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Business ethics begin in the boardroom
Recent business scandals and corporate collapses have brought calls for better business ethics, more training in ethics, and further regulation. But ethics in business are intrinsically part of every business decision – they begin in the boardroom. Trust in business will not be rebuilt by more rules, regulations, or corporate governance codes, but as directors create cultures that recognize and handle ethical risk.
Recent years have seen a spate of business crises and corporate collapses around the world. The actions of key executives and the attitudes of their directors have come under the public spotlight. Fraudulent management in Australia’s HIH Insurance, corruption in Italy’s Parmalat, allegations of bribery against BAE Systems and Rolls Royce, the world-wide collapse of auditors Arthur Andersen, and the rigging of interest rates by bankers provide ready examples.
Such cases have raised concerns about business ethics, which are now widespread and serious. The media focuses on companies’ social responsibilities, relations with their stakeholders, and call for more ethical business. Regulators, commentators, and business school professors push for better corporate citizenship. Recently, green credentials and sustainability have been added to the agenda.
“Decisions at every level in a company have ethical implications – strategically in the boardroom, managerially throughout the organization, and operationally in each of its activities.”
But business ethics are not an optional exercise in corporate citizenship, they are fundamental to the governance and management of every organization. Decisions at every level in a company have ethical implications – strategically in the boardroom, managerially throughout the organization, and operationally in each of its activities. Ethics reflect behaviour in business and the behaviour of business. In business, ethics involve the recognition and management of risk. Read more
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IESE Insight writing for the Eurasia Review writes, “Ethics has gained prominence in debates around social capital creation. According to social learning theory, employees learn standards of appropriate behavior by observing the behavior of role models.
To explore these behavioral links, IESE’s Miguel A. Ariño and David Pastoriza of HEC Montreal surveyed 408 Spanish, French and Portuguese MBA students who were working while studying part-time. They were asked to rate their supervisors on ethical leadership and their firms on internal social capital.
Using structural equation modeling, the authors found that the ethical leadership of supervisors does indeed exert a significant influence on the creation of social capital in the organization, particularly in three areas.
Ethical leadership means higher willingness of employees to share. This extends not only to employees’ one-on-one relationships with their supervisors but also to their relationships with the rest of the organization…” Read more
What’s culture got to do with it?: A guide for leadersFrom Deborah Himsel of the American Management Association, “Culture is a complex and critical component of leadership. Yet many leaders underestimate its impact or fail to deal effectively with it in conjunction with growth strategies and other business initiatives. As CEO Lou Gerstner said about IBM’s culture during a period of transformation, “I came to see, in my time at IBM, that culture isn’t just one aspect of the game—it is the game.”
One of the biggest challenges for leaders charged with evolving their organizations is that the same characteristics that once made a company great can also derail key business objectives. Even when cultures need to evolve, changing them too quickly or radically can destroy the spirit of an organization. There are many fine lines leaders must walk when it comes to culture, so let’s start out by exploring how culture connects business goals to organizational norms and environments.
Culture has many definitions, but for our purposes here, let’s agree that it consists of a company’s norms and values; it manifests itself in “the way things are done around here” and includes both the formal and informal rules of the game. In most established companies of at least moderate size, certain identifiable traits cut across geographic and functional boundaries. At the same time, subcultures can exist within departments or regional offices. For instance, a marketing or accounting culture may have distinct characteristics that aren’t shared with the larger corporate culture. Similarly, the culture in a company’s Hong Kong office may be different from that of the one in Paris… Read more
You’re fired—by email?Bruce Weinstein of The Huffington Post writes, “Which of the following are ethically acceptable ways to fire an employee?
If your answer included “B,” you’re in good company. According to an interview with Fortune, George Zimmer, former CEO of The Men’s Wearhouse, was told via e-mail that his services would no longer be needed.
This isn’t a rude way to let someone go. It’s unethical. Here’s why…” Read more
Law and ethics can’t keep pace with technologyVivek Wadhwa, of MIT Technology Review: “Employers can get into legal trouble if they ask interviewees about their religion, sexual preference, or political affiliation. Yet they can use social media to filter out job applicants based on their beliefs, looks, and habits. Laws forbid lenders from discriminating on the basis of race, gender, and sexuality. Yet they can refuse to give a loan to people whose Facebook friends have bad payment histories, if their work histories on LinkedIn don’t match their bios on Facebook, or if a computer algorithm judges them to be socially undesirable.
These regulatory gaps exist because laws have not kept up with advances in technology. The gaps are getting wider as technology advances ever more rapidly. And it’s not just in employment and lending—the same is happening in every domain that technology touches.
“That is how it must be, because law is, at its best and most legitimate—in the words of Gandhi—‘codified ethics,’ says Preeta Bansal, a former general counsel in the White House. She explains that effective laws and standards of ethics are guidelines accepted by members of a society, and that these require the development of a social consensus.…” Read more
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HCCA Director of Communication Margaret Dragon interviewed Nancy Gordon (email@example.com), HCCA Managing Editor. Nancy also oversees Corporate Compliance and Ethics Week products and information.
MD: Please tell us about Corporate Compliance & Ethics Week, when is it held, and its history.
