establishment of a better, more consistent metrics system for companies to measure the effectiveness of their program.
“Companies have different cultures and structures,” notes Harned. To that end, the advisory committee agreed that it was not their job to define the CECO's role or the CECO's relationship with the organization, but rather suggest that the commission conduct more research into the function of the CECO and its relationship with the company.
As reported earlier (see Ethikos, November/December 2011) based on the ERC’s preliminary report, but emphasized again in the final report, the ERC has been concerned that “there are few FSGO cases involving large companies because criminal cases against bigger corporate defendants are largely being detoured around the judges for whom the Sentencing Guidelines were intended.”
According to Harned, the guidelines were intended to be used in sentencing but in the age of deferred prosecution agreements and non-prosecution agreements, the sentencing guidelines are often not used. It is not clear that enforcement authorities view them as a factor.
Hence, one of the ERC’s recommendations: “The DOJ should ensure that pre-existing compliance/ethics programs are a critical factor in the resolution of corporate misconduct cases.”
For the full report, click here.
(Posted May 1, 2012)
Evolution of the Chief Ethics and Compliance Officer
April 24, 2012 -- Twenty years ago Elliot A. Fisch, Chief Compliance Officer at Easton Bell Sports (Van Nuys, CA), would have had a much simpler job.
“I would say 20-25 years ago we were asked to do three things,” recalls Fisch, speaking to an audience at Ethisphere’s Global Ethics Summit in March, “Hotline, training, and code of conduct. That was it.”
In the past ten years, Fisch has seen that change. “I cover a lot more things. I do fraud review, risk views. I do due diligence. I'm basically the ‘red flag’ person with the board.”
This progression is only natural, according to Alan Yuspeh, Chief Ethics and Compliance Officer (CECO) at Nashville-based Hospital Corporation of America (HCA).
“My experience is that it always should have been broad.” It also means drawing on best practices from beyond one’s own industry. When HCA developed a guidebook that set clear definitions as to what an employee’s job entailed, for example, it borrowed from the practices of other companies, such as McDonnell Douglas, whose ethics and compliance program was well regarded. “Even going back into the 1980s, you had people saying that this should be broad in scope.”
The expanded resources available to chief ethics and compliance officers today are reflective of a greater creativity in how they are able to approach issues, suggests Yuspeh. For example, when he began in this area, there was no compliance review process—something he now finds extremely useful. Training is also an area which has broadened in the past ten years.
In terms of the requirements of the CECO role today, Yuspeh cites three key elements:
This means gaining insight and an understanding of the operating businesses to match that of senior management.
“Are we truly independent of the organization?” asks Kimberly Strong, Chief Ethics and Compliance Officer of Con Edison, another speaker at the Summit. “It would be ideal, but we all have bosses. We serve as mirrors of the behavior of the organization. Dodd-Frank has said: ‘Come report to us [the government] because we don't think your [company reporting] functions are working.’” It behooves corporations to make their CECOs as independent and effective as possible so employees do feel comfortable reporting wrongdoing internally, she suggests.
A longer version of this article will appear in an upcoming print edition of Ethikos.
(Posted April 24, 2012)
Should the Chief Compliance Officer report to the General Counsel? Not in My Company
April 17, 2012 — To whom should a company’s chief compliance officer (CCO) report? It’s a question that has ignited some surprisingly heated discussion lately.
In the most recent flare-up, Ben Heineman, Jr., General Electric Company’s former general counsel, suggests in Corporate Counsel magazine that the CCO “as process expert/manager” should report to both the general counsel (GC) and chief financial officer (CFO)—“even though some articulate members of the CCO movement, reflected in the growth of the Ethics and Compliance Officer Association, just as strongly disagree.”
Heineman is a person of some consequence in corporate legal/compliance circles, and his relegation of the CCO to the status of a “process expert/manager” obviously pricked a nerve or two. A response was quick in coming.
“That the CCO is merely a ‘process integrator’ and that the CCO must report to the GC as a legal ‘lieutenant’ tells me that you do not really understand the modern CCO role and the thriving, multifaceted profession that is compliance and ethics,” countered Donna Boehme, Principal Compliance Strategists, LLC, and former Group Compliance and Ethics Officer at BP p.l.c., in an open response to Heineman’s column that she shared with Ethikos.
Boehme suggests that Heineman is out of touch with recent corporate developments.
“Consider the trend in corporate integrity agreements and DPAs [deferred prosecution agreements] that specifically state that CCO ‘should not be, or be subordinate to, the GC or the CFO.’ Since Senator Grassley’s famous 2003 observation in the Tenet Healthcare fraud case that ‘It doesn’t take a pig farmer from Iowa to smell the stench of conflict in that arrangement,’ the call for separation of the GC and CCO roles has grown from a whisper to a roar,” she argues.
Writing in the March 30, 2012 issue of Corporate Counsel1, Heineman attacked head-on the notion that the CCO had to be independent of the general counsel or other functional officers. “The idea that a CCO is more independent than the GC or CFO is wrong. All serve at will. All have financial benefits that vest in the future. The key in all three jobs is to maintain that guardian role and the necessary independence to speak out about what is right for the company.”
His argument for having the CCO report to the CFO and GC is four-fold:
Yes, compliance and legal often overlap, Boehme responds, but compliance also overlaps with human resources and internal audit, and other areas.
Moreover, legal has a separate and distinct mandate from compliance, “and the two mandates will differ on any given day, week or time of crisis (e.g. how legal and compliance want to treat internal whistleblowers is often at odds).”
“When this happens, it is critical to the organization that legal and compliance are equal partners and that both voices are heard at the top,” asserts Boehme. “Many companies that have placed the CCO under the thumb of the GC, and have viewed compliance purely through a legal prism, have paid a steep price for that misstep. Just ask Tenet Healthcare, Pfizer and Hewlett Packard about that one.”
Still, the former BP ethics and compliance officer sees some positive developments in Heineman’s recent writings on the subject. Heineman concedes, for instance, that “the general counsel can’t possibly be the compliance officer because that’s a full-time job.” Back in 2009, Boehme recalls, she and Heineman sat together on a panel for a PBS documentary, “In Search of the Good Corporate Citizen,” and Heinemann argued then that there wasn’t really any need for a chief compliance officer at all—because the general counsel and the chief financial officer could split that role.
“Now I am very encouraged to see your public recognition that the CCO is in fact a full-time role that cannot be filled by merely tacking on an extra title to the GC 2. This is tremendous progress for the in-house bar, and since it runs counter to the views of many of your GC colleagues, I wholeheartedly commend you for your leadership.”
Boehme claims to represent the “prevailing view” among compliance and ethics practitioners, and cites, among other evidence, Alan Yuspeh’s recent white paper, “The Business Case for Creating a Standalone Chief Compliance Officer Position,” in which the SVP and chief ethics and compliance officer of Hospital Corporation of America argues that a dual general counsel/chief compliance officer role “does not afford the necessary independence for serving as the individual responsible for an organization’s ethics and compliance program.” 3
Boehme concludes, “Don’t get me wrong, as a former in-house lawyer, I both respect and understand the in-house mission. Many great CCOs are lawyers and some are former GCs who have embraced the CCO orientation. But any company that decides to place the CCO in the GC reporting line should have the absolute burden to demonstrate levers of independence for the CCO, and that’s more than just a direct ‘access’ to the Board (which in the business world usually means asking your boss’ permission).
Heineman retired from General Electric some years ago, and one might ask: Why get embroiled is such a controversy now? “I renew my views on this issue,” he explains in his Corporate Counsel column, “because the debate in the in-house legal profession and in the compliance and ethics officer community has only intensified.”
— Andrew Singer
A longer version of this article will appear in an upcoming May/June 2012 print edition of Ethikos.
2“And the general counsel can’t possibly be the compliance officer because that’s a full-time job.” Dunn, “The In-House World According to Ben Heineman, Jr.” (Corporate Counsel, April 9, 2012)
(Posted April 17, 2012)
When Your Company Is Accused Of Violating the Foreign Corrupt Practices Act
April 10, 2012 -- As anti-bribery legislation becomes more widespread, and regulators grow more proactive, the possibility of prosecution under the U.S. Foreign Corrupt Practices Act (FCPA) looms larger for companies doing business overseas.
More corporations will soon be conducting their own internal FCPA investigations, and when that happens, a company has some decisions to make. “Obviously it depends on what comes in, and from where,” says Michael B. Mukasey, former Attorney General of the United States, now a litigation partner with Debevoise & Plimpton LLP, referring to reports of alleged wrongdoing. “What comes from inside the company and what comes outside? Which of the company’s business levels does it involve? At what level of the government are they alleged to have interacted?”
When the cause and scope is determined, “You have a series of decisions you make,” says Mukasey, speaking at the recent Dow Jones Global Compliance Symposium. “Who oversees the investigation? Is it overseen by in-house counsel, or is it overseen by an outside investigator?”
With the possibility present of running afoul of the Department of Justice (DoJ ) and/or the SEC, which can result in a long, costly investigation, the temptation may be to isolate the problem as quickly as possible—and potentially overlook a more systemic problem. “The ideal is to be able to draw a box around it, but you have to resist the temptation to draw the box early on,” Mukasey warned attendees at the March 27-28 Washington DC Symposium. “Many of these issues start small and get larger later. Eventually you're going to have to face down the road where you'll have to disclose to regulators and decide when and how. It is better to make one disclosure down the road than two,” says Mukasey.
According to Daniel Nardello, Principal, Nardello & Co, another speaker at the session titled “Your Company Has Been Accused Of Violating The FCPA: Now What?”, you can never go too far back in investigating what came before the problem: “I think the first thing you want to do is see what if anything was done before things went pear shaped.” For example, if a company is investigating an agent who may or may not have made improper payments, a company would want to check to see if proper due diligence was done with that agent—and what if anything was done as a result of that due diligence.
The second thing a company will want to do, according to Nardello, is figure out how to get the information it needs. This can be particularly difficult when dealing with employees, subsidiaries, or partners outside of the United States.
“The mandate is pretty much ‘leave no stone unturned,’” said Nardello, referring to what the SEC and DoJ expect in an investigation. “And those rules and that mandate are often times not easy to carry out in foreign companies.”
In cases dealt with in Europe, for example, you're going to come across privacy laws and data protection laws. Even interviewing key employees can be viewed as a violation of privacy laws.
“We have seen that responses in many developing countries and the BRIC countries can be downright hostile,” in response to alleged FCPA violations, notes Mark G. Califano, senior vice president and managing counsel of American Express, another panelist. “You have to remember that when you have an incident overseas, the first thing you need is access to those records,” and often one of the first things that a foreign partner or government partner in a BRIC country or the developing world will do is limit access to or control of those records.
He notes, however, that governments have recently begun to show changes for the better in this regard, with more and more countries signing into anti-corruption agreements. (Here Nardello quipped: “Russia has a history of signing treaties.”)
Of course, some of the problems in conducting investigations overseas can be a difference of function, notes Debevoise & Plimpton’s Bruce E. Yannett. “In many countries in Western Europe the idea of a lawyer acting in an investigation like that runs contrary to their concept of a lawyer, and already you have this fundamental clash in how investigations are conducted. In many of these countries the idea is that this is the government's issue."
Nardello agrees, and goes a step further: "American law focuses on finding facts and checking records. Lawyers on the Continent and overseas are not focused on that.”
— Alexandra Theodore
A longer version of this article will appear in an upcoming May/June 2012 print edition of Ethikos.
(Posted April 10, 2012)
China’s Anti-Bribery Legislation: A Work In Process
While there has been much talk in the past year about the UK Bribery Act, and the recent burst of prosecutions under the U.S. Foreign Corrupt Practices Act (FCPA), China quietly passed its own ‘FCPA-like’ law in 2011. Just how will this law affect businesses abroad?
“China is one of those markets in which companies are already invested and if not, they will be there soon,” noted Scott Lane, CEO of The Red Flag Group, an advisory firm. “It's not very much what is said in the law--the law is one sentence. It's what is not said,” said Lane, speaking last week at the Dow Jones Global Compliance Symposium’s panel, ‘China: What Does Its Foreign Bribery Provision Really Mean For Your Company?’
What is important, Lane says, is the supporting regulations and, even more, government policy. Enforcement and interpretation of the law may vary region by region in China.
The Chinese bribery laws come within that nation’s criminal law code. There have been eight major amendments on these particular laws. The most recent one, February 2011, “essentially added a provision for foreign bribery. Broadly speaking, it's the same principle as the FCPA,” says Lane, i.e., employees will be punished if they bribe foreign officials. The law applies to Chinese citizens (wherever they're located), individuals of any nationality within China, and companies that do business in China.
“Whether you're a foreign investor or not, it doesn't matter. If you're in China, you're subject to this clause,” says Lane. While existing law has covered domestic bribery--this one is targeted towards international bribery.
“Are their exceptions? No. Are their adequate procedures? There don’t appear to be any. Are their definitions? ... doesn't appear to be any. Guidance? There doesn't appear to be any.”
Is there a concept of voluntary disclosure? Yes, surprisingly enough. “In fact, the law does cover voluntary disclosure. It does provide for some leniency,” although it does not elaborate what sort of leniency might be provided to a company that voluntarily reports.
“In some respects, talking about this issue a year after this law has been passed is like talking in 1978 about ‘what is the FCPA going to do for your company?’” observed Mike Koehler, Assistant Professor of Business Law at Butler University and author of ‘The FCPA Professor’ blog, who moderated the panel.
According to Christopher Burnham, Vice Chairman, Deutsche Asset Management, another panelist, “Ultimately it doesn't change anything, because to comply fully with the Foreign Corrupt Practices Act, we're going to be doing already the things that this law requires.”
China is still learning how to implement its new anti-bribery laws, and, according to Burnham, the structure of enforcement is just not there—yet.
He foresees challenges in the future. “We have our own internal compliance program and it’s difficult because every time I go to China I get a book, I get a scroll, and you feel inadequate if you don't bring something in return.” Gift-giving is integral to Chinese business and when unchecked this can be a huge risk.
So what is the future of China’s new anti-bribery legislation?
Change is on the horizon, at least in near future, according to Matthew J. Feeley of Buchanan Ingersoll & Rooney PC, another panelist. “It may take years before we actually see enforcement. I can tell you that the Chinese and the U.S. government are working closely together--the U.S. point of view is to show the Chinese how we enforce our law and hope that they'll take steps to enforce their law.”
He expects it will take three or four years to see some signs of enforcement.
— Alexandra Theodore
A longer version of this story will appear in an upcoming print edition of Ethikos.
(Posted April 3, 2012)
Emerging Unscathed from Emerging Markets
When Travelex Currency Services, the retail foreign exchange specialist, first considered expanding into Panama and Brazil, it asked some tough questions:
“First, is this a jurisdiction where we can uphold our values?” recalled Daniel L. Tannebaum, Chief Compliance Officer. “And secondly, is this a jurisdiction where we can keep our staff safe?”
In the case of Brazil, the move came after a ten-year partnership, said Tannebaum, speaking this morning at the Dow Jones Compliance Symposium in Washington, D.C. “You go in, you learn the laws. Once you get comfortable with the laws you meet with the UK Embassy and the US embassy, and you build out from there.”
What's important is “Having as much time on the ground as possible,” said Tannebaum, speaking at a general session called “Emerging Markets: What Can You Do To Make Sure Your Company Emerges Unscathed?”
