FCPA Compliance and Ethics Blog

July 31, 2014

Lessons Learned from the Beautiful Game: Compliance, FIFA and the World Cup

World Cup e-BookThe 2014 World Cup is over and in the books. It was a great tournament for probably everyone across the globe but the host nation of Brazil. While there are many lessons to be learned from this event, the lead up to and events of this year’s World Cup provide some interesting insights for the compliance practitioner. I have collected some of my writings on FIFA, the World Cup and the world of the ‘Beautiful Game’ in one volume, entitled, “Lessons Learned from the Beautiful Game: Compliance, FIFA and the World Cup”. It is now out and available from amazon.com in Kindle e-reader format.

In this short volume I take a look at some for the following topics.

  • FIFA and its selection process for the 2022 World Cup in Qatar.
  • Performing due diligence and World Cup bids.
  • Referee Professionalism as an anti-corruption tool
  • What are some of the consequences for failure to set a proper tone-at-the-top.
  • Leadership lessons from managers of some of the world’s top soccer clubs.
  • Lessons learned from both compliance successes and failures.

I am sure that you will find this e-Book gives you some ideas for your anti-corruption compliance program, no matter which FIFA country you might practice compliance in. Finally, you cannot beat the price, as it is only $3.99. You can order a copy by going to amazon.com or by simply clicking here.

July 30, 2014

Bringing It All Home, the Two Tough Cookies Wrap It Up For You, Part III

Tales from the CryptNote-I asked the Two Tough Cookies if they could put together a series of blog posts wrapping up the lessons they have seen and learned and written about in their series of Tales from the Crypt. They graciously put together a series of posts on the seven elements of an effective compliance program from their 10 tales of Business Conduct. Today, Part III of a Three Part Series…

Wrapping it all Up

So, now you’re ready to start your culture audit… Some key questions you want to ask before you start are:

  1. Do I have the support of Executive leadership? If not, go back to your E&C steering committee and work through the objections there first. It should be comprised of empowered executives who can understand the value of what you propose, and give you insight how to get buy-in across the organization. Give yourself MONTHS to get this accomplished, if not years. If they don’t understand the value of what you do, it will take a lot of mini-meetings to get your point across. If you don’t have an E&C steering committee, start by forming one, and include your CEO, CFO, GC, CHRO, IA, and top business line leaders. Also include global representatives if you have a global footprint. If you have an executive management council, they should be on your E&C steering committee, because they are the decision-makers. Be careful not to have overwhelming representation on the administrative side. And make sure the CEO has representation – if he or she doesn’t have time to manage for integrity, then you need to go elsewhere.
  2. Have you clearly articulated the ethical standards of your organization and the procedures to follow in order to meet those standards? If not, or if you’re not sure, start with a small sample survey of some key expectations and do a small focused study on what critical pieces are missing, and work to fix it. That’s your baseline, and you will then have metrics to measure against when you really start to change things for the better!
  3. What are the operational values – the values that define “how things really work around here”?

Your continuum looks like this depending on your ethical climate:

Aethical Compliance Emerging Ethical Integrity
Ego/Profit Rules Based Rules Plus Values Principled Performance

Organizations that are Compliance-oriented typically

  • Have a goal to prevent, detect, and punish legal violations
  • Channel behavior in lawful directions
  • Underlying model is deterrence theory
  • People are rational maximizers of self-interest, responsive to personal costs and benefits of their choices
  • May be seen as a rule-book, a constraint (especially if overemphasis on punishment)

Organizations that operate with Principled Performance (High-Integrity) typically

  • Combine a concern for law with emphasis on managerial responsibility
  • Define companies’ guiding values, aspirations and patterns of thought and conduct
  • Focus on Accountability, leveraging self-governance in accordance with a set of guiding principles and encouraging independence of thought with an introspective view on personal accountability. Each employee = Ethics Officer

Successful integration of Integrity in your organization is hard work. It takes guiding values and commitments that make sense and are clearly communicated. Company leaders are personally committed, creditable, and willing to take action on the values they adopt. The adopted values are integrated into the normal channels of management decision making and are reflected in the organization’s critical activities. It’s not enough to start every meeting talking about integrity, it has to be woven into every word and action of the leadership team, and done so authentically. The company’s systems and structures have to support and reinforce its values. Managers must be developed to ensure they have the skills, knowledge, and competencies needed to make ethically sound decisions, and resources must be made available on a non-discretionary basis to enhance those skills, knowledge and competencies. Continuing effort, investment, and integration is needed. Close enough is not good enough, and the work is never done.