NG: The idea for Corporate Compliance and Ethics Week grew from conversations among active members of HCCA back in 2002. They were looking to find new ways to educate employees about the compliance and ethics program and its importance. Someone suggested if they had a designated day called Compliance Day, they could have a “hook” around which several activities could be planned, which would have more impact. By coordinating with department leaders, they could do some individualized training and then hold a big compliance celebration event to reinforce the organization’s commitment to compliance and ethics. For those organizations that were much too large to do all that in a day, the concept was expanded to a Compliance Awareness Week.
Two members who had success with this idea, Gene DeLaddy and Cheryl Atkinson of the Carolinas HealthCare System, wrote about their experiences in the December 2002 issue of Compliance Today. Many compliance and ethics professionals responded by holding their own events. The HCCA Board of Directors and the SCCE Advisory Board decided they liked the idea so much they wanted to help even more members benefit from it.
They created the first National Corporate Compliance and Ethics Week, which was held May 22-28, 2005. At that time, they worked to have a resolution passed in the U.S. Senate, which would have allowed a National Corporate Compliance and Ethics Week to be officially recognized by Congress. Unfortunately, the senators who were sponsoring the resolution left office before it made its way through. But by that time, the week had taken hold among compliance and ethics professionals.
The name was shortened to Corporate Compliance and Ethics Week in following years. Then in 2009, the event was moved from the last week of May to the first full week of May, to avoid the overlap with Memorial Day that so often happened. We will celebrate the 10th annual Corporate Compliance and Ethics Week on May 4-10, 2014.
MD: What is the purpose and value of this specifically designated week for the Compliance department?
NG: As you know, employee education is one of the seven elements required for an effective compliance and ethics program. By having a designated week, compliance and ethics professionals can take the opportunity to build awareness in ways that reinforce not just specific rules and regulations, but the overall culture of compliance. It is much easier to promote compliance and ethics topics when a spotlight is already focused on Corporate Compliance and Ethics Week. Also, when employees see that the organization’s top executives and managers are supporting and taking part in the week’s celebrations, the message is clear: Compliance and ethics are a big priority.
MD: How do SCCE & HCCA support Corporate Compliance & Ethics Week?
NG: Each year we develop a new logo for the week that includes a compliance-related theme. The theme for 2014 is Compliance Makes a Difference. The logo is available free on our website.
Over the years, we have tried to facilitate the sharing of ideas that our members have used to successfully capitalize on the week. We have published many articles in Compliance Today and sponsored web conferences by our members who share what has worked for them. New this year, we have created a free “train-the-trainer” kit that can help members have a place to start their planning efforts. In it, you will find sample newsletter ideas and templates focused on compliance and ethics awareness, sample newsletter articles and e-mail blasts promoting Corporate Compliance & Ethics Week, event planning ideas and activity instructions, etc. And finally, we provide low-cost posters and promotional products to use in conjunction with Corporate Compliance and Ethics Week celebrations. These are all available in our Corporate Compliance and Ethics Week section of the website.
MD: When you communicate with those who order supplies, do they discuss the activities they are planning and how they plan to maximize the week to benefit their compliance and ethics program? If so, would you mind sharing their plans with us?
NG: We don’t really get full descriptions of their events, but sometimes they will share how they used a particular product with an activity. For instance, many people have told us they like to offer the flashlights for a “shine the spotlight on compliance” theme. And I’ve heard the sticky flags have been used for a “flag those errors” theme. And one member told me she has every official Corporate Compliance and Ethics Week poster we have issued, and she’s lined a hallway in her department with all of them in a row.
MD: Would you tell us about some of the items HCCA will have available for members to order in 2014 and how soon can they order supplies?
NG: We actually have our 2014 promotional items available now—we wanted to give members more time to plan and budget for their events. They will find a lot of new items we’ve never offered before, including all new inspirational quote posters, awareness bracelets, mini-tool sets, smart-phone stands, and table tents. Plus we have the old favorites—pens, sticky flags, flashlights, stress balls, and mugs.
MD: Is there information available about events and programs others have developed to celebrate Corporate Compliance & Ethics Week and if so, where?
NG: We have put all the tools available to help with planning Corporate Compliance and Ethics Week in one section on the website. That means past articles and web conferences, downloadable logos, and train-the-trainer kits, as well as our online store to order promotional items. You can find them at SCCE’s Corporate Compliance & Ethics Week Resources page.
MD: Thank you for taking the time to tell us about Corporate Compliance and Ethics Week.
Educating your board is imperative to your compliance role. Not only does the board protect your company, they may have personal liability by matter of their participation as directors. Not only that, it’s the board’s responsibility to oversee compliance programs, and to take (sometimes personal) responsibility for the compliance program.
The first step in educating your board of directors is to understand their role in your organization. Know that your board exists to provide value to shareholders, hire and fire your CEO, and to protect your business from its greatest risks.
As a compliance professional, you’re well-versed in your organizations biggest risks. You’ve identified them and built programs around them. You are in the best position to detail this to your board, so do that. Do as often as you can. Take any chance you can get to connect how your compliance program mitigates or—if you’re lucky—eliminates those risks.