The risk of using third parties in emerging markets was something on everyone's mind at the Symposium, with the vast majority of attendees indicating it is their biggest concern, according to a conference-wide poll conducted this morning (March 27).
In the case of Travelex, which has more than 700 branded retail branches, principally in airports and tourist locations, and operates in four regions—the United Kingdom; Europe, Middle East, India and Africa (EMEA); Americas and Asia Pacific: "Compliance has had the authority to end an engagement in a country if it proves too much of a risk," said Tannebaum. Having a good business partner can help, but the assessment can take as much as four months (in Panama) before compliance feels comfortable with allowing that expansion to go forward.
When it comes to emerging markets like Brazil, "Most of the time you will be dealing with privately owned or family-owned companies that are the target," said Francisco Hernandez, Latin American Regional Counsel, Tyco International, another speaker at the Symposium. "You want to dig many years back into the books of the company. You want to have the opportunity to sit down with employees and vendors of their companies."
"You're not going to talk about a 'risk free' opportunity, that doesn't exist," said Hernandez.
Neil Keenan, Partner, PricewaterhouseCoopers LLP, another panelist, noted: "We've seen companies get themselves into various issues as a result of operating outside of their license."
For example, "Expatriates who are fluent in the language are a hot commodity" for expanding companies and they often "hop from company to company." Finding out who these people are is important because on occasion "they'll get in trouble and then just hop off to the next company."
According to Ty Cobb, a partner with Hogan Lovells, another panelist: "You want your internal audits to go through the books and records of the company you're looking to do business with." Everyone asks for this, but few get it. "In South America it's particularly difficult to do—in Africa it's impossible."
-- Alexandra Theodore
A longer version of this story will appear in an upcoming print edition of Ethikos.
(Posted March 27, 2012)
How General Electric Dealt With A Compliance Breakdown
General Electric—s Brackett Denniston provides a grim example of a compliance issue that can take an organization by surprise:
“We got an ombuds report regarding a compliance failure in our nuclear energy branch,” GE—s general counsel told an audience at the 4th Annual Global Ethics Summit in New York last week. The issue involved reactors that GE had sold to the Tokyo Electric Power Company (TEPCO), the utility that owns the tsunami-ravaged Fukushima Daiichi Nuclear Power Station and provides almost 35% of Japan—s electricity.
"A former employee said GE had been falsifying information about our reactors" with regard to monitoring and maintenance. However, when the issue was initially investigated by GE, many employees told him that everything was fine.
"Then we were told they had lied. TEPCO had asked them to lie about the reactors. They would falsify records." In one case, he noted, inspection videos would be shot in such a way as to avoid showing a crack in a reactor that had been hastily patched.
"It was shocking," recalls Denniston. "The root cause was a weak compliance structure (in Japan). You have to fight the notion that the customer is always right.”
A longer version of this story will appear in the upcoming March/April print edition of Ethikos.
(Posted March 20, 2012)
Hotline Reporting via Text Message at Office Depot
First there was ethics hotline reporting via telephone. Then came reporting through the Internet. Now some companies are offering employees hotline reporting via text message.
One of these is Office Depot, the Florida-based office supply company, which has 40,000 employees globally. “It’s about keeping up with how people communicate,” Robert Brewer, Chief Compliance Officer, tells Ethikos. “We try to keep our finger on the pulse of technology and how to get our message across.”
Because text messaging has become an increasingly popular form of communication, particularly for younger employees, Office Depot made a special effort to develop this reporting option.
Employees can now text their concerns to a company number, where the process is then managed by a third party.
The trickiest part was figuring out how to enact text-based reporting and preserve the sender's anonymity, Brewer tells Ethikos. Presently all reports, by phone, website, or text, are conveyed to Michelle Lowry, the Senior Manager of International Compliance at Office Depot. There is no way to identify the channel by which the reports arrive. This is to prevent text messages from being tracked back to the cell phone from which they came.
The response has been positive. Providing employees with additional channels or ways to speak out has increased the number that choose to do so, says Brewer. At present, 50% of all hotline reports arrive from channels other than the traditional phone line. A good portion of these are via text-message, and Brewer says that number is rising.
Office Depot expanded its reporting hotline in 2010. It was extended to employees outside the U.S. who may now address their concerns to a company website in their own language. Office Depot has been able to negotiate with local laws to preserve their anonymity.
— Alexandra Theodore
The complete article will appear in the upcoming (March/April 2012) print version of Ethikos.
(Posted March 13, 2012)
Ethics officer swings by A.J. Gallagher branch offices—all 225 of them
February 21, 2012—Thomas J. Tropp, Vice President of Corporate Ethics and Sustainability at Arthur J. Gallagher & Co. (Itasca, IL), is on the road most every week. Last year he visited most of the insurance brokerage firm’s 225 global offices—from Singapore to Sao Paulo—speaking and listening to Gallagher employees regarding the values of the company and the role of ethics in business.
Over the last three years, he has addressed more than 10,000 of the company’s 13,000 employees in small group settings.
It’s often “little things” that he finds out on these branch visits—like reports that the people who manned A.J. Gallagher’s IT Help Desk “were just nasty,” he recalls in an interview with Ethikos.
What did that mean? After making a report or complaint, people in the branch office would get a message via email along the lines of: “the issue is resolved and we’re closing the ticket.” That message was not signed by an individual, just “the Help Desk.“ And sometimes the issue was not resolved, employees complained.
Tropp spoke with the IT people. They changed some processes. Now people receive this kind of message if they are having trouble with their computer: “Dear Eileen, the issue appears to have been resolved. However, if it is not resolved, please call this number,” and it is signed by an individual.
Tropp has been to all of Gallagher’s 225 offices twice since assuming his role in January 2010, and he is now on his third round of visits. Last year he traveled to Australia, the UK, Brazil, India, Singapore, the Caribbean, and China in addition to Gallagher’s U.S. offices.
He is almost like an ombudsman. A.J. Gallagher, like other firms, has an ethics hotline, but it receives only about ten phone calls a year. By comparison, Tropp receives 20-25 emails weekly from people in field.
During the branch meetings, which last about an hour, he’ll be looking for macro issues—problems that have come up at other offices, too. “I’m looking for systemic issues.”
He'll speak for about 20 minutes at the start of the sessions, talking about the company's values and telling stories from other offices, about how people deal with each other—some of the “nice things” that people are doing for other people, for instance. Then he opens up the floor for discussion.
“The more they see me, the more they open up. They tell me more things between and after meetings than during meetings.”
Tropp sits down each month with CEO Pat Gallagher, to whom he reports. He'll usually have three or four things to discuss. Gallagher will often pick up the telephone while he's there and call a senior manager about a given problem, “Tom is coming right down now. We're going to resolve it now.”
Tropp's view is that there is a big difference between compliance and ethics. Compliance is about what you must do. Ethics is about what you should do. He joined A.J. Gallagher in 2007 through the acquisition of Tropp & Company, Inc., the private, Chicago-based insurance brokerage firm of which he was president and founder. In 2003, while continuing to operate his own firm, he began to pursue a Master of Arts in Philosophical and Theological Ethics from the University of Chicago, completing his degree in 2007.
With regard to the role he plays at Arthur J. Gallagher, it's all about being respectful, Tropp told us. When he meets with groups, he asks them what is bothering them, and they often tell him. But they have to be asked in the right way, and that takes some experience, patience and skill.
— Andrew Singer
The complete article will appear in the upcoming (March/April 2012) print version of Ethikos.
(Posted April 28, 2012)
How Siemens Bounced Back After a Scandal
February 14, 2012 -- The key to regaining public trust after a scandal is the swiftness of a company’s response, the accuracy of its problem diagnosis, and the installation of proper mechanisms to prevent the problem from occurring again, says the UK’s Institute of Business Ethics (IBE).
One of the companies IBE follows in a study published this week is Siemens, the German engineering giant that came under fire in 2006 for siphoning off millions of Euros into “phoney consultants’ contracts, false bills and shell firms” in order to pay massive bribes to win contracts. A trial judge condemned the company’s actions as “a system of organized irresponsibility that was implicitly condoned.”
But Siemens eventually turned things around.
In 2007, under the auspices of newly appointed CEO, Peter Löscher, the firm launched a month-long amnesty program for employees to come forward, excluding former directors. Forty whistleblowers brought more incriminating evidence, extending the scandal’s reach into the previous management Board. Transparency International Co-Founder Michael Hershman was brought on board as an advisor.
Siemens also launched a comprehensive program of training and education on anti-corruption practices for its employees.
“By 2008, Siemens had trained more than half its 400,000-strong global workforce on anti-corruption issues, whether on web-based courses or in ‘classroom’ formats. Siemens also signaled a shift in strategy, in terms of commercial opportunities, announcing early on (February 2007) that it would avoid competing in certain known hotspots for corruption or unethical practice such as Sudan — a simple gesture, though not materially punishing to the company’s finances,” notes IBE.
In 2006, Siemens had 86 full-time compliance officers. It has since hired over 500 full-time compliance officers. A new investigation unit was established led by a former Interpol official — a move noted by IBE to be “a tangible investment in controlling for trustworthy conduct.”
All in all, Siemens' very public restructuring and streamlining of its systems served to instill a genuine sense of change to the public.
In retrospect, Siemens’ initial response was lukewarm at best, with key executives downplaying the extent of the scandal, according to the IBE study, “The Recovery of Trust: Case studies of organizational failures and trust repair.” However, the company’s success in rebuilding its reputation owes much to the later mechanisms installed to prevent repeat offenses, a process which IBE refers to as “distrust regulation.”
According to IBE, Siemens’ “full response to the scandal has been widely praised by many independent anti-corruption and ethics experts, including the Organization for Economic Co-operation and Development (OECD), and U.S. Federal authorities.”
Overall, to be ethical is to be trustworthy, suggests the study, which compiles case studies on several organizations that suffered large scandals in the past five years (Siemens, Mattel, Toyota, The BBC, BAE Systems, and Severn Trent) and tracks what actions they have taken in order to regain consumer trust.
Whether or not a company is seen as trustworthy can greatly influence whether or not a consumer is willing to do business with them. When a company suffers a massive hit to its trustworthiness—a public scandal, a wide-scale recall, or a corruption flap—regaining consumers’ trust may not be an easy task, notes IBE:
“Trust is a fundamental building block to any successful organization. Yet trust is at a premium for many contemporary organizations.” Indeed, “surveys point to a persistent and debilitating skepticism among customers, investors and other stakeholders in the trustworthiness of the business world.”
In the Siemens’ case, the executive charged with overseeing its compliance and ethics, Peter Solmssen, said in October 2008: “We are quite confident we have eliminated anything systemic... But it’s never over.”
The real test comes from establishing a better company culture, according to Hershman. “There are new processes, new people, new procedures... but that does not make a difference in the world unless there is a change in culture.”
The financial cost of the scandal and the restructuring that resulted was high. In total, Siemens lost approximately $US3.2 billion, including fines ($US3 billion), the cost of an exhaustive analysis of its financial transactions, bail payments for indicted executives, and fees to outside advisers (approximately $US85 million).
The cost to Siemens’ employees? That is hard to say. “Two long years of shame under intense and hostile public scrutiny, especially in Germany, is difficult to calculate,” concludes IBE.
For more on the study, click here.
— Alexandra Theodore
(Posted February 14, 2012)
Anti-Corruption Enforcement Gains Traction on a Global Scale
January 31, 2012 -- You probably can’t find a country in the world where bribery is legal, says Brian Loughman. But anti-bribery laws mean nothing if they are not enforced. That’s why recent developments are encouraging.
There’s been a “huge ramp up in [anti-corruption] enforcement activity” globally, notes Loughman, Americas Leader, Fraud Investigation & Dispute Services, Ernst & Young LLP, and co-author of Bribery & Corruption: Navigating the Global Risks, published January 26 by John Wiley and Sons.
“Germany has been very active.” And not just in prosecuting big name cases like Siemens’, Loughman told Ethikos. Germany had 135 foreign bribery enforcement cases in 2010, second only to the U.S.’s 227 cases, according to Transparency International’s 2011 Progress Report.
Germany now has its own Foreign Corrupt Practices Act-type law and has published standards for auditing and compliance programs.
Prosecutors in Italy have recently taken anti-bribery cases, and there is more enforcement activity in France, the Netherlands, Brazil, and even China, notes Loughman.
There is more coordinated activity among enforcement officials globally, too. The prosecutor in one country now passes along that suspicious bank account number to his counterpart in another country. “There’s more community being built there,” notes Loughman. It’s much different from 15 to 20 years ago where there were significant barriers — legal and technical — to sharing enforcement information from country to country.
“Now these guys [prosecutors] just call each other on their cell phones,” says Loughman.
Today’s public is “more informed and more indignant” when it comes to bribery and corruption, says Loughman. In India, for example, there is an increased public sensibility regarding corruption “and they want it turned around.”
The most common bribery risk that companies face overseas typically involve third parties, notes Loughman: sales agents, customs freight forwarders, influence peddlers, etc. Companies should seek to rationalize their processes in this area. They might ask, for instance: Why do we need fifteen customs freight forwarders in Angola? Why not three, or even one?
In winnowing down the list, companies can ask certain questions: Are they (the third party) part of an international network? (good). Do they have an internal compliance program? (good) Do they use sub-brokers? (bad)
More companies have a centralized process for hiring third parties, but many regional offices still do their own hiring. “That’s where internal audit (IA) can help,” says Loughman. IA can travel to the site, and make clear that the results of the audit receive wide attention within the company.
Take a life sciences company that is selling medical devices in Western Europe, where state-run health systems are often the norm. That means the head of surgery that your sales rep, Suzie, takes out to dinner could be a government employee—which makes for a potential FCPA risk.
It comes out that Suzie is spending too much money on the dinner. Internal audit flies in, meets with Suzie, “and takes that money back,” says Loughman. That is, Suzie is going to have to pay for that expensive dinner out of her own pocket.
“That [news] goes through the organization in about 10 minutes.” says Loughman. Everyone in the company is now on alert: the organization won’t pay for such excesses.
“It can be an effective management tool,” says Loughman, “one that builds the right mind set.”
UK Bribery Act
Overall, “It [anti-corruption compliance] is a very dynamic area,” Loughman comments. “The big wild card is the UK,” with its new bribery act. Yes, the Serious Fraud Office (SFO), the UK enforcement agency, has had some budgetary problems, and it remains to be seen how enforcement will jibe with the court system, but Loughman believes that “in the UK enforcement is real.” They’ve already generated some fines.
“A lot of people think they’ve perfected the FCPA,” Loughman adds. The UK Bribery Act eliminates the permissibility of facilitating payments, for one thing. It also creates an affirmative defense for businesses implementing “adequate procedures” to prevent bribery, another advance in the view of some.
Global development agencies have also shown a mounting interest in the fight against corruption. They often know the price that developing countries pay for corruption.
Overall, the U.S. no longer stands as the lone enforcer of anti-bribery measures. The FCPA was enacted in the 1970s and, for years, there was nothing in the world like it.
In that sense, says Loughman, “the playing field has leveled.”
For more on Loughman’s book, Bribery & Corruption: Navigating the Global Risks, click here.