When you get the opportunity to speak to your board keep the following in mind:
- Give them a history lesson – they simply don’t care
- Talk about obscure legal theories – they don’t care about those either
- Ignore the procedure to make it easy for them
- Try to fit everything in one session – make information bite-sized
- Make your presentation relevant and current
- Tie it to the company’s biggest risks
- Explain why your program is different & better than everyone else’s
- Have a “Top 10” list, and boil it down to the 3 things your board member’s should never do
- Make the most of your time – time on the board agenda is precious, treat it as such
Finally, and possibly most important, make your presentation personal. Everyone’s favorite word is “you.” Flat out tell them, “As a board member, in order to avoid personal liability you need to know…” It will get their attention, and keep them engaged, which is what you need.
To be most effective, Corporate Monitors have to be experts on corporate compliance and ethics programs. A recent article in the NY Times promulgated many misperceptions about Corporate Monitors, which I chose to respond to through a post on my personal blog (www.TheFraudGuy.com). Because parts of what I wrote may have some relevance to compliance and ethics professionals here, I’ve re-posted it below in its entirety for your convenience.
As an expert in the field of Corporate Monitors and a passionate advocate of Monitor reform (in the form of Standards and “best practices”), I follow news about Monitors very closely. An article recently published in the NY Times by Steven M. Davidoff (“In Corporate Monitor, a Well-Paying Job but Unknown Results”) deserves comment by a knowledgeable and experienced person from this field. Unfortunately, there are many misperceptions about Monitors that mask and hinder from constructive deliberation the real issues that should be highlighted, discussed, and considered for reform in this field.
Among the most prominent of these issues is the Monitor selection and appointment process. The misperception that has evolved is that this is a “good old boy network” where current DOJ or other government agency officials give “lucrative” contracts to former co-workers or friends.
The reality is that, since 2008/2009, the DOJ has done an effective job of preventing this from happening with Monitors and that the selection process is, as I will explain more fully later, now driven by customary and effective professional service industry business development practices. The real issues and concern lies within the Monitor selection and approval process of those outside of the DOJ, who utilize Monitors more frequently than the DOJ and are presently significantly more susceptible to nepotism and/or potential abuse.
There are no hard numbers on this, but as one who tracks it as best as I am able, I would estimate that the DOJ accounts for maybe 20% (that is on the high side) of Monitors among all the agencies that use them. The rest is spread out among other federal law and regulatory enforcement agencies (particularly in the suspension & debarment area), state & local agencies, the Courts, and non-government oversight organizations (i.e. World Bank). As is often the case, the DOJ may get the most press on the topic, but that’s only because they have the most high profile matters, not the most matters.
After the Zimmer Holdings controversy led to congressional inquiry and threatened law-making in early 2008, DOJ responded with what is commonly referred to as the “Morford Memo,” which is DOJ’s most widely known policy regarding the selection and use of corporate monitors in pre-trial diversion agreements. That policy was furthered by another, lesser publicly known and/or referenced Criminal Division memo, issued by Lanny Breuer on June 24, 2009 entitled “Selection of Monitors in Criminal Division Matters.” In both Memos, the pool of candidates for a Monitorship comes from the Company, not the DOJ.
According to several GAO reports ordered by the congressional inquiry, the DOJ was following its policy on Monitors quickly after institution. For those with interest, I have linked them here: June 2009, November 2009, and December 2009.
Here’s the reality – there is presently no indication of any political favoritism playing any role whatsoever in the selection and appointment process for Monitors in DOJ matters by the DOJ. None. To the contrary, DOJ goes to extraordinary lengths, including applying the Morford and Breuer memos more conservatively than they require, to avoid any appearance of favoritism. To this point, though each memo could be read as to permit the DOJ to take a more active role in determining the Monitor and/or pool of Monitor candidates, the DOJ does not – it instead requires the Company to propose a pool of Monitor candidates and refuses to provide any candidate names, even if asked.
There is a simple and wholly commercial reason why many Monitors come from the ranks of former federal prosecutors. It is because the white-collar defense attorneys who represent the companies needing Monitors also come mostly from the ranks of former federal prosecutors! Business development in the white-collar defense world relies on referrals – a Monitorship is simply a business referral. This is no different than if they represent a company and refer the representation of company individuals to people in their legal network whom they ordinarily make back-and-forth referrals to and believe qualified to do a good job.
In the SAC Capital Advisors matter, there is no indication whatsoever that the DOJ gave a “gift” to the proposed Monitor, Bart Schwartz, a former federal prosecutor, as Davidoff suggests. It appears that Mr. Schwartz was proposed by the company in accordance with the DOJ policies described and hyperlinked earlier. Moreover, his approval appeared to be subject to judicial approval as well, adding an additional level of scrutiny and further removing it from DOJ’s ability to “manipulate.” As it regards Mr. Schwartz, it’s not as though he is fresh out of the government and has no relevant experience in the area. To the contrary, he is a highly qualified Monitor candidate who left government service decades ago. Much like with “expert witnesses,” who need not have necessarily been so qualified previously in order to be retained in a matter, many of those proposed as Monitors have never been a Monitor before. Though this is common, unavoidable, and necessary, it also provides greater opportunity for controversy, disagreement, and discord. Mr. Schwartz is a very experienced Monitor and likely to avoid such issues and be more effective and efficient than someone lacking Monitor experience. It is perfectly reasonable to expect that companies would find such persons independent of the government and propose them as Monitor candidates.
Transparency is another issue worth exploring. If you read the Breuer Memo that I referenced and hyperlinked earlier, you will see that significant documentation should exist within and around the Monitor selection process in the DOJ’s Criminal Division. I am aware that such documentation is prepared and does exist, but I do not believe that it is something likely to be shared publicly. I’ve never filed a FOIA request, but I wouldn’t bet on getting those documents if I did so. I fully appreciate the pros and cons on this issue and would like to see the DOJ explore ways to provide greater transparency in this regard.
Outside of the DOJ, where Monitors are used more commonly and frequently, transparency is largely non-existent. Many, if not most other agencies that utilize Monitors have little or no written policy around any parts of the process, from selection through reporting. Much less do they create any documentation during that process that would provide insight into how a particular Monitor was nominated, selected, and/or approved. The same goes for the Courts (i.e. Judges).
I have noticed a “practice-shift” over the last couple of years where Federal Agencies (outside of DOJ, but perhaps following in DOJ’s footsteps) have begun refusing to provide the names (i.e. more than one – a “pool” of names) of potential Monitor candidates to organizations, even when those organizations request it, for fear of running afoul of “endorsement” prohibitions under 5 C.F.R. §2635.702. I wrote the US Office of Government Ethics earlier this year asking specifically about the application of any ethical requirements and/or guidance specific to Corporate Monitors, but as one might expect, received no response at all. I am not an attorney and may well be wrong about this, but I personally do not believe that §2635.702 applies in this context, so long as there is no “private gain” for the relevant government officials. I would like to see the Government Ethics Office examine this and provide specific guidance as to whether or not a government agency can provide a pool of names of Monitor candidates to a company, particularly when so requested by the company.
Greater transparency and policy/practice documentation is a real issue, particularly as more and more agencies are beginning to appreciate the value of and use Monitors in resolving issues.
Let’s talk fees now. I seem to always see the word “lucrative” associated with Monitorship agreements in press articles – another broad and inaccurate stereotype born out of the Zimmer Holdings controversy. Certainly some of the biggest Monitorships cost organizations a sizeable amount, but that is the nature of professional hourly work in complex matters within large organizations. One could apply the term “lucrative” as well to the fees charged by external defense counsel, subject-matter experts, forensic accountants, information technology consultants, corporate compliance & ethics consultants, e-discovery professionals, document reviewers, marketing professionals, and a whole host of others whom organization’s engage long before a Monitor ever comes into the picture.
For the SAC matter, Davidoff’s suggestion that the Monitor’s fees “will probably run in the millions, if not tens of millions, of dollars” is illogical and wholly out of touch with reality. This estimate of fees seems to be more of a sensationalistic reference to the Zimmer Holdings matter (which the article brings up later) than to what any reasonable person would expect having read the scope of the “Compliance Consultant” within the SAC Plea Agreement. Under this Agreement, SAC’s Compliance Consultant will only perform two (2) assessments and file two (2) reports, all done within six (6) months. A third assessment and report may be required, if deemed necessary by the government.
Keep in mind that SAC Capital (now Point72) is not a mammoth organization with thousands of employees all over the world facing a multitude of risk areas. To the contrary, it appears to me that SAC is now practically nothing in terms of size and will only manage the money of its owner – meaning that the Monitor’s assessments should not be very big or difficult at all, nor will they extend over a lengthy period of years, as is common to many Monitorships. SAC is hardly a traditional Monitorship and certainly not a large one likely to generate millions of dollars in fees.
Another common question relates to whether or not a Monitor actually has any impact on the organization monitored. Though I can personally fall back on my own experience as a Monitor to satisfy myself that we do, I can also look to more objective studies that support the real and positive impact of Monitors. In addition to the GAO reports I linked above, some of which address that question directly with companies that were monitored, one of the best studies that I have seen on the question is a white paper entitled “Can Corporate Monitorships Improve Corporate Compliance?” by Cristie Ford and David Hess (I would love to see them update that paper!). Short answer – Monitors can and do have an impact, though much of that impact relies on the substance and terms of the underlying Agreements, which really drive the scope, authority, purpose, and role of a Monitor.
Speaking of that, another important and greatly misunderstood issue is the role, authority, purpose, and scope of a Monitor. Davidoff writes: “He is the ostensible key to ensuring that Point72 will remain on the straight and narrow. A compliance monitor or consultant is a creation of the last decade. When a corporation accused of wrongdoing agrees to settle the charges or is sentenced to probation, it is often required to pay for a monitor to ensure that it does not break the law again. The corporate monitor is to supervise the compliance procedures of the company as well as beef them up.”
Monitors are not a creation of the last decade. While there has been an increased visible use of Monitors by the DOJ within the last ten years, Corporate Monitors go back at least two decades. Also, as previously mentioned, many people mistakenly think that Monitors are only used by the DOJ, which is just the opposite of the reality.