— Andrew Singer
(Posted January 31, 2012)
When it comes to company reputation, avoiding scandal and wrongdoing trumps CSR, survey finds
January 18, 2012 -- People are more likely to buy products from an organization with a good reputation than one that is financially successful, with more than half of consumers admitting they are more confident buying products from a company with a ’most admired— standing.
60% of a company—s market value is based in its reputation, according to a global study commissioned by PR Firm Weber Shandwick. This is why a number of companies have increased their efforts to build a good ’company reputation— in the past few years: 6 in 10 executives say they would rather see their company in the news for ’admired standing— than for financial accomplishments.
(Posted January 24, 2012)
Ryder Gets Resourceful With Ethics and Compliance Training
Many companies today deliver ethics and compliance training to their employees online. They can learn about the company’s rules and policies while sitting at their office desks. This works well — up to a point.
But what do you do at a company like Ryder System, Inc. (Miami), the transportation and logistics company—best known for its fleet of rental trucks—whose 25,000-plus work force includes many drivers and warehouses workers who do not have easy access to computers. How do you train them?
“It’s always a challenge to come up with a program that reaches everyone,” Celeste Lipworth, Vice President of Global Compliance at Ryder Systems, tells Ethikos.
The solution? Work with what the company already had. Hourly employees at Ryder-- drivers, warehouse employees, etc.--are required to receive a certain amount of safety training every year. This training is provided in the form of web-based modules conducted by a third party.
Employees arrive at designated training centers to take these courses on a regular basis. “We’re now working with this vendor to provide ethics and compliance training in addition to that existing training,” notes Lipworth. The training would consist of 25-minute web-based training modules. Ryder’s Global Compliance team will work closely with this vendor in the development of the new training initiative. “We’re writing the content. I’ve got the first draft right now.”
The timing is right, because, “Our big initiative in this upcoming year is to bring ethics and compliance training to all of our employees on all levels.” More than 6,000 employees at Ryder received online training in 2010.
“A lot of companies in industries like ours are challenged by these issues,” Lipworth tells us. “They have good things, but pushing it out to all levels can be difficult.” And a company-wide overhaul of their systems may not be feasible. “It’s about leveraging those existing functions, and using them to make it work on a larger scale.”
The response so far has been positive.
Ryder’s global compliance program began in 2004-2005 in response to Sarbanes-Oxley legislation. Keeping abreast of the most recent regulatory trends is important to the moving organization, which holds annual risk assessment surveys.
When Lipworth recently assumed her present position, one of her first tasks was an update of the risk assessment program, which she did along with Ryder’s senior vice president of internal audit. They interviewed 100 executives around the world, asking them to identify potential compliance risks. From there, the global compliance program was able to determine what areas to emphasize in their training.
Case in point is the UK Bribery Act, which went into effect in the summer of 2011: “We did make some revisions to our bribery and anti-corruption policies,” says Lipworth—which is not to say Ryder did not have such policies in place. Those policies were updated, however, to include language exclusively pertaining to the Act. “We now include references to the UK Bribery act in our international policy.”
— Alexandra Theodore
The complete article will appear in the upcoming (January/February 2012) print version of Ethikos.
From 2000 to 2003, Lucent Technologies spent more than $10 million for some 1,000 Chinese foreign officials—employees of Chinese state-owned or state-controlled telecommunications enterprises—to travel to the United States and elsewhere, ostensibly to inspect Lucent's factories and to be trained in using Lucent equipment.
Instead the Chinese employees visited “tourist destinations throughout the United States, such as Hawaii, Las Vegas, the Grand Canyon, Niagara Falls, Disney World, Universal Studios, and New York City,” according to the Securities & Exchange Commission (SEC). The trips were little more than payoffs—illegal under the Foreign Corrupt Practices Act (FCPA)—and not surprisingly the SEC filed an enforcement action against Lucent Technologies in 2007.
The Lucent case is one of several reviewed in an upcoming paper in the Wisconsin Law Review in which FCPA Professor Mike Koehler asks, “What If?”
What if there was an “FCPA compliance defense” that better incentivized Lucent to “implement more robust FCPA compliance policies and procedures?” After all, as the SEC noted in 2007, “Lucent’s violations occurred because Lucent failed, for years, to properly train its officers and employees to understand and appreciate the nature and status of its customers in China in the context of the FCPA.”
With an FCPA compliance defense, would Lucent have “properly trained its Chinese employees on the FCPA risks relevant to the Chinese market?” asks Koehler, who admits that “the answer will never be known.” He clearly thinks there’s a reasonable chance that they might have, however.
The current FCPA enforcement environment “does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments,” asserts Koehler, Assistant Professor of Business Law at Butler University, in his paper, “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”
“A company’s pre-existing compliance policies and procedures, and its good faith efforts to comply with the FCPA, should be relevant as a matter of law when a non-executive employee or agent acts contrary to those policies and procedures and in violation of the FCPA,” he argues.
He favors an amendment to the current FCPA in which the Department of Justice (DOJ) “will have the burden of establishing, as an additional element, that the company failed to have policies and procedures reasonably designed to detect and prevent the improper conduct by non-executive employees or agents. Such a compliance defense would not apply to conduct engaged in or condoned by executive officers.”
The Department of Justice opposes an FCPA Compliance Defense at present, he notes, which “contrasts with the growing chorus of former DOJ officials who support a compliance defense.”
Koehler quotes former U.S. Attorney General Michael Mukasey, who in Congressional testimony in June 2011 on behalf of the U.S. Chamber of Commerce, observed:
“It is true that the DOJ or SEC may look more favorably on a company with a strong FCPA compliance program when determining whether to charge the company or what settlement terms to offer, and such compliance programs may be taken into account by a court at the sentencing of a corporation convicted of an FCPA violation. However, such benefits are subject to unlimited prosecutorial discretion, are available only after the liability phase of a prosecution, or both. There is also no guarantee that a strong compliance program will be given the weight it deserves.”
The absence of a compliance defense, Mukasey added, “tells corporate America, in effect, no compliance effort can be good enough even if you did everything [the DOJ] required, [the DOJ] still retains the right to prosecute purely as a matter of [its] discretion.”
To access the full story, click here.
(Posted January 17, 2012)
‘Tremendous’ advantage in conducting ethics investigations in-house, says AECOM
Susan Frank runs the global ethics and compliance office at AECOM (Los Angeles), the engineering and project development firm with more than 45,000 employees around the world. She heads a full-time staff of six that includes two certified fraud examiners and an investigations attorney.
If that seems heavy on the investigations side for such a small office—it is. But Frank believes it is a “tremendous” advantage to have the ethics investigations function ‘in house,’ as it is at AECOM.
“You know your people and your company’s culture,” she tells Ethikos. “You’re in a better position to judge what is going on. To judge credibility.”
The outside law firms that corporations often hire to conduct ethics investigations can be “heavy handed,” adopting an overly prosecutorial style at times.
“We treat employees with a lot of respect,” says Frank, a former State Department lawyer. Keeping the function in-house helps ensure that employees just don’t become the law firm’s next prosecution.
Outside law firms can also be expensive. The firm may announce to a company: “We’re running this investigation. We’re sending a team of six lawyers to, say, Greece,” plus a team of three forensic accountants, to review records, interviews, etc.
“We don’t really think we need that at times,” comments Frank.
Frank, vice president and assistant general counsel, came to AECOM in September 2009. She was the firm’s first lawyer in the CECO (chief ethics and compliance officer) slot. AECOM had a good program when she arrived, she recalls, “But they wanted to take it to the next level.” This was something that appealed to her.
Today, AECOM has ethics and compliance (E&C) subcommittees in all geographical areas, regions like Europe, North America, Middle East, Asia, and ANZ (Australia/New Zealand). (About half the company’s employees are based overseas.) Serving on these E&C subcommittees are the operating business’ CEO, chief legal officer, and CFO, among others.
“In our company, we try to engage on the local level,” explains Frank. Much of the E&C training is done online, as with most global companies, but sometimes there is the need to specific training, and that will often be done locally, under purview of subcommittees.
In 2011, AECOM’s E&C efforts were recognized by Ethisphere, which named the firm one of the “world’s most ethical” companies. The company capitalized on the Ethisphere award, building “Global Ethics Week” around it, highlighted by CEO John M. Dionisio and nine other CEOs (also Ethisphere recipients) ringing the bell at the New York Stock Exchange (NYSE) in late September 2011, and discussing “the traits of ethical leaders” during a NYSE panel discussion.
Keith Darcy, Executive Director, Ethics and Compliance Officers Association, conducted an employee webinar on navigating the ethical waters in an age of social media. There were numerous contests and discussions during the week as well. AECOM developed ‘speaking out’ posters that read: “Safeguard our standing as one of the world’s most ethical companies for 2011 by reporting suspected unethical behavior.”
One immediate result: An 8000% increase in hits to the E&C website, Frank told us. This website activity didn’t remain at such an elevated level, not surprisingly, but it has sustained a permanent doubling of site activity (compared with activity before Ethics Week.)
They plan to hold Ethics Week again in 2012—indeed, to make it an annual event.
This story will appear in its entirety in the upcoming print version of Ethikos (January/February 2012).
(Posted January 10, 2012)
U.S. Targeting More Foreign Nationals in FCPA Cases
In 2011, U.S. enforcement authorities continued their emphasis on prosecuting individuals for Foreign Corrupt Practice Act (FCPA) violations, charging 18 individuals.
However, a number of recent trials have “underlined the difficulty that U.S. enforcement authorities, once in court, have in proving foreign bribery beyond a reasonable doubt,” notes Philip Urofsky, a partner at Shearman & Sterling and head of the law firm’s FCPA and Global Anti-Corruption Practice.
Interestingly, most of the individuals charged in 2011 were foreign nationals, notes Shearman & Sterling in the firm’s FCPA Digest, not U.S. citizens working for U.S. or non-U.S. companies.
“U.S. enforcement officials seem to be saying, ‘Enough is enough,’” Urofsky says. “In the past they have targeted non-US companies and now they are reaching out to charge those companies’ employees, particularly those in jurisdictions that do not appear to be exercising sufficient energy and commitment to enforcing their own laws implementing the OECD Convention.”
Meanwhile, FCPA penalties appear to have remained fairly stable. Since the record-holding $800 million penalty for Siemens in 2008, there has been at least one corporate FCPA case with a penalty of several hundred million dollars per year. Most, however, remain under $20 million.
“It’s more than a numbers game,” Urofsky. “High fines often result directly from high profits. When a company does not make much money as a result of corrupt conduct, the penalties are significantly lower.”
Well-publicized high penalties and resulting high annual totals tend to distract from the reality of what the average company really pays for FCPA violations.
When the highest and lowest “outlier” cases are excluded, the averages-per-year are lower still, according to the semi-annual report, “Recent Trends and Patterns in FCPA Enforcement.” Organizations usually pay from $3 million to $33 million—a number “not inconsequential, but certainly not as severe and extreme as the annual total penalties might suggest,” notes the report.
While the number of FCPA enforcement actions have dropped in this past year —16 cases against companies (not individuals) in 2011, as opposed to the record 20 against companies in 2010—there is no sign of the FCPA slowing in its recent ramped up action against foreign bribery.
2011 also saw the UK Bribery Act come into force. Shearman and Sterling experts note that it is still uncertain how courts will interpret a number of the Act’s anti-bribery provisions. However the director of the Serious Fraud Office (SFO) has indicated that an SFO focus from the outset will be prosecuting non-UK companies with a business presence in the UK in an effort to encourage UK-based companies to increase their anti-bribery efforts by preventing non-UK companies from having an ‘unfair advantage’—that is, being allowed to continue their own misconduct free of penalties. By contrast, U.S. officials under the FCPA have only just recently begun to focus on such cases. This would suggest at least some significant actions under the UK Bribery Act in the next year.
Meanwhile, U.S. officials have begun to provide incentives to better encourage voluntary disclosure and self-reporting from organizations, as evidenced by the Department of Justice’ willingness to sometimes, but not always, grant discounts ranging from 3 percent to 67 percent in cases involving voluntary disclosures and negotiated resolutions.
“The message here has remained generally consistent: companies that make voluntary disclosures and cooperate with the government receive a tangible benefit,” says Dan Newcomb, one of the leaders of Shearman & Sterling’s FCPA practice in New York.
For more, click here.
(Posted January 3, 2012)
Focusing on ‘the right kind of profits’
The biggest corporate responsibility events of 2011? “Porter and Kramer's piece in the January  issue of the Harvard Business Review on 'Creating Shared Value' has probably done more to get corporate responsibility issues into the boardroom than anything else written this year,” writes the Sustainable Business Forum.
In “Creating Shared Value,” Michael E. Porter and Mark R. Kramer, argue that “Businesses must reconnect company success with social progress,” avoiding that obsession with short-term financial success that took hold of corporations over the past few decades, a sort of “trap,” in their view.
Some companies, “known for their hard-nosed approach to business,” like GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Wal-Mart, are already doing this-- creating economic value in a way that also creates social value.
For example, “Food companies that traditionally concentrated on taste and quantity to drive more and more consumption are refocusing on the fundamental need for better nutrition. Intel and IBM are both devising ways to help utilities harness digital intelligence in order to economize on power usage. Wells Fargo has developed a line of products and tools that help customers budget, manage credit, and pay down debt.”
The authors outline other opportunities: “The societal benefits of providing appropriate products to lower-income and disadvantaged consumers can be profound, while the profits for companies can be substantial. For example, low-priced cell phones that provide mobile banking services are helping the poor save money securely and transforming the ability of small farmers to produce and market their crops. In Kenya, Vodafone’s M-PESA mobile banking service signed up 10 million customers in three years; the funds it handles now represent 11% of that country’s GDP.”
This is not Corporate Social Responsibility
The authors take pains to separate “creating shared value” (CSV) from corporate social responsibility (CSR). The latter is focused on reputation, they say, and CSR programs have “only a limited connection to the business, making them hard to justify and maintain over the long run.”
CSV, by comparison, is integral to a company’s profitability and competitive position. It “focuses companies on the right kind of profits—profits that create societal benefits rather than diminish them.”
To read part of “Creating Shared Value — registration is required to access the full article — click here
— Andrew Singer
(Posted December 27, 2011)
National Grid energized by ‘ethics liaisons’
Many corporations now have ethics “helplines,” a toll free number that employees can call to report wrongdoing, or if they simply have a question—about the company’s ‘gifts’ policy, say.
But some employees still find it daunting to pick up the telephone and call a stranger. Will their call be reported to executives within the company? Will they suffer repercussions?
That’s why it’s helpful to have someone on your ‘team’ to go to with such issues—a colleague right on the factory floor, so to speak.
That’s the thinking behind National Grid’s ethics liaison program. “We want people to come forward,” explains William Holzhauer, U.S. Director of Business Conduct and Ethics of the UK-based energy company. The program, now in its third year, has 40 liaisons—ethics “ambassadors”—in all its business lines. “The whole objective is to embed ethics into the corporate culture.”
Liaisons are selected by senior managers. In general, candidates are middle managers, from all backgrounds and functions—not just ‘legal’ or ‘human resources’ operatives— “go-getters,” respected within the company, people willing to take the initiative. Most have been with the company for some years and have an understanding of organizational vulnerabilities with regard to ethics and compliance.