When a company settles a matter, a Monitor is only required around 20% to 30% of the time (even outside of DOJ), certainly not “often,” as Davidoff suggests. In fact, this percentage has declined within the DOJ since 2008, though it shows signs of increasing, particularly as standards and best practices continue to develop around the field. Also, there is a developing trend of the DOJ and other government agencies requiring what I call a “hybrid-Monitor,” which is exactly the case with SAC Capital Advisors. As best as I can tell, though the title used in these Agreements may not even contain the word “Monitor,” the DOJ continues to apply Morford and Breuer principles and process and other agencies still treat the role as they would a “Monitor.”
The purpose and role of a Monitor is largely misunderstood, leading to false and unrealistic expectations. Davidoff promulgates several scope-related misperceptions that have no basis in reality – such that Monitors are in place to ensure that a company “will remain on the straight and narrow” or that we “ensure that it (the organization) does not break the law again” or that we “supervise the compliance procedures of the company as well as beef them up.”
The purpose and role of a Monitor is to verify an organization’s timely and effective compliance with the Terms of an Agreement. An Agreement, by the way, that the Monitor had no part in devising. These Agreement Terms are most frequently associated with an organization’s remediation and improvement efforts in the areas of corporate compliance & ethics programs and internal controls, largely because §8B2.1 of the United States Sentencing Guidelines (“Effective Compliance and Ethics Program”) has made those areas the measuring stick of corporate liability. As a result, the Monitor’s assessments and scope are often heavily weighted, in accordance with the Terms of the Agreement(s), on corporate compliance and ethics programs.
Because an Agreement is exactly that, an Agreement, the parties could choose and agree to include Terms that provide the Monitor with authorities far exceeding that which I have described as a Monitor’s general purpose and role. If the parties so choose and agree, they could give the Monitor significant authority beyond merely verification and reporting, such as operational decision-making, contracting approval/disapproval, etc…. This level of authority is extraordinarily rare among all monitorships and presently non-existent among DOJ Agreements requiring a Monitor.
Absent some remarkably unusual Term(s) in an Agreement requiring it of a Monitor, a Monitor’s purpose and role is NOT to ensure that the company “will remain on the straight and narrow” or “ensure that it (the organization) does not break the law again.” Nobody can do that. Nobody expects that.
The Terms of the Agreement (not the Monitor) are responsible for ensuring, in principle, that the organization will have a compliance and ethics program that, in accordance with §8B2.1(a)(2) of the US Sentencing Guidelines, “…shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct.”
To recognize and emphasize that all fraud cannot be prevented, §8B2.1(a)(2) continues: “The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.”
The notion that a Monitor can prevent and/or uncover all fraud within an organization, is utterly absurd. It is so unconscionable that suggesting it defies all common sense.
The real scope issue lies within the Terms of the Agreement(s) underlying the Monitorship, which as noted previously, the Monitor had no part in drafting. Having been a Monitor and having read every Agreement requiring a Monitor that I can get my eyes on, it is my opinion that most of these Agreements are not constructed sufficiently so as to ensure that the monitored organizations have compliance and ethics programs that adequately comport with §8B2.1 of the US Sentencing Guidelines. While DOJ’s Agreements have improved drastically in this regard over the last few years, they still too narrowly focus on the underlying issues (i.e. bribery, false claims, insider trading, etc…) and not on the whole compliance and ethics program, which is what §8B2.1 covers.
As a result of this, while a company may significantly improve, for example, its anti-corruption compliance program component under an Agreement with the DOJ, it may utterly fail in other risk areas subject to criminal misconduct and/or abuse. In other words, DOJ risks missing the forest for the trees by too narrowly focusing on the underlying issues and not on the overall compliance and ethics program, which if designed appropriately and implemented effectively, would address all fraud and compliance risks and better prevent recidivism. Isn’t that the real spirit of what everyone wants to accomplish?
Additionally, as a compliance and ethics program expert, I feel that in these Agreements (particularly those requiring a Monitor) the DOJ and most other agencies overly focus on compliance program components and not enough on ethics and ethical tone. The title of §8B2.1 is “Effective Compliance and Ethics Program” (emphasis added) and §8B2.1(a)(2) specifically relates to ethical tone, yet rare is the instance that one of these Agreements obliges a Monitor to assess and report on an organization’s ethical tone! Ethical tone and compliance programs are symbiotic – one cannot succeed without the other – and the government does not yet seem to have come to a full appreciation of it.
Another issue alluded to in Davidoff’s article related, generally, to the concept(s) of “self-monitoring” and/or government monitoring. In self-monitoring, the company assesses its own performance against the terms of an Agreement and reports to the government. Government monitoring is where the relevant government agencies conduct the monitoring.
In my opinion, “self-monitoring” is an oxymoron and cannot be generally relied upon to ensure either effective compliance with the Terms of an Agreement or that the organization establishes a compliance and ethics program that achieves the desired end-results (“spiritual compliance”) of an Agreement. Though many might think that trust and objectivity are the primary concerns in this regard, I have found that the real problem with self-monitoring is technical competence. When an organization is left to its own to make these assessments, the in-house people assigned to make and/or review such assessments often simply lack the requisite corporate compliance and ethics industry experience and knowledge necessary, leading to a “check the box” process or attitude that can hinder effective and/or “spiritual compliance” with the Agreement. This is not to suggest that a Monitor should always be required, only that greater consideration of an organization’s technical competence needs to be incorporated into the decision matrix as to whether or not a Monitor should be utilized.