How does it work? An employee goes to the liaison: “I just don’t understand such and such” regarding a company policy. It could involve the appropriate use of company vehicles, for instance. (National Grid has substantial electric and gas operations in the Northeast United States.) How far can you go to a kid’s baseball game if you’re on call with a company vehicle? The liaison could then bring this question to the attention of the ethics and compliance office. It could be a policy that needs clarification company-wide.
The liaisons do not investigate allegations. That could make for an uncomfortable situation—having to investigate someone within their group. They serve for two year periods. National Grid wants to keep “refreshing” the position. About half are ‘refreshed’ every year.
Because National Grid is based in the UK, the entire company is subject to the UK Bribery Act. Holzhauer used the liaisons when doing risk assessments with regard to bribery in each function and business line. What are the risks of bribery in the procurement process, in project management, in the permitting team? The liaisons also assisted in UK Bribery Act training.
“Even if they leave”—cease to be liaisons—“they still carry forth the message,” says Holzhauer. Eventually they’ll have 400-500 liaisons out there — including current and former liaisons—on the U.S. side of the operation, which has 18,000 employees.
The program will soon be expanded to the UK.
— Andrew Singer
[Read the complete article in the upcoming print version of Ethikos (January/February 2011)].
(Posted December 20, 2011)
Most Americans will blow the whistle on workplace wrongdoing—if they have protections, survey reports
December 11, 2011 — According to the survey “Actions and Ethics” conducted by law firm Labaton & Sucharow LLP, one third (34%) of all Americans surveyed reported that they have witnessed or had knowledge of wrongdoing within the work place.
But more than three quarters (78%) said that they would gladly report that wrongdoing if it could be done anonymously, without retaliation, and result in a monetary award—as per the SEC’s new whistleblower program.
“It is disheartening to see that wrongdoing in the workplace continues to be so widespread. However, the findings affirm the need for, and value of, the SEC's Whistleblower Program,” noted Jordan Thomas, partner and head of the Whistleblower Representation Practice at Labaton & Sucharow, and former assistant director in the SEC’s enforcement division where he helped to develop the whistleblower program.
A telephone survey of 1,007 adults in private U.S. households was conducted by ORC International between November 17 and 20. The number who observed wrongdoing fluctuated by region, with 29% of Americans living in the Northeast saying that they had witnessed some form of misconduct, compared with 37% of those living in the West. Similarly, 41% of respondents living in non-metro areas reported having encountered wrongdoing, compared with 32% in metro areas.
Half of those who witnessed wrongdoing had an annual income of $75,000-$100,000, although that number dropped to 29% for respondents with an annual income exceeding $100,000. 37% of White/Caucasian respondents said they have observed or had knowledge of wrongdoing in the workplace, compared with 33% for Black/African-American respondents and 22% for Hispanic respondents.
So having witnessed wrongdoing in the work place, which employees are most likely to act? 78% of respondents admitted that with safeguards to their anonymity, and monetary incentives, they would report wrongdoing: a number that seems to have been reflected in the SEC’s recent report on its program since the enactment of the Dodd-Frank Whistleblower Act.
Of that 78%: Men were found to be just as likely to report wrongdoing as women. Respondents between the ages of 45 and 54 were most willing to report (85%), and those with college degrees were found to be 12% more likely to report than those who had not finished high school. 88% of respondents with an annual household income over $75,000 would report wrongdoing, compared with 78% of those with a household income between $50,000-$75,000.
Knowledge of the SEC whistleblower program may on some level affect the decision to report. Of younger respondents (18 to 34), only 74% said that they would report wrongdoing at work, even if their anonymity would be guaranteed. However, among that same age range, 81% were not aware of the SEC’s Whistleblower Program. By contrast, only 60% of older respondents were unaware of the program.
Similarly, respondents with higher wage earners also reported more knowledge of the program: 43% of respondents with an annual household income over $100,000 said they were aware of the new SEC whistleblower program, while only 26% of those with an annual income below $35,000 were aware of the program.
Awareness of the program varied regionally as well: with 66% of Americans in the South versus 71% of respondents living in the Midwest who were unfamiliar with the program. A similar difference was noted among urban and non-urban Americans, with 67% of metropolitan residents compared with 72% of non-metropolitan residents unfamiliar with the SEC program.
“This [SEC] program, in concert with other regulatory reforms, has the potential to dramatically enhance investor protection and restore public faith in the markets," concluded Thomas.
To see the full results of Labaton & Sucharow’s ‘Ethics and Actions’ Survey, click here [PDF].
(Posted December 13, 2011)
AGCO Corp., Under Investigation, Borrowed a Leaf from Caterpillar
When Debra Kuper arrived at AGCO Corporation in early 2008 as its new vice president, general counsel, and corporate secretary, the company was in trouble.
The Atlanta-based manufacturer of farm equipment had received a subpoena from the federal government in connection with the United Nations’ oil-for-food scandal. The Department of Justice (DOJ) was investigating AGCO and its overseas subsidiaries for corrupt payments and false accounting. A deferred prosecution agreement (DPA), or worse, was looming.
Kuper had come to AGCO from Caterpillar, Inc., where she was senior corporate counsel, overseeing the Peoria, IL-based company’s corporate governance, securities, tax and regulatory compliance group. At the time of her job interview, AGCO couldn’t disclose much of where things stood with regard to the scandal because it was still talking to DOJ.
She had to delve into what happened immediately.
Technically, the company was being investigated for its inaccurate books and records. Kuper conducted her own mini-audit, working closely with AGCO’s internal audit department. She soon recognized that there were significant “gaps” in the company’s anti-corruption processes.
A deferred prosecution agreement
In September 2009, Kuper, on behalf of AGCO Corporation, signed a deferred prosecution agreement with the U.S. Department of Justice “relating to illegal conduct committed by the AGCO Subsidiaries” in connection with the company’s U.N. oil-for-food contracts. Among other things, AGCO agreed to pay the U.S. Treasury a monetary penalty of $1.6 million. AGCO later settled a related Securities and Exchange Commission (SEC) enforcement action by agreeing to pay a $2.4 million civil penalty.
The government sometimes appoints a monitor in DPA cases with ongoing supervisory responsibility over the entire firm—other times just to supervise its compliance activities. Unlike many of its competitors also caught up in the oil-for-food scandal, AGCO did not end up with a government appointed monitor. Kuper had worked hard for this. She didn’t want the company to have to spend millions of dollars to have someone do what she felt she would be able to do.
It took “a lot of negotiating,” she recalls in a recent interview with Ethikos. She had to convince the government that she had things under control. It didn’t hurt that she had come from Caterpillar, a “squeaky clean” company from an ethics and compliance standpoint. In effect, she told DOJ: “We need to introduce the Caterpillar model,” a model that worked for a global company headquartered in the U.S. “We need to have people in place.”
How did AGCO fare? This past month (November 2011) the company won Corporate Secretary magazine’s Corporate Governance Award 2011 for Best Overall Governance, Compliance and Ethics Program. It was cited in particular for its “industry-leading global anti-corruption program.”
Obviously something worked out okay.
The Caterpillar model
Caterpillar had used Six Sigma, a rigorous and disciplined methodology to ensure quality assurance in developing and managing its ethics and compliance (E&C) program. That company had an organizational structure with a single head of E&C, with regional E&C officers under that chief, and local E&C officers under the regional officers...
— Andrew Singer
[The continuation of this article will appear in the upcoming print edition of Ethikos.]
(Posted December 6, 2011)
‘CA Technologies Turns To Humor in Training’
When it comes to ethics and compliance, software giant CA Technologies prides itself on its strong in-house education program. But in the spring of 2009 something was missing. “A lot of our training relied on third party course modules. But this was, and I hate to say it, a little canned,” Joel Katz, the firm’s chief ethics and compliance officer, tells Ethikos.
Employees were just not engaged.
Katz estimates that each CA employee undergoes approximately two hours of required online ethics and compliance training each year. Employees are required to keep up-to-date with codes of conduct and company policy.
So how best to keep CA Technologies' 14,000 tech-savvy employees interested in topics that were serious, complicated, and deeply important?
Katz turned to humor.
In the summer of 2009 Katz attended a conference which featured a presentation by the improv theater troupe The Second City, showcasing a series of videos called ‘RealBiz Shorts,’ a series of humorous scenarios that highlight ethics and compliance issues.
“They were short, interesting, and entertaining,” recalls Katz.
RealBiz Shorts was produced by The Second City in partnership with Corpedia. The Second City, a Chicago-based group with a focus on providing funny and entertaining training videos (see “Improv Theatre and Ethics? U.S. Foodservice Delivers Some Laughs,” Ethikos, September/October 2009), made available RealBiz Shorts a little over a year ago. The idea was to provide organizations with fun videos that could be used for an array of training supplements specifically tailored to ethics and compliance issues. Topics include issues such as social media policies, conflicts of interest, and potential FCPA (Foreign Corrupt Practices Act) violations. In short: serious issues addressed in a way that make employees laugh.
“Compliance is a very serious topic, there is no getting around it. But we don’t want employees to be afraid of it,” says Katz. “We want them to ask questions. The shorts are a good way to break the ice a little. We want them to relax a little and talk to us.”
— Alexandra Theodore
[A longer version of this article will appear in the upcoming print edition of Ethikos.]
How is the SEC’s whistleblower program faring? In its first seven weeks of operation—from August 12, 2011 through September 30, 2011—the Commission received 334 whistleblower tips.
The most common complaints? ‘Market manipulation’ (16.2%) was first, followed by ‘corporate disclosures and financial statements’ (15.3%), and ‘offering fraud’ (15.6%). ‘Insider trading’ and ‘FCPA’ were further back, at 7.5 percent and 3.9 percent, respectively.
The real leader, however, was ‘other’—accounting for 23.7 percent of all complaints—a category for “those instances when the whistleblower chose not to use one of the predefined complaint categories in the online questionnaire,” according to the Commission’s fiscal 2011 report released this month.
The Commission received whistleblower submissions from individuals in 37 states—California (34) and New York (24) headed the list--as well as foreign countries, including China (10) and the United Kingdom (9) with Australia (3) a distant third.
By way of background, Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) directed the SEC to make monetary awards “to eligible individuals who voluntarily provide original information that leads to successful Commission enforcement actions resulting in the imposition of monetary sanctions over $1,000,000,” and certain other successful actions.
Awards were to be made in the amount of 10% to 30% of the monetary sanctions collected.
The act also directed the SEC to establish a separate office to administer the whistleblower program, the Office of the Whistleblower, which is required to report annually to Congress on its activities. Hence the November report. (The federal government’s fiscal year ends September 30.)
In February 18, 2011, Sean X. McKessy was selected to head the Office of the Whistleblower (part of the SEC’s Division of Enforcement). In addition to McKessy, the office at present has five attorneys and one senior paralegal on detail from various commission divisions and offices. The Office is in the process of recruiting and hiring a deputy chief, noted the report.
Among its activities, the Office established a whistleblower hotline for members of the public to call with questions about the program. Office of the Whistleblower attorneys return calls within 24 business hours, according to the report. Since the hotline was established in May 2011, the Office has returned more than 900 phone calls from members of the public
“It is too early to identify any specific trends or conclusions from the [whistleblower] data collected to date,” said the Commission, given the late start of the program. For much the same reason, the SEC did not pay any whistleblower awards during fiscal year 2011. More trends and awards data are expected in 2012.
For the full SEC report, click here.
(Posted November 21, 2011)
Walgreens: Face-to-Face Ethics Conversations are Critical
If you want to spread the ethics message within a large organization, there’s much to be said for live appearances.
At Walgreens (Deerfield, IL), the giant drug store chain, Chief Compliance Officer Laura Merten and staff spend much time conducting “outreach,” fanning out across the country to meet ‘live’ with employees and managers.
“Face to face conversations are very important,” Merten tells Ethikos. “There is still something about being able to look someone in the eye.”
They recently visited Walgreens stores in Maine and Louisiana (New Orleans) spreading the word.
They attended a company meeting in Las Vegas.
More recently they journeyed to Puerto Rico, addressing a meeting of Walgreens’ Florida and Puerto Rican managers (“I often go where there is a meeting already”). They met informally with locally based employees, i.e., in the Walgreens’ Puerto Rican drug stores. Later they attended the manager meeting where they made a formal presentation.
“If they’ve seen you, even just a picture of you, it puts a face to the name,” says Merten. “It matters. It all feels more human. They know that I am a person,” not just a name or a disembodied voice.
Walgreens, like some other companies, has been working lately at building a ‘speak-up culture,’ that is, reinforcing a sense of duty among employees to report improper conduct. Merten spoke on this subject at the ECOA’s recent (September 22, 2011) annual ethics and compliance conference.
[The full version of this article will appear in the upcoming print edition of Ethikos.]
— Andrew Singer
(Posted November 15, 2011)
Swiss and Dutch Companies Least Likely to Pay Bribes—TI Survey
Companies from Russia and China are viewed as the most likely to pay bribes—to both public officials and other private firms—according to Transparency International’s (TI) 2011 Bribe Payer’s Index. Companies from countries that take stronger regulatory action against foreign bribery like the U.S. and U.K. are seen as less likely to do so.
While no country among the 28 ranked scored a perfect ‘10’ (i.e. wholly clean and uncorrupt), companies in The Netherlands and Switzerland were deemed least likely to pay foreign bribes, with Belgium, Germany and Japan following closely. (TI surveys gauge respondents’ perceptions of bribery, not actual cases of bribery—a distinction that is sometimes lost.) The U.S. and U.K. were in the top ten too.
Among business sectors, agriculture and light manufacturing are viewed the least likely to participate in foreign bribery, while construction companies seeking public works contracts were deemed most likely to pay bribes to foreign officials.
“The link between a government’s fight against corruption at home and foreign bribery by its companies is made apparent by the strong correlation between Transparency International’s Bribe Payers Index and Corruption Perceptions Index, which measures the levels of perceived corruption in the public sector,” notes the Index, suggesting that overall perception of a country’s anti-bribery reputation is dependent on its government’s perceived ability to enforce anti-bribery measures.
While the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-bribery Convention) requires that each of the 34 OECD member countries, plus Argentina, Brazil, Bulgaria and South Africa, which have adopted this convention too, make foreign bribery a crime, 21 of these countries have made little or no effort to enforce the convention.
Furthermore the OECD does not cover instances of ‘private-to-private’ bribery—that is, a business soliciting or paying bribes to another company rather than a public official.
The Index singles out private-to-private bribery as a growing global concern. The 3,016 business executives from 30 countries that TI surveyed considered instances of this form of bribery as likely to occur as the bribery of a public official. (The OECD does not require its signatories to criminalize private-to-private bribery offense. However, the UK Bribery Act does make bribes between companies a violation.)
The Index cites Russia and China as areas of concern. Both are viewed as powerful emerging markets and both are also viewed as poorly regulated, corrupt economies that have only just recently begun to take measures to enforce anti-corruption measures.
In 2011, China’s parliament passed the eighth amendment to the Criminal Law of the People’s Republic of China making it a criminal offense for Chinese companies and nationals to bribe foreign government officials (previously, the country’s anti-corruption efforts focused only on domestic bribery; it was criminal only to bribe Chinese government officials). The new law applies to companies organized under Chinese law, which include international companies’ representative offices, joint ventures and wholly foreign-owned enterprises in China, as well as Chinese companies overseas.