For example, when an Agreement requires that an organization conduct some type of specific compliance training of employees, the company may genuinely believe it has effectively done so simply because they offered a training session (hence, “check the box”) and therefore report successful compliance with that Term of the Agreement to the government. What I frequently find, as a Monitor and compliance consultant, is that such training was not effective – meaning that those employees at risk to a compliance issue could not reasonably recognize the relevant compliance and ethics risk(s) or apply the relevant policies within the context of their role(s) (hence my term, “spiritual compliance”).
The same lack of compliance & ethics industry technical competence exists within the ranks of relevant government agencies as well, where it is exacerbated by agency budget/resource issues, making fruitful and effective compliance monitoring by the government unrealistic, if not impossible. The agencies that have the combination of technical competence and resources are very few (i.e. HHS) and even those utilize Monitors from time to time.
Self-monitoring and/or government monitoring assumes an expertise that is presently uncommon among organizations and government agencies – the whole compliance and ethics industry itself is barely out of its infancy, though it is growing and progressing rapidly. Monitors fill this void perfectly, often playing the role of teacher and guide to both the organization and government.
I much appreciate Davidoff’s dislike that Monitor reports cannot usually be obtained. There are many who argue that Monitor reports, as a general rule, should be publicly available, albeit with appropriate redactions, primarily to protect proprietary, sensitive, and/or personal information that such reports might contain. Also, how willing organizations might be to enter into Agreements where they know a Monitor’s reports will be available to the world could have a very chilling impact on both the willingness to enter into such an Agreement and the degree to which the organization might more openly and fully work with a Monitor towards “spiritual compliance.”
Balancing the obligation for the Monitor to inform (report to) the government against the risks of such information being used or misused by outside interested parties is a very difficult task, whose consequences could easily outweigh the public interest as it concerns access to a Monitor’s reports. For a more recent general exploration of these issues, I suggest “Minding the Monitor: Disclosure of Corporate Monitor Reports to Third Parties” by Karen Green and Timothy Saunders of Wilmer Hale.
There are a myriad of important issues that still exist around Corporate Monitors that yet need to be pointed out, deliberated, and resolved. I never even touched on “independence,” which is certainly one of the big ones! As someone who is passionate about and intimately involved in the development of Standards and “best practices” for Monitors, I hope that writings such as this may bring attention to the important and real Corporate Monitor issues, allay misperceptions, and lead to a greater appreciation for Monitors – an extraordinarily effective and largely under-utilized means by which government and/or other oversight bodies can better achieve long-lasting success in resolving corporate misconduct, fraud, waste, and/or abuse.
by Tina Williamson
I’m exhausted. There’s no way I can keep up with this workload. I need to either hire another assistant or….hey…wait…I can hire a few unpaid interns to pick up the slack!”
Ever heard this before? If you have, your first response should have been to say, “It’s not as easy as it sounds.” The truth of the matter is, while we are tempted to “intern-out” our more mundane, time-sucking tasks, we may very well be violating the same laws that we have sworn to uphold and protect.
However, with the right preparation and planning, you can bring into your office one, or possibly more, energetic individuals who can assist you in the preparation, production, and finalization of your more pressing projects, while giving them the chance to gain real-world experience.
So, how do you structure an internship program in your company that is effective, legal, and provides an educational experience for future compliance professionals? I can’t answer all of the questions you may have but I can give you a few pointers on how to get started.
First step: you need to determine whether or not you want to pay your intern. For the sake of time and space, let’s say that you want to create an unpaid internship in your compliance program. Therefore, you need to ensure that your program remains in compliance with the Department of Labor.
Work.com1 states the following guidelines for unpaid internships. The six criteria developed by the Department of Labor that must be met in order for the positions to be an unpaid internship are:
1. The training, although it includes actual operation of the facilities of the employer, is similar to the training which would be received from a vocational school.
2. The training must be for the benefit of the intern.
3. The intern must not displace regular employees, but work under the close observation of a regular employee or supervisor.
4. The employer provides the training and derives no immediate advantage from the activities of the intern, and on occasion, the operations may actually be impeded by the training.
5. The intern is not necessarily entitled to a job at the end of the internship.
6. Both the intern and the employer understand that the intern is not entitled to wages. A student may be able to receive a stipend however.
All of these criteria must be met in determining if the intern is a paid employee or a learner/trainee.
So, you now know that the intern is not there merely to replace a worker for free, or to replace an employee that you’ve just laid off in the last round of budget cuts.
Point #4 is usually the hardest for employers to swallow, as we are all overloaded with enough work for three people. To actively seek out a mentor position that may actually slow us down, well, that’s not a big motivator. However, an intern can become an integral part of your team.
After you’ve reviewed the Department of Labor guidelines, you need to actively engage the business program’s education/career services director in your search for an intern so that you have a full understanding of what an internship in this particular program requires.
Questions to ask include:
- Who is the intern coordinator for the program?
- Does this program offer class credit for the internship?
- Is there a weekly hourly limit or minimum that the student must meet in order to get credit?
- Will I need to submit weekly reports regarding the intern’s work product?
- How often will I need to submit an evaluation of the intern?
- Will I need to submit a weekly schedule to the intern coordinator?
- What type of work experience does your program seek for its students?
- What are my options if the intern is not meeting the minimum requirements for my internship?
Once you’ve reviewed the program guidelines, it’s time to have a chat with your HR director. Most companies already have active internship programs. You may not even have to create your own intern handbook. And many companies require interns to go through the same background checks, training, and orientations that are required of
Next, you will need to take the evaluation forms that the college program requires, the HR department’s recommendations, and your own department needs, and create a handbook that clearly defines expected work hours, your code of ethics, attendance, training requirements, the company’s dress code, performance evaluations, and the consequences for failing to meet the internship requirements. This is one of the most important steps. If your company already has an internship handbook, you’re in luck. If
not, taking the time to create clear guidelines, review them with your interns, and have them sign an agreement to comply with these same guidelines is the best way to avoid confusion and major issues down the road.
Once you’ve covered these steps, you can then advertise with local colleges for possible interns. A quick post for the position may be as follows:
Wanted: Students who are interested in pursuing a career in the Corporate Compliance field. The ABC Corporate Compliance Department is seeking two Interns to join our team and gain valuable experience in one of the fastest growing fields in health care management. The positions will assist in research and development of policies and procedures that are in compliance with health laws and regulations, risk management, and best practices. Responsibilities include assisting with onsite facility inspections, departmental audits, conducting various research tasks, administrative duties, and other duties as assigned. Qualifications: currently enrolled as a college student, have strong attention to detail, a self-starter with strong initiative and good work ethic, have strong teamwork and organization skills, can type a minimum of 35 WPM and have working knowledge of MS Word, Excel, PowerPoint, and Windows. This is a non-paid position. To apply, please contact the Compliance Director at 601-555-5555, ext. 5555 or compliancedirector’semail.org no later than August 10, 2014.
Now it’s time to sit back and wait for the resumes to arrive.
Once the deadline has passed, it’s time to compile those resumes and get to interviewing. One last bit of advice: While I hold my interns to the same professional standards as my paid employees, I also realize that this may be the student’s first professional interview. I view the application process and the interview as part of the intern’s educational opportunity. I also conduct a mock professional interview with my interns in their final days with my company so that I can provide productive feedback on their resume and interview skills.
As you can see, creating an intern program in your corporate Compliance department may appear to be a bit daunting at first, but the rewards for you and the future compliance professionals who learn “at your feet” are limitless.
Tina Williamson, JD, RTT, is Director of Corporate Compliance from Mississippi Children’s Home Services. She can be reached at firstname.lastname@example.org.
Technically the name of the session was Influencing Decision-Making, but co-presenter Kim Otte spoke about how when she went from being General Counsel for Mayo Clinic to their Chief Compliance Officer, her predecessor warned her that she would be going from being a chicken to a pig. “You were a chicken, your job was to go to the board and give them the egg-the report, memo, or statement of the problem. Now, you’re a pig. You have to go to the table, bring the bacon (the solution) and stay at the table to design and implement a solution,” Kim recalls him saying. And while it’s funny to think about, I think we can all agree he’s right.
Kim and Jenny O’Brien opened up Tuesday’s sessions talking about how to help compliance departments influence decision making throughout organizations. It all starts with the simple notion that compliance officers have the opportunity to influence the companies they love.
Jenny and Kim spoke about the 5 influencing skills that keep compliance officers effective, in order:
- To collaborate, you must know your organization and your business
- You need to know what resources are available to your and your team
- When working with others and doing investigations, assume benign intent
- Risky behavior deserves coaching, reckless behavior deserves discipline
- Let the other person have your way
- Gently teach them how you think and guide them to your conclusions
- Compliance is a high EQ job and requires a ton of people skills
- Always start with please and end with thank you – being polite goes a long way
- You need to be able to communicate with all aspects of your organization, and you need to know who needs to know your information, what they need to know and how to tell them so they understand
- Market the 7 elements and help your teams articulate what their jobs are, and help other employees understand compliance and make it part of their jobs
- KISS – Keep it simple, stupid! There are two types of people: simplifiers and complicators. Compliance officers should always be simplifiers – break down larger issues into smaller pieces and to make your communications easy to digest
- diagrams and visuals can help many of your co-workers understand broader topics easily
- Control the tone and direct the conversation – compliance officers deliver a lot of bad news to organizations, using the right language, tone, and pitch can soften the blow
- Know that leadership counts and compliance officers leave a long shadow
- Small things matter, especially when building credibility
- Do not become indignant, and do not condescend, lead by example without isolating others
- Wear your poker face
- Stop the swirl – there is always going to be a sense of urgency, but you don’t learn anything from joining in it
- If you panic, everyone around you (including your business leaders) will do the same
- Earn your credibility through competence
- Guard your independence – most board members and business leaders are looking for you to be independent
- Be relevant in every interaction with your organization
- This sometimes means having the courage to speak up, and the ability to know when not to
- Admit when you’re wrong and admit when you don’t know the answer
Compliance is an odd job, with a broad scope, but hopefully with these tools you’ll be able to be an effective communicator and influencer in your organization.