“The new amendment of the penal code marks the Chinese authority’s commitment to combating corruption,” notes Ren Jiamin, Vice Chair of Transparency International China’s Anti-Corruption and Governance Research Center. “However, there are tremendous challenges ahead and bottlenecks that need to be cleared. Not only does the appropriate legislation need to be put in place, but effective implementation of this provision also requires sufficient enforcement processes and resources, international cooperation and moreover, the continued willingness of the authorities to treat this issue as an important priority.”
The Index notes similar efforts on the Russian front where recent legislation also criminalized some instances of foreign bribery. Russia was invited to join the OECD Convention in May 2011, although experts remain cautious about the country’s commitment to better regulation.
“The position of Russian business in the 2011 Bribe Payers Index is not of any surprise since Russia in general is still struggling to find the proper way to confront systemic corruption. It would be strange to expect business to do better than public office does,” says Elena Panfilova, Director of Transparency International Russia’s Center for Anti-Corruption, Research, and Initiative. “But there is hope that the strict enforcement of new national anti-corruption legislation and compliance with international commitments will help to change this situation in the coming years.”
For the full Transparency International report, click here.
— Alexandra Theodore
(Posted November 8, 2011)
The Sentencing Guidelines at 20 Years (Today!)
October 31, 2011 -- On November 1, 1991, the US Sentencing Commission implemented the Federal Sentencing Guidelines for Organizations (FSGO), which created incentives for companies to self-police organizational wrongdoing. These guidelines sparked an explosion in corporate ethics and compliance programs.
Twenty years later, how are they doing? Although the Guidelines have achieved “significant successes,” according to the Ethics Resource Center (ERC) in a recent report, challenges remain.
Few FSGO cases involve large companies, for instance, “because criminal cases are largely being detoured around the judges for whom the Sentencing Guidelines were intended,” notes the report. Prosecutors are resolving cases involving wrongdoing by big corporations through deferred prosecution agreements, for instance—and in these cases there is no conviction so there is no sentence where the ‘Guidelines’ can kick in.
There is also inconsistency in how federal agencies determine whether a company has an effective compliance/ethics program—which makes the firm eligible for a reduction in penalties. There are some 20 agencies that play a role in enforcing the laws that govern corporate conduct, notes the ERC, “but each has its own approach to corporate compliance/ethics programs.”
The report makes a number of recommendations, among them that the Department of Justice develop a credible process for evaluating the effectiveness of compliance and ethics programs. “The Department should provide training to DOJ personnel on compliance/ethics best practices.”
The report also calls on The President and Congress to create a Core Federal Model for corporate compliance/ethics programs and on the private sector to demand that ethics/compliance programs “go beyond mere compliance and insist on ‘living, breathing, practical programs’ that focus on the broad goal of building a strong ethical culture.”
Back in 1991 the Guidelines embraced a “carrot and stick” approach for assessing corporate culpability, notes the report—actually a ‘discussion draft,’ titled The Federal Sentencing Guidelines for Organizations at Twenty Years: A Call to Action for More Effective Promotion and Recognition of Effective Compliance and Ethics Programs". It offered a “sharp reduction in penalties when an effective compliance and ethics program (ECEP) was in place ‘to prevent and detect violations of the law.’”
But clearly, in the ERC’s view, more needs to be done.
The report is to be reviewed this month by 22 distinguished former law enforcement officials, federal judges, prosecutors, academics, and compliance/ethics experts. The draft was posted online today (November 1, 2011) for a public comment period starting “exactly 20 years after the FSGO were promulgated.” The review period will end November 30, 2011.
Co-chairs of the advisory group are Patricia Harned, President, Ethics Resource Center, and Win Swenson, Partner, Compliance Systems Legal Group, and former Deputy General Counsel, U.S. Sentencing Commission. Among advisory group members are:
To access the ERC draft report, click here.
(Posted November 1, 2011)
Companies Still Unprepared for FCPA, UK Bribery Act—Kroll Study
When it comes to issues of global fraud, the greatest new risk may be internal. “We pay a lot of close attention to protecting the business and enterprise from fraud on the outside, but we let our guard inside when in fact there are things that can be done on the inside,” David Holley, Senior Managing Director at Kroll, told Ethikos this week.
According to Kroll”s recently published 2011 Global Fraud Survey, “fraud remains predominantly an inside job.” The study reports that 60% of frauds are committed by insiders, up from 55% last year.
(Posted October 25, 2011)
More Top Execs Charged in FCPA Cases
Out of 61 individuals who were the subject of government-initiated civil or criminal actions alleging Foreign Corrupt Practices Act (FCPA) violations in the past six years, the majority were president, CEO, or chief operating officer of their respective companies, according to a recent Chadbourne and Parke LLP Compliance Quarterly report.
The largest region of alleged misconduct was Mexico, Central, and South America, accounting for 44% of cases, followed by Asia (32%), Africa (21%), and Europe (3%).
Improper payments between $1 million and $2.5 million was the most common range in the cases examined; the higher the payment amount, the greater the likelihood of a criminal case being leveled against an individual, as opposed to a civil case, the study noted.
“It is becoming clear that FCPA enforcement is not just limited to companies that fail to maintain the highest ethical and anti-corruption standards but to its executive management as well,” commented M. Scott Peeler, the report’s author.
Among the 61 targeted individuals (who worked for 26 different companies), 22 were president, CEO or COO of their companies, 8 were vice-presidents, 7 were heads of sales, 5 were regional sales managers, 5 were third party agents, and 4 were CFOs, according to the report, “A Study of Individual Liability under the Foreign Corrupt Practices Act.”
Beyond the size of the improper payments, the degree to which the individual was directly involved in the wrongdoing also factors into whether or not the action pursued is a civil or criminal case.
Someone who knew or participated in a bribe scheme is more likely to be charged in a criminal case no matter the amount paid. Even individuals with direct knowledge who did not act—that is, those who were informed of the improper payments but took no immediate action—are likely to face criminal action.
Those who were not expressly aware of the wrongdoing are still liable to face civil action if there is enough evidence to suggest “that they were aware of circumstances that would lead a reasonable person to suspect impropriety and investigate,” said the report. The factors considered in these cases are whether or not they raised questions and took measures to uncover the potential bribery.
There appears no letting up on the part of the government in going after individuals in such cases (as opposed to corporate entities). “As the recent guilty verdicts in the Lindsey Manufacturing case illustrate all too well, the U.S. government is actively pursuing cases against individual corporate officers and executives who either suspected impropriety but failed to investigate or in the worst cases, knew and actually actively participated in the misconduct,” writes Peeler, a Chadbourne & Parke partner who is part of the firm’s commercial litigation and special investigations and government enforcement practice groups.
Corporations need to take counter measures. “Companies must put in place the strictest anti-corruption controls where they are needed most and train and keep training its employees, managers and high risk third party service providers so they fully appreciate the risks of non-compliance, and truly take a zero-tolerance message to heart. The price of not doing so is just too high.”
Individuals, the report concludes, should also be ready to act fast in the face of apparent wrongdoing: “In today’s world of e-mails, whistleblowers, and aggressive government enforcement (including prison sentences on FCPA cases up to 7-8 years so far), you can’t afford to make these same mistakes in judgment. The moment anyone tells you about bribes being paid, don’t do anything that could later look like acquiescence—call a lawyer immediately (yes, it’s that serious), get to the bottom of things, and follow their advice!”
For the complete report, click here.
(Posted October 11, 2011)
Ensuring Employees Report Misconduct Internally
Industry data suggest that most employees still want to ’go internal” when they see something wrong, according to Luis Ramos, Chief Executive Officer, The Network, Inc. (Norcross, GA). They prefer to tell a manager, an ethics officer, or a human resources specialist about misconduct rather than go ’outside”—to a government agency like the SEC, say.
There are some practical things corporations can do to ensure that this happens. First, make sure that employees are “keenly aware of [ethics and compliance reporting] programs and that they can access them,” Ramos tells Ethikos. Repetition is critical. “Employees forget if you don”t keep telling them about it.”
(Posted October 4, 2011)
Sustainability reports: U.S. a laggard but ‘catching up’; UPS delivers some numbers
UPS recently became the first US company to have its annual ‘sustainability’ report ‘assured’ (vetted) by a Big Four accounting firm (Deloitte).
U.S. companies have trailed Europe and Asia firms in this area. Only one in eight corporate ESG (environmental, social, and corporate governance) reports is "assured" in the U.S., while one in two reports are assured in Europe, notes Ernst Ligteringen, Chief Executive, Global Reporting Initiative (GRI).
"But the U.S. is catching up," said Ligteringen, speaking yesterday at the CR Commit! Forum 2011 in New York City.
UPS, the shipping company, published its initial sustainability report in 2002, the first in its industry sector, and one of the earliest in the U.S.
It wasn't a crisis—and ethics scandal or an environmental calamity—that moved UPS toward sustainability, noted Steve Leffin, Director of Global Sustainability, another panelist at the conference. UPS is an engineering minded company, and it has long believed that "measurement comes before management.” It's also long been a topic of discussion within the company, where they talk about practical issues like, for example, how to remove pooling water from the roof at headquarters, said Leffin.
In the company’s most recent sustainability report, which covers 2010, the firm tracks things like “CO2 Pounds [emitted] per Available Ton Mile” and “Gallons of Fuel per Ground Package” ( 0.117 gallons in 2010, an improvement over 0.121 gallons per ground package in 2009), as well as more conventional metrics like “2010 charitable contributions.”
UPS recently received a score of 99 out of 100 in the 2011 Carbon Disclosure Project's (CDP) Global 500 “Carbon Disclosure Leadership Index”; it was one of only four companies in the world to receive the highest score from CDP, which tracks corporate greenhouse gas emissions.
UPS believes there is a good financial return when investing in sustainable products and services—although it isn’t always obvious. Just the other day UPS had a conversation with a major client in which they quickly established commonality, recalls Leffin: both organizations believed in transparency, both were committed to sustainability; both had good sustainability "scores." Clearly that helped the vendor/client relationship.
The accounting world is becoming more closely tied to the sustainability movement, noted Ligteringen, and the media has picked up on it: when visiting Google Finance one can now find a “carbon disclosure rating” in the “key stats and ratios” column. Bloomberg’s 300,000 market data terminals now provide corporate information like emissions data, figures on energy consumption, as well as corporate policies and board composition.
"Not disclosing leaves a blank on the Bloomberg data,” notes Ligteringen. “That's a spur toward reporting.”
More of a return
With regard to sustainability reporting there is generally, “much more of a return on doing it, than there has ever been before," noted Michelle Greene, Vice President and Head of Corporate Responsibility, NYSE Euronext, another speaker at the conference.
"Investors care [about sustainability], customers care, employees care." Studies have shown that employees will take less in salary if they believe the company is a responsible corporation. It is changing the way companies think about business strategy, says Greene.
This vetting process isn’t cheap. After all, you’re paying an accounting or auditing firm to vouch for the veracity of your greenhouse gas emissions, water usage, energy consumption—and dozens of other metrics. (“2010 greenhouse gas inventory verified by Société Générale de Surveillance and assured by Deloitte & Touche LLP,” noted UPS in its sustainability report.)
Interestingly, GRI’s own sustainability report—the Netherlands-based organization has established the international format for most sustainability reports—is not audited or “assured,” by an outside firm report because of "budgetary constraints," GRI notes on its website.
Sustainability and ethics
The tone at the New York conference was decidedly upbeat, but during the Opening Keynote session, Ligteringen and several co-panelists were asked a difficult question from the audience.
Rushworth Kidder of the Institute for Global Ethics asked: Again and again, it seems, companies score high in these sustainability measures, but later “hit the skids” in regard to ethics as companies becomes engulfed in some scandal or other. How does that happen?
Companies can express their basic principles, like integrity, in their GRI reporting, answered Ligteringen. Moreover, transparency helps build good relationships with all stakeholders. Ethics is part of sustainability reporting, added Greene.
But more than one attendee felt that somehow something was missing here. As reported in last week’s Ethikos’ news blast, Mike Koehler, a law professor at Butler University in Indiana, has noted that General Electric, HP, AstraZeneca and others have all been among Ethisphere’s “World’s Most Ethical” companies—while settling Foreign Corrupt Practices Act (FCPA) prosecutions or undergoing regulatory investigation.
Ligteringen noted that 80 percent of a company's value these days is made up on things other than physical and financial assets. Trust is very important, in comparison to a generation ago when it was just the opposite: almost all market value was a function of physical and financial assets.
Said Ligteringen: “We need more integrated reporting. We need to have better discussions: To figure out what we want, what we will tolerate. Let's start with an informed discussion.”
GRI now has 4,500 reporters worldwide. Ligteringen noted that 93% of the 1,100 listed companies in Denmark today "choose to report” rather than to explain why they aren’t reporting. 80 percent of the Fortune 100 companies in 2008-2009 produced sustainability reports. Major Asian stock exchanges are explaining to their listed firms the importance of sustainability reporting. "Major companies are now managing suppliers through the sustainability lens," says Ligteringen.
"We're seeing more mainstreaming of sustainability--it's not just social investors," added Greene.
The economic crisis is a "continuing reminder of the importance of transparency," said Ligteringen.
With regard to sustainability reporting: It's no longer a "luxury" that some companies want to do—rather it’s something that they can't "afford not to do."
— Andrew Singer
Of the 7,000 publicly U.S. traded companies listed on the NYSE or NASDAQ, only 29 have Chief Sustainability Officers (CSOs), according to a study conducted by The Weinreb Group.
Chief sustainability officers tend to be veteran employees: “On average, CSOs have been with their respective companies for 16 years. Moreover, 86 percent of them were internal hires.”
Of the 25 officers surveyed (the 4 who were newly hired were not included in this list) all had experience in external affairs positions.
Among the new hires, Bea Perez, Coca-Cola’s CSO, served as the Chief Marketing Officer for the beverage company’s North American branch before taking on the position of sustainability. She is also the youngest CSO surveyed, at age 41.
CSO is a relatively new position—the first official Chief Sustainability Officer was DuPont’s Linda Fisher, who was appointed to the position in 2004. Among the 29 listed are UPS’ Scott Wicker, AT&T’s Charlene Lake, Alcoa’s Kevin Anton, and General Mill’s Jerry Lynch.
[The study focused specifically on those “who hold the title ‘Chief Sustainability Officer’ because we assumed that this select group would be at the executive level —close to the CEO, and perhaps on an executive team involved with all corporate strategic decisions—to support our efforts to glean best practices.”]
The study notes that while there are no standard guidelines as to the “scope and authority” of the position, there are a number of qualities held in common among the 29 noted in the survey:
They are often small operations with limited resources—a rough average of 4 employees report directly to the CSO. However the average sustainability program has an overall team of approximately 185 cross-functional staffers.
For many organizations Sustainability programs have been experimental in structure and application.
Scott Wicker told Weinreb: “Sustainability as a function was always there at the company [UPS] but it was very uncoordinated. A few people were pulling data and answering questions on an ad hoc basis.”
In 2006 the shipping company realized the sustainability governance structure needed review. “We needed to evolve to get better. We also knew that we had to include all the departments since sustainability affects everyone.”
In 2007, UPS introduced a new reporting structure that included a sustainability group with a director, vice president, and five other staff. Wicker was vice-president, reporting directly to Bob Stoffel, UPS’ SVP for supply chain, strategy, engineering and sustainability. Upon Stoffel’s retirement, it was concluded that it “needed to be clear” who was in charge of sustainability for the company, and Wicker was named CSO.