“Most ethics programs are boring and stupid!”
Ethicist Michael Josephson certainly got the attention of the 2,500+ crowd at this morning’s general session. The best part about it – Josephson is right. Most ethics programs exist to ease the anxiety of the higher-ups, and so companies can say they’re doing something about ethics and compliance.
The truth, as Josephson laid out, is that most ethics programs don’t change anyone’s mind, and don’t do anything to prevent problems. The purpose of an ethics program is to affect behavior; if your program isn’t affecting behavior, you’re doing it wrong.
Here’s how to do it right:
1. Evaluate your program
- Does your program detect, deter, and prevent unethical conduct?
- Are you promoting a culture of positivity, credibility, and responsibility? For those not living up to it – are you addressing those issues and poor performance?
- Be open to the idea that you may not always be seeing all the issues – perspective makes a difference
- Understand that you can’t avoid ethical problems by ignoring them
2. Establish a culture of ethics
- Be stern, ethics is not a factor to consider, it’s a ground rule
- Define what ethics means in your organization; start with:
- Good citizenship
- Let everyone know that your organization values ethical behavior, and expects it from all employees
- Most people want to be ethical and do the right thing – teach them what that looks like for your organization
- Operate on the understanding that there is a big difference between what you have the right to do, and what is right to do
While wrapping up, Josephson also gave some great advice on how to define ethics: Just think about the qualities you would look for if you ever got the chance to interview who would get to date and marry your children. As it turns out, those are the same qualities that make up the backbone of an ethical organization.
For ethics and compliance professionals, creating an environment where employees are encouraged to do the right thing in the face of difficulties and challenges may seem like a herculean task – especially in this ever-changing regulatory landscape.
But, according to a recent opening keynote at Ethisphere/Thomson Reuters sixth annual Global Ethics Summit (GES), which took place in New York City on March 20-21, it all boils down to working with the right people to avoid potential reputational risks.
“Company concerns are very much beyond just business conduct; personal behavior and personal conduct now more than ever can reflect poorly upon the company,” said Larry Thompson, executive vice president, government affairs, general counsel and corporate secretary of PepsiCo during the opening keynote panel, which also featured Randal Milch, executive vice president, public policy and general counsel for Verizon.
Moderated by Holly J Gregory, partner at Sidley Austin, the discussion provided insights into the evolving role of the compliance officer and zeroed in on some areas business leaders should pay more attention to in 2014.
“Social media is great because it allows us to get closer to our customers,” said Milch to the room filled with governance, ethics and compliance officers. “Social media can also be a potential threat to our reputation, and it should be carefully monitored at the same time.”
Key Takeaway: Ethics and Communications
Another panel discussion, “Ethical communication during an era of heightened transparency,” served as the lunch keynote session. Moderator Paul Gennaro, AECOM senior vice president and chief communications officer, urged participants to work across the C-Suite to build and sustain an ethical culture — and rebuild public trust. “When I speak with colleagues in the corporate communications profession about priorities and goals, I encourage them to seek out their peers in ethics and compliance,” he said. ‘We have an opportunity to lead the way.”
Gennaro was recently named one of the top 100 Thought Leaders in Trustworthy
Business for 2014 by Trust Across America Trust Around the World, which was launched by communications expert, Barbara Kimmel to promote thought leadership in this space and quantify organizational trust.
The keynote panel included Gary Sheffer, General Electric’s vice president of corporate communications and public affairs; Grace Wu de Plaza, deputy ethics and compliance officer at the Nature Conservancy; and Dr. Edward Queen, director of the Ethics and Servant Leadership Program at Emory University’s Center for Ethics.
“Unfortunately, we live in a world where too often people say one thing and mean or do another,” said Queen. “Central to the issue of developing a convincing commitment to ethics is the practice of equity, of fairness. People in the organization need to know that the rules apply to everyone.”
Creating a global ethical corporate culture that is an authentic and durable remains a challenge for many governance and compliance officers. Sheffer believes that as companies expand into new territories and encounter different cultures, it is best to communicate in a context that is easy for local employees to understand. “At General Electric, we change our messaging according to the target audience,” he added. “In India, for example, we created Bollywood advertisements to foster employee engagement, and we continue to do the same in other countries.”
Taking Sheffer’s point further, a panel discussion on March 21, titled “Cultural Considerations for Codes of Conduct,” explored how cultural considerations should be taken into account in a global compliance program.
“All employees have the responsibility to act with the highest degree of integrity and in full compliance with the law,” said Susan Frank Divers, assistant general counsel for ethics and compliance at AECOM, who chaired the panel. “In order to gain a clear understanding of ethical and legal guidelines, companies must rely on a user-friendly Code of Conduct that caters to different cultures and regions.”
AECOM was one of the many companies named to World’s Most Ethical Companies list for the fourth consecutive year (2011-2014). To view the complete list of 2014 honorees, click here.