In the case of AT&T, the sustainability program grew out of a public affairs initiative: “I was asked to start a public affairs program,” Charlene Lake told Weinreb. “Then I acquired the philanthropic and volunteering efforts, and went on to build out an advocacy function for the company.” The sustainability program was established formally in 2007. “Not only did the board receive our proposal well, they also included a new corporate citizenship charter in their existing public affairs committee.”
The study concluded there is no uniform background for a CSO, and no exact mandate as to what the position entails. There are many things the function share in common in all companies observed, however. All 29 CSOs surveyed have their own budget. However, all do not necessarily control their own profit and loss function. Ninety percent of CSOs are one or two steps from the CEO of their organizations. Ten report directly to the CEO, while 16 report to other C-level positions, the most common being the Chief Operating Officer or Chief Marketing Officer.
One thing agreed upon by the CSOs interviewed is that the major function of a Chief Sustainability Officer is the need to respond quickly to external factors:
“Our role in sustainability is to influence and implement behavioral and operational change,” says Kathrin Winkler, CSO of EMC, “Regardless of whether you call the role chief sustainability officer or something else, our function as executives leading sustainability strategy is that of change agents.”
For the full study, click here.
— Alexandra Theodore
(Posted September 27, 2011)
‘Use of third parties’ seen as leading source of corruption risk
Although 90 percent of corporate executives say their companies have an anti-corruption policy in place, only 29 percent express confidence in those policy’s abilities to prevent or detect corrupt activities, according to a recent survey conducted by Deloitte LLC.
Larger companies were more likely to perceive corruption risks than smaller firms, according to the Big Four firm’s “Anti-corruption practices survey 2011.” The study stressed the difficulties of establishing an anti-corruption environment when expanding into emerging markets such as Russia, China, India, and Brazil, with China proving the area of greatest concern to over half the executives surveyed.
“Use of third parties” was seen as the leading “source” of corruption risk according to the 276 executives surveyed (52%), but 63 percent of executives at larger companies believed the third parties posed a “significant risk,” compared with only 33 percent of those at smaller companies.
What do companies include in their anti-corruption policies--assuming that they have them? Corrupt behavior typically includes issues of bribery (91 percent), gifts to foreign government officials (85 percent), expenses related to government business/government relations (75 percent), facilitating payments (74 percent), and political contributions (73 percent), among others. However, only 45% treat anti-corruption policies as a stand-alone policy specifically focused on anti-corruption compliance. For the majority the policy is part of a broader code.
Deloitte observed a global increase in anti-corruption regulatory measures generally. It referred to increased Foreign Corrupt Practices Act (FCPA) enforcement in the U.S. and the new UK Bribery Act. Companies with strong anti-corruption compliance programs may stand to benefit under the circumstances.
“According to the DOJ [Department of Justice], companies implementing effective anti-corruption programs are much less likely to incur substantial penalties levied for FCPA violations. In addition, the costs to companies of investigating and defending FCPA allegations can be significant. Investigation costs can often run into the tens of millions of dollars based on the size of the matter,” notes the survey.
However the new UK Bribery Act presents new challenges for companies. It applies to all companies doing business with the UK, and it does not allow for facilitating payments — “which are sometimes referred to as grease payments or expediting payments” — and which are permitted allowed under the FCPA. Tougher regulatory action has already led many organizations to eliminate facilitating payments, the survey notes.
In regard to assessing their exposure to potential risk issues, executives were most likely to rely on internal risk assessments (58 percent) and past experience with corruption issues (51 percent). One-third of executives said their companies relied extensively on industry information or on the ratings of the Transparency International Corruption Perceptions Index, according to Deloitte.
[The Deloitte Forensic Center conducted the survey to assess how companies are managing their efforts to prevent corrupt practices in their operations around the world and ensure compliance with legislative requirements. The survey was conducted online in February and March, 2011.]
More internal audits
The frequency of internal audits is higher in larger companies. “Roughly 80 percent of executives said their company conducted internal audits of its foreign operations to identify potential corrupt activity.” Among executives at larger companies, 87 percent said they conducted such audits, compared with 63 percent of executives from smaller companies.
The large/small firm divide extended into the management of internal anti-corruption compliance programs: “80 percent of executives said their board of directors received updates on the status of their anti-corruption compliance program, and roughly two-thirds said that they received updates annually or more often. However, 32 percent of executives from smaller companies (with less than US$1 billion in annual revenues) said their board of directors did not receive any updates on their compliance programs.”
In addition, smaller companies were also half as likely (15 percent) as larger companies (33 percent) to use software to identify suspicious or anomalous payments that could indicate corrupt activity.
When asked whether or not they believed a peer in their industry (though not necessarily their own company) would report wrongdoing to the DOJ or SEC if uncovered, the response was varied: 36 percent of respondents believed it was very likely that an executive would report such a violation, 39 percent said it was somewhat likely, and 25 percent found it unlikely. Only 27 percent saw significant benefits in self-reporting violations, while an additional 43 percent saw some benefit.
Among the concerns expressed regarding self-reporting of potential wrongdoing was the accuracy of disclosures and of management’s reports, as well as certifications relating to internal control over financial reporting. However Deloitte predicted that with the advent of the Dodd-Frank Whistleblower bounties, unreported violations will likely decrease.
Otherwise, issues the executives surveyed considered of “significant concern” were: testing and monitoring for compliance (33 percent), creating an anti-corruption culture (25 percent), implementing effective training programs (23 percent), and balancing the pressure to achieve results with the requirements of an effective anti-corruption program (22 percent).
Getting anti-corruption houses in order
Commenting on the survey findings, Toby J. F. Bishop, director of the Deloitte Forensic Center, Deloitte Financial Advisory Services LLP, said: "Larger companies have taken the brunt of the enforcement activity so far, partly because they entered emerging markets earlier and, as a result, they have had more time to develop sophisticated anti-corruption compliance programs. However, saying 'we're new to emerging markets' is unlikely to protect smaller companies and their executives from hefty fines and sanctions."
"Regardless of size, it's time for all companies to get their anti-corruption houses in order," said Bill Pollard, a leader in Deloitte's FCPA consulting practice. "As FCPA enforcement continues to rise in frequency and--often--fine amounts, enforcement of the UK Bribery Act is underway and SEC whistleblower provisions for Dodd-Frank are in effect, every company should be taking a very hard look at their anti-corruption policies and implementing updates as necessary."
The full Deloitte survey may be viewed here.
— Alexandra Theodore
(Posted September 20, 2011)
IBE: More Women on Corporate Boards‘Helps to Avoid Groupthink’
Female employees often exhibit a stricter ethical standard than men. Indeed, in a survey of 791 British full-time employees, “For seven of ten workplace behavior practices, women were more likely to consider them unacceptable than men.”
This was one of the many observations recounted in The Institute of Business Ethics’ (IBE) September Business Ethics Briefing, ‘Business Ethics and Board Diversity.’
According to IBE, which urges companies to have more women on corporate boards: “Having a range of viewpoints and perspectives helps to avoid groupthink and is bound to put a company in a better position for understanding the risks and opportunities that it faces.” More women in senior management serve to benefit companies in both a financial and managerial sense.
In its surveys, IBE also found that women and older employees were less likely to be tolerant of unethical workplace practices than male and young employees. The briefing observes that such stricter standards may benefit a boardroom’s overall ethics as well.
“The first of a series of reports by McKinsey & Company entitled Women Matter found that companies with three or more women in senior management positions scored more highly against critical measures of organization excellence than companies with no women at the top,” the briefing notes. “These companies also had better financial performance.”
The overall suggestion is that female board members offer a more versatile approach to company management. “Gender diversity also makes a difference in the boardroom in terms of leadership approach and priorities,” states the briefing, which discusses a number of US surveys suggesting that women in the boardroom often provide different and more varied leadership roles.
Observations include a potential for a ‘more collaborative leadership’ style, a perceived tendency to ask tough questions and demand detailed answers, and a stronger support for general oversight functions (i.e., one particular survey found that female women directors are more likely to join monitoring committees).
All in all, the briefing makes a case for diversity, finding that companies that exercise a more diverse boardroom set a better example for stakeholders and appear to prosper.
“A big part of the reason we want women better represented at leadership levels in business is because they bring a different perspective to the table that could lead to enhanced decision-making, more innovation, and ultimately, higher performing teams,” says PwC’s Global Chairman Dennis M. Nally, “While working across gender would be a key aspect of cultural dexterity, it also applies to working across such dimensions as ethnicity, age, and experience.”
How to better promote diversity in the boardroom remains a challenge. Limiting factors include cultural perceptions of a male-dominated senior management, as well as the continued issue of allowed flexibility for women who might require maternity leave (women are under continued societal pressure to prioritize family over company issues).
As of 2011, only 13.9 percent of FTSE 100 board members are women, up from just 12.9 percent in the previous three years. In the US the percentage of women on top corporate boards has remained at 15 percent for the past five years.
There is some debate as to how to raise that percentage. Norway, France, Spain and Iceland have required companies to meet quotas in their hiring practices, with Norway’s quota being the highest at 40%.
The CBI, the UK's top business lobbying organization, does not recommend quotas for hiring of senior management at this time, but rather adopts a ‘comply or explain’ approach to the issue. However, one of the proposed changes to the UK Corporate Governance Code would require companies to publish their policy on board diversity and report annually on the topic.
For more information, click here to download the full briefing in PDF format.
— Alexandra Theodore
(Posted September 6, 2011)
Medtronic, Woolworths, Xerox added to Sustainability Index; HP, Coca-Cola dropped
The Dow Jones Sustainability Index (DJSI) has released its 2011 annual report, marking a year of some surprising change: Medtronic, Woolworths, Xerox, and Hyundai are among this year’s most notable additions. Among organizations removed from this year’s list: Microsoft, Coca-Cola, Hewlett-Packard, and Volkswagen.
DJSI does not publicly disclose why companies are dropped or added. The results are shared only with those companies. In the case of Hewlett-Packard, however, the reasons for removal might seem evident in light of recent controversy sparked by the abrupt departure of CEO Mark V. Hurd. This prompted an SEC inquiry and a series of personnel changes that brought the company’s board conduct into question.
Coca-Cola, by comparison, appears to have been dropped simply because it was out-performed by archrival Pepsi in the Food & Beverages sector.
One noted subtraction from regional indexes specific to the Asia-Pacific region was the Tokyo Electric Power Company (TEPCO). In May, DJSI broke precedence and issued a press release explaining why the energy company was reevaluated:
“The review of TEPCO’s position in the regional indexes was prompted by the nuclear emergency at its Fukushima Daiichi power station following the earthquake and subsequent tsunami that occurred on March 11th, 2011,” stated the DJSI release. “The analysis initiated a significant reduction in TEPCO’s sustainability score due to a negative impact in multiple areas such as: Environmental Management Systems and Occupational Health & Safety.” TEPCO had been regularly placed in the regional indexes since 2009.
The Dow Jones Sustainability Index, in conjunction with the Swiss investment boutique SAM, scores an organization based on a number of contributing factors, such as areas of corporate governance (i.e. board effectiveness, board compensation, entrenchment policies, board diversity), risk management (existing strategy and review procedures), and compliance (codes of conduct, means of reporting, and existing anti-corruption measures). Also considered are an organization’s performance in the aforementioned areas of environmental management systems and occupational health & safety. Employee satisfaction and retention, and corporate citizenship are also factors that go into an organization’s score in the Index.
The Index also bars certain sectors from the ranking: organizations dealing in armaments, alcohol, tobacco, and adult entertainment are excluded from all rankings.
In total, 41 companies were added to the global index while 23 firms were removed. According to Michael Baldinger, CEO of SAM, “In spite of the current economic turmoil, it’s clear that sustainability remains a high priority on corporate and investor agendas.”
Among the 143 companies named to the Index is Delta Airlines, which attributed its improved score to environmental factors, among other things: the airline company reduced carbon dioxide emissions 20% since 2005, and has donated extensively civic causes, said Delta in a press release.
For more about the Index, click here.
(Posted September 6, 2011)
A Global Leader’s Guide to Managing Business Conduct
Employees in the U.S., Europe, and Japan are in agreement: There are basic standards of conduct that companies should follow worldwide. But actually meeting those standards will require new approaches to managing business conduct, conclude three Harvard Business School professors in an article in this month’s Harvard Business Review (HBR), “A Global Leader’s Guide to Managing Business Conduct.”
Companies should combat bribery in countries where corruption is rampant, most employees agree. “Instructing employees to ‘just say no’ and punishing violators might work,” write authors Lynn S. Paine, Rohit Deshpandé, and Joshua D. Margolis—but it carries a business risk and may simply drive corruption underground.
“A more promising approach recognizes that the best protection against corruption is a superior product that adds value for the customer and is not readily available elsewhere,” they write in HBR’s September 2011 online edition. There isn’t much evidence that many companies have acted on this yet, however. Doing so may require extensive changes in internal processes, as well as engaging with external parties “such as standard setters, regulatory officials, and anti-corruption groups.”
In surveys of more than 6,200 employees from the top ranks to the front lines of four leading multinationals based in the U.S., Europe, and Japan, “We found a surprising consensus on the standards of conduct that these employees think companies should follow but much less consensus on what they believe their companies actually do,” co-author Paine told us.
There is strong global support for even items that the authors thought would be controversial, such as respecting dignity and human rights. “But the gap between ‘should’ and ‘do’ was troubling.” The gap was particularly large with regard to standards of business integrity, such as fair dealing, promise keeping, and conflict-of-interest disclosure.
Top managers typically had a rosier view of matters (i.e., they saw a smaller gap between ‘do’ and ‘should’) than rank-and-file employees. In addition, employees in the emerging markets of China, India, Brazil, and Southeast Asia reported larger gaps than those in the U.S., the U.K., Europe, and Japan.
The authors urge executives who are serious about business conduct to move away from a “legalistic mentality” marked by “binary categories,” such as “ethical versus unethical, compliant versus non-compliant, legal versus illegal—that leave little room for degrees of performance or gradual improvement.” Rather business leaders should embrace a view of business conduct that is “broad, dynamic, and affirmative”—like helping employees develop skills and knowledge, or cooperating with others to eliminate bribery and corruption.
Overall, write the authors, “The compliance and ethics programs of most companies today fall short of addressing multinationals’ basic responsibilities—such as developing their people or delivering high-quality products—let alone such vexing issues as how to stay competitive in markets where rivals follow different rules.”
The article can be accessed for a limited period of time free of charge through the Harvard Business Review at the following link: http://hbr.org/2011/09/a-global-leaders-guide-to-managing-business-conduct/ar/1
— Andrew Singer
(Posted August 30, 2011)
Survey on the Influence of Workplace Design & Practices on the Ethical Environment
August 22, 2011 -- The layout of a company’s work space may have a strong influence on employee misconduct, with an open workspace environment promoting more ethical and transparent behavior, according to a survey conducted by Ethisphere and Jones Lang LaSalle
“The separation of staff in cubes vs. staff in offices unfortunately contributes to an ‘us vs. them’ atmosphere,” explains one respondent. “The general feeling of those of us in the cubes is that those in offices seem to be allowed to ‘get away with’ much more.”
60% of respondents surveyed believed that open workspaces where employees can see one another promote a more ethical environment. That is, employees are more inclined to act ethically when their actions are easily visible to their coworkers. This may be accomplished by the removal of office partitions completely, lowering the average height of cubicle walls, or the establishment of open common areas for meetings to take place. 64% of respondents reported no visible ethics violations committed in their open working areas within the past two years.
“I believe that people follow policies and procedures more routinely when they know there is a great chance that their actions will be seen,” suggests one respondent.
Of those that have, the most common types of misconduct include inappropriate conversations and/or behavior, a misuse of company assets and harassment or discrimination.
43% of respondents reported non-visible ethics violations: mainly expense fraud and misuse of company. This suggests that employees are more likely to commit misconduct in an isolated environment, separate from their coworkers. Interestingly, only 11% of respondents reported misconduct from employees who worked at home.
Companies that employ an open workspace model also report an improvement in general conduct. Employees are more likely to be polite to one another and less likely to use offensive language if they are regularly within earshot of their coworkers. Similarly, many reported a greater sense of inclusion in company decisions.
However, there are some downsides to an open model. While one compliance specialist agreed that, “people will be less able to conduct unethical or illegal activities in open spaces [...] the closer proximity to other people also brings stresses that wouldn’t exist where people had a sense of privacy.” The downsides include an increased amount of office noise, and the potential for employees to become more introverted and less likely to voice their individual concerns if faced with constant scrutiny from their coworkers. The report advises companies to take great care in gauging their existing culture if one wishes to establish a more open working area: “A corporate culture that values ethics and transparency will alleviate employee fears of management monitoring and a lack of privacy.”
The report advises companies to take great care in gauging their existing culture if one wishes to establish a more open working area: “A corporate culture that values ethics and transparency will alleviate employee fears of management monitoring and a lack of privacy.”
For more, click here to access the full report.
(Posted August 23, 2011)
Online Monitoring of Job Candidates Raises Disturbing Questions
Many U.S. companies use the Internet to research job candidates, but monitoring firms like Social Intelligence Corp. (Santa Barbara, CA) appear to be taking things to a “new level”—raising disturbing questions about privacy and fairness, a university professor who has studied the issue tells Ethikos.
Social Intelligence provides businesses with archived data from social media sites (e.g., Facebook, Linkedin) for use in the prevention of online damage to their reputations. But such monitoring could create a climate of fear and distrust among employees, explains Diane Swanson, professor of management at Kansas State University.
It also raises questions of fairness. Swanson participated recently in a call-in program on National Public Radio (NPR) on the topic. One caller, a job candidate, reported that a potential employer went back 20 years to find compromising materials that had been posted online. He was denied the job.
It “seems unfair,” Swanson told Ethikos, that the individual would be forever held accountable for a youthful indiscretion; the sort that was common on university campuses in the 1970s, for example. By extension, such a practice, if it became widespread, may deny younger generations the sort of personal experiences and ability to explore and experiment without mortgaging their job futures, a freedom available to earlier generations.
Meanwhile, surveys have shown that most managers like the new monitoring tools (6 of 10 in a Deloitte survey appear to approve of such monitoring), but employees do not — particularly those between 18 and 24 years of age (who arguably have the most incriminating photographs online—e.g., college parties and ill-advised photos uploaded from smart phones).
Monitoring the Internet in connection with hiring is clearly an “emerging issue,” Swanson told us, and a robust public policy debate on the subject is surely “looming in the future.”
In the meantime, if companies are conducting ongoing employee monitoring (not just pre-employment), Swanson recommends that those organizations develop policies and provide expectations of employee's online conduct.
“A company should provide full disclosure of its monitoring practices and the consequences employees would face if they violated stated policy and hurt the business' reputation,” she says in a recent press release. [Click here for the press release.]
Without such full disclosure, employees would operate without the benefit of knowing important rules of conduct —something that could be construed as unfair, a perception that could ultimately hurt productivity and prove detrimental to employee morale.
[A longer article on this subject will appear in the September/October issue of Ethikos]
(Posted August 9, 2011)
FCPA Enforcement Raises the Stakes For Kimberly-Clark in Russia
Kimberly-Clark Corporation (Dallas), maker of Kleenex tissues and Huggies diapers, draws about one-third of its $20 billion in annual revenues from outside the U.S. and Europe. It has operations in 36 countries, including factories in Russia and China and other countries with relatively high rates of corruption.
Ethikos recently asked Thomas J. Mielke, Kimberly-Clark’s Senior Vice President of Law, Government Affairs, and Chief Compliance Officer, if recent FCPA enforcement actions in the U.S. had raised the stakes for companies like Kimberly-Clark that operate in Russia and China?
“Yes it does.” In Russia, where the company opened a $170 million factory in 2010, Kimberly-Clark has a team of four lawyers, and “compliance is a big part of their agency. We do a lot of training for our entire Russian workplace.” The same applies to China. Both are on the company’s ‘high risk’ list of countries from a compliance standpoint.
Mielke has responsibility for internal audit (IA) at Kimberly-Clark, and IA is “uniquely well suited to focus on corruption” in these high risk countries, in his view. If a country director knows that IA is coming to do an audit, and is also aware that a certain portion of that audit will be focused on corruption, the country manager tends to be more pro-active when it comes to corruption issues, he suggests.
It’s helped, too, that of the last three Kimberly-Clark CEOs, two had professional backgrounds that are somewhat compliance related. One was a lawyer and another was an accountant with an organizational background in internal audit. Those chief executives, not surprisingly, tended to be “very focused on compliance and proper accounting and good controls.”
Not long ago when Kimberly-Clark was building its first plant in Russia, CEO Thomas Falk, in fact, talked specifically about not making any improper payments in Russia. That made a big impression on the company’s Russia-based executives, Mielke recounts, another example how a CEO can make a significant difference when it comes to corporate ethics and compliance.
[See the full story in the upcoming issue of Ethikos]
— Andrew Singer
(Posted July 26, 2011)
Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act
July 18, 2011 — While aggressive Foreign Corrupt Practices Act (FCPA) case action continues to be the trend among U.S. enforcement authorities in the first half of 2011, an increased interest in internal corruption within foreign countries may suggest an expansion of the FCPA’s purpose.
Indeed, a recent report published by Shearman and Sterling suggests the FCPA may be growing beyond its original focus on bribery of foreign officials by U.S. companies:
“Over the past year, and even more so in the first part of 2011, the agencies have focused on Chinese companies who have listed in the U.S. and are alleged to have made fraudulent disclosures concerning their financial results. In some cases, it appears that the government has expanded its investigation to include allegations that these companies may have engaged in improper transactions with Chinese officials.”
That is to say, U.S agencies are beginning to zero in on the bribery of Chinese officials by Chinese nationals: domestic corruption, rather than international.
In these cases the only known link to the U.S. is that the company has accessed the U.S. capital markets and was thus an issuer under the U.S. securities laws, including the FCPA.
According to Shearman and Sterling’s July ‘Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act’ digest, of the nine FCPA enforcement actions seen in the first six months of 2011, only two have involved non-U.S. companies. While this is down from last year—in which cases against non-U.S organizations made up 55% of all enforcement actions—the two companies that have come under scrutiny are notable in that both come from countries that have never before been charged under the FCPA: JGC Corp. represents the first instance in which a Japanese company has been charged, and Tenaris S.A. is the first Luxembourg company.
The FCPA, Shearman and Sterling notes, has often targeted non-U.S. companies in countries that are perceived as lacking in regulations to curb foreign bribery. Luxembourg, a European financial center, has not yet brought any enforcement actions under its OECD law, which suggests that the U.S. may have pursued the case for policy reasons.
A similar push seems to be behind the JGC Corp action as well: aside from its partnership in a scandal-tainted joint venture, TSKJ (which also included KBR, Technip, and Snamprogetti), that brought it under fire, the Japanese company has no direct commercial ties to the U.S.
International regulatory actions have become an increased concern around the world, the report adds. In just this past year, Korea and Canada announced their first substantive prosecutions under their OECD laws. Similarly, Russia and China passed overseas bribery laws (with another introduced in the Indian Parliament). However the effectiveness of these measures has yet to be gauged, and Shearman and Sterling suggests that U.S enforcement of foreign bribery cases are not expected to ease any time soon.
For the full digest, download the PDF here.
(Posted July 20, 2011)
The Chief Ethics and Compliance Officer: A Test of Endurance
It is the job of a strong Chief Ethics and Compliance Officer (CECO) not only to ensure that regulatory standards are met, but also to make sure that an organization sticks to its core values--and fosters an “ethical culture,” says Patrick Gnazzo, former CECO at CA Technologies and earlier, at United Technologies.
Speaking at Bentley College, Gnazzo offered seven steps an organization might take to support and strengthen the position of Chief Ethics and Compliance Officer:
Many organizations create a strong CECO position in the wake of being found guilty of serious criminal violations, often as part of a settlement agreement, continues Gnazzo
However, as time progresses the organization may choose to phase out the position of Chief Compliance Officer, instead assigning the duties of the job to various other departments. Such was what happened at CA Technologies after Gnazzo’s departure.
“A position reporting to two separate functions is the kiss of death,” says Gnazzo. Splitting the duty of compliance between two different departments creates a weaker program with more room to work around it, he observed in his lecture, “The Chief Ethics and compliance Officer: A Test of Endurance,” delivered at Bentley University as part of the Verizon Visiting Professorship in Business Ethics.
“Remember playing off Mom against Dad, and vice versa, in the hope of tripping them up to get what you want?”
Citing his own experience working with CA Technologies, Gnazzo emphasized the importance of retaining the CECO position as its own arm within organization.
“Compliance is an oversight function,” Gnazzo told business students. “The compliance officers should be in a position to give the board of directors, senior management, and the shareholders assurances that each of the organization’s functional areas is complying with the laws and rules they are responsible to manage.”
Nevertheless, Gnazzo notes that the Chief Ethics and Compliance Officer is a position that been sometimes slow to gain purchase in the past twenty years.
There are a number of reasons for this trend, the first being an organization may not see it as a necessary position: “The CEO and senior management do not believe the oversight function is necessary because ‘everybody wants to do the right thing.’ Everyone wants to do the right thing, but everything’s right thing is not the same, and even some right things are really not that important. So why do you need an identified compliance function?”
Another factor for a weak CECO position may be an organizational belief that ‘everybody should be responsible for doing the right thing.’
However it is a lack of understanding as to what compliance entails that serves as the largest hindrance in the institutionalization of the function. The nature of the position is often unclear. “Management and the board of directors do not have a clear understanding of the function’s role in the organization. The main reason for this lack of understanding is that many senior managers and boards have little or no experience with a CECO position or what functions it should be managing.”
Individuals may all wish to ‘do the right thing’, but just what the right thing entails may not always be the same across the board. “Great organizations have published values and sets of high standards," says Gnazzo. "Establishing a culture that makes the organization a positive place in which to work.”
Patrick Gnazzo spoke as a part of the Center for Business Ethics Verizon Visiting Professorship in Business Ethics program. For more information click here.
— Alexandra Theodore
(Posted July 12, 2011)
KPMG Survey: Who Is The Typical Fraudster?
A recent global study conducted by KPMG has shed an interesting light on the profile of the average employee most likely to commit fraud.
According to the study, based on investigations conducted in 69 countries, the average fraudster is male, found in finance-related positions, is most likely to commit fraud against his own company, and seldom acts alone. The average fraudster has also been found to be an employee who has been with the organization for some time—with 33 percent of recent cases having worked for the organization for more than 10 years, suggesting that these individuals do not join their organizations with the intention to commit fraud.
The report also found that instances of fraud are most likely to occur among senior management. The past three years have also seen an increase in instances of fraud uncovered among members of the board.
“We find the higher the level of executive, the greater the value of the fraud. Greater oversight responsibility often offers greater opportunity for bigger frauds,” says Graham Murphy, head of KPMG’s Forensic Services practice in the U.S. firm’s Midwest region. The suggestion is that in the U.S. in particular the perpetuation of a ‘larger than life’ central management figure is the likely setting for which fraud will occur.
Findings in Switzerland have been similar. “We find that most fraud continues to be committed at senior and middle-management levels,” says Anne van Heerden, head of Forensic at KPMG in Switzerland. “More frequently, collusion with external parties is also evident—notably among suppliers who over charge for their services and give a kick-back to the internal perpetrator.” Family offices have also become a target of fraudsters, although perpetrators are more often employees or outside agents rather than family.
Meanwhile, organizations in Central and Eastern Europe (CEE) went against the common trend with most individuals guilty of fraud coming from sales and procurement. “Lack of trust in local regulatory and judicial systems often results in affording the perpetrators an opportunity to resign without the offense going to court or becoming public,” says Jimmy Helm, KPMG’s Head of Forensics in the CEE. “Consequently HR references are unable to address the disciplinary issues, and poor background checking allows these fraudsters to re-enter the business community.” (For more on fraud in Eastern Europe, click here.)
The survey noted the average time it takes to detect fraud is about five years, with the longest period until detection being found in Asia Pacific organizations. Furthermore, many Asia Pacific organizations are unwilling to pursue legal enforcement when instances of fraud are uncovered. “Enforcement takes up too much time, which companies are unwilling to spend,” says Rohit Mahajan, executive director of KPMG’s Forensic practice in India. “The company’s response depends on its tolerance to fraud and its appetite to deal with legal channels.”
Mahajan does note that in India, where corruption has become a leading political issue, many controls seem to have been strengthened recent years, with most fraud being uncovered by management rather than external investigation or whistleblowers.
While the main motivating factor of fraud remains the desire for personal financial gain, a rising factor has been employees attempted to conceal poor performances (a common theme in cases of misreporting).
The report also highlighted a need for stronger controls in the area of compliance. While organizations may have controls in place to detect and enforce fraud, the report found that in 73 percent of all instances involved fraudsters taking advantage of weak internal systems.
“Organizations need to recognize that fraud does happen,” says Murphy. “With a robust compliance program and protocols for prevention, detection, and response, they will be better able to deal with it and move on.” Murphy also stressed that increased enforcement has led to more cases coming to light.
However, warning signs need to be acted upon. The report found that while in 56 percent of cases, some form of ‘red flag’ behavior was exhibited, it was only ‘acted on’ 6 percent of the time.
Some of the red flags to look out for in potential fraudsters are individuals who take few holidays, exhibit a lifestyle that seems excessive, appear to have overextended personal finances, and do not or will not produce records/information voluntarily or on request.
Organizational trends to look out for are a perceived lack of trust between the organization and internal/external auditors, high staff turnover, and multiple banking arrangements rather than one clear provider.
(Posted July 5, 2011)
'Confronting Corruption in Emerging Markets'
When Alcoa opened in Russia in 2005, visibility was counted as among the company’s key strengths.
“It was very questionable whether they would even allow us to buy 100 percent of these facilities. We were going to sell into their aerospace industry. They were going to watch us very closely,” William O’Rourke, then-head of Alcoa Russia, told Julia Taylor Kennedy in the latest of Carnegie Council’s Workshop for Ethics in Business series. “[...] So it was pretty high-level. We felt with that kind of visibility, we could push through corruption and bureaucracy.”
Regarding corruption in Russia -- which ranked 154 out of 178 countries in Transparency International’s 2010 corruption index--one of the top issues was cultural: “Part of the training of the Russian managers is that you have to bring them out of this culture of corruption,” said Thomas Graham, one of the experts Alcoa hired to better understand its Russian audience. Bribery was a day-to-day fact of life. A trip to the doctor, for example, required a bribe. “It's things that you do day in and day out, where what we would consider a bribe is actually very natural to Russians.”
Therefore creating a clear set of rules and regulations, and enforcing them, were deemed vital in creating an ethical environment. Compliance with increasingly strict FCPA regulations and Sarbanes-Oxley legislation was important, too.
“Alcoa has a pretty strict ethics and compliance program. We have the compliance line, a corporate compliance officer, the compliance investigations that go on, et cetera,” O’Rourke tells Kennedy. “We found that the Russians were very reluctant to use the compliance line and to report anything, probably because of the cultural practices of corruption that were there over time.”
However, when those rules and regulations were made readily available to employees, and those rules readily enforced, O’Rourke discovered a gradual improvement in just the first year. In one example, he discusses the instance of an HR manager who was discovered to be extorting laid off employees. The response? Termination of the employee and the establishment of a program which educated employees as to the exact details of their severance packages.
“It helps to set that tone,” says O’Rourke, when asked as to the effectiveness of such terminations. “It helps to let the employees understand what's going to happen, and you let people know that we really do have sanctions. The sanctions are in place and they actually do happen.”
For the full interview and transcript, click here.
(Posted June 24, 2011)
'Giving Voice to Values: How To Speak Your Mind When You Know What's Right'
Charles Prince, the deposed former head of Citigroup, said in 2007: “As long as the music is playing, you’ve got to get up and dance.”
He was referring to why on the eve of the great financial crisis so few corporate leaders, who must have seen the warning signs, failed to speak out against business practices that would eventually lead to the great collapse.
Individuals often react similarly when faced with issues of ethical practice in the workplace, according to Mary Gentile in her recent book “Giving Voice to Values.” “When we encounter values conflicts in the workplace, we often face barriers in the form of ‘reasons and rationalizations’ for pursuing a particular course of action that can confound our best attempts to fulfill our own sense of organizational and personal purpose,” she writes.
Many of those barriers are perceived to be environmental. Individuals, whether they are in entry level or executive positions, often cite company culture or corrupt environment as factors that limit their ability to act on circumstances that may not line up with their values. A CEO may consider the responsibilities for the employees under him as an inhibiting factor, while a middle management employee would cite his lower position as a hindrance. Gentile suggests these are common rationalizations and provides examples in which individuals at all levels were able to take action and what environmental and psychological factors went into the decision to do so.
Based around a program developed by the Aspen Institute in conjunction with the Yale School of Management, Giving Voice to Values delves into the psychological components of ‘speaking out’ within the workplace, with the notion that when it comes to ethical questions, teaching students of business techniques of ‘awareness’ and ‘analysis’ may not be enough to prepare them for real-time conflict.
From corporate executives to MBA students, Gentile draws from case studies to examine instances in which employees took action or expressed regret for not having done so. Giving Voice to Values explores what it is that may drive an individual to speak out or raise awareness of potential conflict in the workplace.
A key element in Giving Voice to Values is building what Gentile calls a ‘Self-Story.’ Citing research conducted on World War II “rescuers”—that is, individuals who risked their own lives to assist those escaping Nazi persecution—Gentile notes a key characteristic in individuals who choose to take action in accordance with their values in spite of potential risk is often a matter of ‘pre-scripting.’ They recalled a previous experience in which an individual was able to anticipate a situation in which there values would be challenged.
Gentile suggests that identifying points in your life in which you did act in accordance to your values and why you might have taken those actions, is crucial in acknowledging and acting on a similar situation in the workplace.
One case is a lower-level employee working for a small non-profit organization who recognized that in-kind gifts were being overstated for tax write-off purposes. In another, a recently promoted corporate controller with a major industrial products firm is asked to alter numbers to present a more positive picture of his firm’s performance.
Their approach to resolving the conflict differed in accordance with their positions. What was the one thing that both situations held in common? Both employees were driven to act in line with their values and voice their concerns.
That they did so is not attributed to any particular ‘special’ quality that set them apart, but rather because they established a psychological framework and voiced their concerns in a way that played to their personal strengths as well as their resources within the company. The lower-level employee approached a superior as an inquisitive new hire curious about the organization’s practices. The corporate controller pitched a commitment to honesty and transparency as his new and ambitious vision to his company’s CEO.
The key to approaching situations like those above is to create a mindset where an unexpected challenge to one’s personal and professional ethics will not put the employee on the spot: “By anticipating or normalizing the idea that we will have to take risks—even career-threatening ones—in service of our values at some point in our work lives, we expand our vision of what degree of freedom we have in our decision making.”
By using real examples and breaking them down step by step, Giving Voice to Values provides a thorough psychological breakdown of what goes into ‘speaking up’ at the workplace: identifying the different personal, environmental, and professional options that may be explored at all levels in one’s professional career.
(Posted May 16, 2011)
Social Investor Explains Why He”s Still Invested with BP
BP held its annual meeting in London last week, almost a year after the company”s oil spill in the Gulf of Mexico.
Social investor groups were on hand—many to vote against BP on a number of proxy issues, including accounts and reports, and the reelection of director Sir William Castell, Chair of BP”s Safety, Ethics and Environment Assurance Committee. The groups criticized BP for a lack of risk management disclosure since the spill, the worst in U.S. history.
One of the dissident investors was Mark Regier, Director of Stewardship Investing at MMA Praxis Mutual Funds.
We spoke with Regier last week.
In light of recent history it was no mystery why social investors, as well as some powerful institutional investors, like California Public Employees” Retirement System, would oppose BP”s senior management. But we wondered why a so-called socially responsible investor would own stock in a multinational oil company like BP to begin with?— Posted April 18, 2011
Multidisciplinary ‘Team’ to Counsel Companies on New Whistleblower Regulations
The whistleblower bounty provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act continue to reverberate through the corporate ethics and compliance community.
Asked where the provisions rank among corporate ethics and compliance developments over the past two decades, Amy L. Goodman, a partner in Gibson, Dunn & Crutcher's Washington, D.C. office, answers: “It’s a 10 out of 10.” The provisions make the key ‘concerns’ list of most general counsels these days.
Companies fear that employees of public companies will go directly to the SEC with reports of wrongdoing rather than using internal reporting mechanisms like hotlines—whistleblowers can collect bounties of 10 percent to 30 percent of what the SEC collects from monetary sanctions.
In light of these developments, Gibson, Dunn announced last week that it formed a multidisciplinary “whistleblower team” to offer counsel to corporations on the new statute. Team members are drawn from labor and employment, securities enforcement, corporate governance and securities regulation, white collar defense and investigations, and litigation, among other areas.
When the whistleblower final rules appear in the next month, companies will have to look more closely at their company hotlines, and how they promote those hotlines to employees, Goodman tells Ethikos. There are several concrete steps they can take along these lines.
For one, it helps to publicize hotline cases internally, such as in a company newsletter. Let employees know where a hotline call has really helped the company, or where someone who did something illegal or dishonest was fired from the organization.
Scrub the case names. After all, if a malefactor can be identified, a company could be sued for defamation. But by publicizing such cases the company has sent an important message to its employee population: when this company receives a report, it takes action.
The Sentencing Guidelines for Organizations encourage organizations to provide carrots as well as sticks, notes Goodman, co-chair of Gibson, Dunn’s Securities Regulation and Corporate Governance practice group. When companies report something that saves the company lots of money, a company might consider offering some rewards, too: like an American Express gift certificate, or a day off from work.
Another option might be for the company to publicize when an employee’s helpline call has saved the company hundreds of thousands of dollars. Sometimes recognition can be even more important than economic rewards.
It used to be that companies felt good if they didn’t get a lot of complaints via the hotline, notes Goodman, but now they realize “that if they are getting way less”—compared with industry benchmarking data, e.g., typical number of calls per 1,000 employee—“that may not be such a good thing.”
Boards, too, should be apprised of hotline trends. Yes, many are HR related, but if a certain factory experiences a sudden spike in HR problems, that is something which the board surely might want to know about.
If a company is global, it has to make sure its hotline is available in all employee time zones, and that it is available in multiple languages.
Employees, too, need to be encouraged to call the hotline even if they aren’t sure that something is wrong. If something “just doesn’t feel right,” an employee should not hesitate to pick up the phone, says Goodman.
The hotline isn’t everything, of course. In general, a company wants to encourage open communication. The first person to whom an employee should report wrongdoing is their supervisor. It’s only when the supervisor is the problem, or a direct manager, that an employee should think about calling the hotline.
“Companies will need to know how to prepare for whistleblower claims (by reviewing and updating their compliance and HR programs), and how to respond to them both internally and with the SEC, as well as employment claims or civil litigation,” notes the Gibson, Dunn website, which warns that “A flood of whistleblower claims can be expected to the SEC from employees and plaintiffs’ lawyers seeking a major windfall.” 1
Overall, companies will now have to “think more creatively,” about compliance, adds Goodman.
What’s the most important change for companies to make?
In a sense it hasn’t changed. It’s critical that senior management set the right ‘tone at the top’ and create an ethical culture. That has always been the most important factor in ethical and compliant behavior, and now it is more important than ever.
(Posted April 4, 2011)
The Institute of Business Ethics releases report on "Religious Practices in the Work Place"
After a comprehensive review of its uniform policy, British Airways announced in a press release that the airline would allow its employees to wear a lapel pin with a symbol of faith--i.e a crucifix, or a Star of David.
This is just one instance of the increasingly controversial role that religion is playing in the workplace, according to the Institute of Business Ethics (IBE) in its new study, “Religious Practices in the Work Place,” released this month.
The 26-page study explores how religious beliefs and practices impact the day-to-day operations of business organizations. IBE reviewed 155 company codes of ethics
“The surprise I think, was the large number of corporations that say in their codes of ethics that they do not discriminate on ground of religion (among others) but do not seem to have any policies to put this into practice in their places of work,” Simon Webley, the UK-based institutes research director, tells Ethikos.
Some of the recent high-profile cases cited:
Companies should be prepared to address issues of religious concern among employees in the work place, and a solid policy that lays out these concerns and, even more importantly, provides a forum through which organizations can observe issues and adjust accordingly, says Webley.
Of the 155 company codes of ethics reviewed in IBE’s 2010 survey that covered company codes from eight countries and eight industry sectors, it was discovered that only 57 contained some mention of religion. In most instances, the issue of religion is included in the organization’s non-discrimination policy
Of these 57, only 8 addressed issue of religious accommodation.
Also noted is a 2007 survey conducted by KPMG, along with the Chartered Institute of Personnel Development, that asked a number of UK-based companies about their management policies regarding employee’s religious beliefs.
The percentage of managerial provisions are as follows:
- 76% allow special time off
- 14% time off in addition to annual leave
- 61% provide time/facilities for religious observance
- 65% allow staff to meet religious dress code
- 61% provide different dietary requirements
- 38% support religious networks in workplace
- 13% impose restrictions on religious dress
- 9% impose restrictions on wearing of religious jewelry
Public and voluntary sectors were found more likely to allow time off and provide facilities. Private sector services were found the least likely.
The study stresses a need for a company-wide policy on religious practices in the work place, citing a number of recent controversies.
Among the identified ‘flash points’—that is, issues with religious roots that could present a future conflict for employers—was the issue of dress and jewelry at the workplace.
Similar issues have been broached in health services, where safety regulations might prevent employees from wearing religious symbols on their wrists, as they may violate an organizations’ no articles of clothing below the elbows’ policies.
Other recognized ‘flash points’ included: Devotions, Proselytizing, Dietary restrictions, the need for time off corresponding with religious observance, recognition of affinity groups in the workplace, and collecting data about employees belief.
The primary lesson for organizations? “Do not be taken by surprise,” says Webley. “Be ready for questions about dress, days (and time off) for religious observance, food in the canteen etc.”
For the full report of The Institute of Business Ethic’s ‘Religious Practices in The Workplace’, click here.
— Alexandra Theodore
(Posted March 28, 2011)
KPMG Releases 2010 Annual Ethics and Compliance Report
KPMG, the Big Four accounting firm, has released its 2010 Annual Ethics and Compliance report, part of the firm’s “commitment to transparency.” Published annually since 2007, the report shares in-house ethics and compliance statistics from the most recent fiscal year.
Between January 1, 2010, and December 31, 2010, for instance, KPMG received 397 ‘incident reports’ through established channels of communication, including the hotline (both web and phone options), the ombudsman, the Ethics and Compliance Group, the office of general counsel, chief compliance officer, human resources, leadership, and others. Of those 397 reports:
- 38% came via the ethics and compliance hotline.
- Among those via the hotline, 68% were made anonymously.
- The top issues raised in these reports were issues with a lack of professionalism, insufficient action/other tone issues, and other violations of HR policy.
- 46% of the issues raised through all channels were substantiated with resolutions that ranged from written reprimand to termination from the firm.
The KPMG report also presents a number of ethics case studies from the past year on such topics as “respect and dignity,” “confidentiality and privacy,” and “work quality,” among others. Here is one case on expense reporting:
“An anonymous report was filed through the Ethics and Compliance Hotline alleging that a professional had been violating the firm’s Code of Conduct over the course of several years through the submission of improper expenses and a lack of professionalism. The reporter also alleged that the professional’s performance manager failed to exercise proper oversight:
“The Ethics and Compliance Group conducted an investigation and used the Hotline’s web chat feature, which allows for confidential communication with anonymous reporters. The investigation found that the professional had submitted several improper expenses and had displayed a lack of professionalism on several occasions. The investigation also found that the individual responsible for reviewing this professional’s expenses was in a position to prevent the improper expenses, but had not done so. The investigation’s findings were provided to the individual’s practice leadership, who determined that the professional should be separated from the firm. Additionally, the individual responsible for reviewing the expenses was counseled regarding the lack of oversight and was demoted to a role without responsibility for reviewing expenses. KPMG’s Code of Conduct provides that KPMG partners and employees must accurately charge all time and expenses incurred to the appropriate engagement or internal charge code. Partners and employees should be prudent and exercise good judgment when incurring work-related expenses. The Code’s management responsibilities and firm policy stress the importance of oversight by responsible parties, which in this case would have helped to ensure that the firm’s financial resources were used appropriately.”
Reality Game Show Format
The Annual Ethics and Compliance report also references a new program instituted this past year: KPMG’s Ethics Factor Training Program, an online training course meant for all partners and employees. The Ethics Factor Training provides employees with a “reality game show format” in which a judge presents a series of scenarios related to ethical conduct and what action employees should take. The game show emphasizes an understanding of the rules and risks within the firm as well as the ability to use this knowledge to raise awareness of these issues as they are confronted.
Scenarios covered by the training program are:
Response to the program has been largely positive, with 99% of employees at the firm having completed the course in a period of six weeks, noted KPMG.
Overall, “Our [ethics and compliance] program is designed to build awareness of what is expected of you as you fulfill your day-to-day responsibilities,” wrote KPMG’s Vice Chair of Legal and Compliance Sven Erik Holmes. “Trust that the firm will support you when you raise a question or report a concern; and individual and management responsibility for doing the right thing, even under pressure to compromise KPMG’s values and standards.”
To read a full copy of KPMG's 2010 Ethics and Compliance report, click here
— Alexandra Theodore
(Posted March 20, 2011)
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