 

Sample Gap Analysis of Culture Crawl Walk Run!
Organization Type Aethical Compliance Emerging Ethical Integrity
Work Climate Type Instrumental, Rules & Procedures Rules & Procedures, Law & Professional Codes Law & Professional Codes, Caring Independence
Policy Type None Code of Conduct Code of Practice Code of Ethics
Policy Control None Use of rules Seek advice, Act then disclose Use of guiding principles
Training Type None Orientation, General courses Seminars, Courses for some managers Courses for most employees, Personal interviews
Training approaches None or General Info Rules and guidelines, Lectures Decision-making frameworks, Case studies Cognitive approaches, Exemplary modeling
Top management commitment None Formal communications of legal aspects Some informal and formal means of communication Various informal and formal mechanisms, partnering
Communication None Orientation, one-time distribution, annual review Periodic distribution, Input into review Frequent distribution, Two-way communication
Enforcement Officer No one, Unimportant role Legal or HR Dept, Compliance Officer Sr. mgmt. committee, Ethics Officer, Supervisors Each employee, High-ranking employee(s)
Sanctions Ignored Arbitrarily enforced Semi-consistently enforced Consistently enforced
Rewards Keep job One-time story, award Special recognition Publicity, bonuses
Help/hot lines None 800 number, limited hours Third-party staff, feedback Follow-up, regular reports
Performance appraisal systems None Idea or suggestion only High-level managers only, Affects pay or bonuses All employees, affects pay, Affects promotions

Many thanks to the Two Tough Cookies for this great series!

This publication contains general information only and is based on the experiences and research of the authors. The authors are not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The authors, their affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Authors give their permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the authors.

July 29, 2014

Bringing It All Home, the Two Tough Cookies Wrap It Up For You, Part II

Tales from the CryptNote-I asked the Two Tough Cookies if they could put together a series of blog posts wrapping up the lessons they have seen and learned and written about in their series of Tales from the Crypt. They graciously put together a series of posts on the seven elements of an effective compliance program from their 10 tales of Business Conduct. Today, Part II of a Three Part Series…

3. Exercise Due Diligence to Avoid Delegation of Authority to Unethical Individuals

This one is tough, especially in global organizations. In many countries, you simply cannot run a background check, as criminal records are not public. In others, you can run them, but the criminal offense must be related to the job to exclude the candidate from being hired.   In yet others, you can run them, but you can’t use them due to overly strict privacy rules. Then there’s the matter of cost relating to doing all this due diligence. The best thing you can do is determine the following:

  • First, is your business subject to a potential FCPA violation? If you are not “at risk” of public corruption because you are not engaging at any level with foreign government officials, then half the battle is won. Of course, you still run the risk of commercial corruption (bribes, kick backs, etc. with trading partners), but at least the spectre of government sanctions is not looming so large over you.
  • If you are “at risk” of an FCPA violation (you have interaction with govt. officials, including customs) have you developed a robust due diligence program, based on some corruption index to determine the level of due diligence required for your staff, your trading partners?
  • Have you identified your red flags thoroughly to spot anomalies in your business that would signal a deeper view is recommended?
  • Do you have staff to conduct the due diligence, or a vendor to do it on your behalf?
  • Are background checks run on everyone, or just certain individuals, or certain risk areas?
  • Have you taken a hard look at your gift policies to determine whether or not there are glaring holes that could give rise to inappropriate influence in business dealings?
  • Have you taken cultural considerations under advisement in your gift policies? Are they more stringent, or lax, compared to the US? Are the gift policies in Russia different than the gift policies in the US, because someone convinced someone else that you just can’t get things done without greasing a palm here or there?
  • Do you have a formal committee reviewing all charitable contributions, or, are ‘charitable contributions” acceptable as “facilitation” to get non-discretionary government functions moving along? Does your organization allow “facilitation payments” – if so, you better take a second, third, fourth look….

The point I’d like to emphasize here is that even companies that make it on the “World’s Most Ethical Companies” list also make it to the DOJ’s investigation list for foreign corruption, or violation of embargoes, sanctions, and the like. People interpret rules when the rules change, depending on the country. People then make mistakes in favor of what makes business sense to them, in their country, in their environment. You just have to make sure you’ve done what’s reasonable to prevent those mistakes.

  1. Communicate and Educate Employees on Compliance and Ethics Programs

Here’s where the tone from the top, middle and bottom are key to your culture. This is probably the most important thing you want to measure. I am fond of saying 90% of a good ethics & compliance program is communication, and 10% is actions/deeds. While deeds do speak louder than words, it’s the communications – what you say, how you say it, what you mean by it, your intent – that frames up the actions of others.     So you want to measure

  • Are the messages the same, the deeper you get into the organization? Is the understanding of the messages cascading from above the same the further down you go? Easy enough to measure with post-learning survey tools. Give all top, middle, and lower management the same “meeting in a box” and see if the understanding after delivery is the same. Reminds me of that campfire game, where the story starts at one end of the circle, and is completely different by the time the last person hears the tale. Your objective, of course, is to ensure that every person in the corporate audience hears the same message, and has the same take-aways, no matter who is telling the tale.
  • What kind of audience do you have? Does everyone have access to a computer, or do you have the challenge of manufacturing workers, with multiple languages and facilities to manage, and no technical means of reaching them? Have you done what’s necessary to ensure your training and communications mechanisms address every type of audience, or are pockets left out of the mix?
  • What learning aids do you have to help with understanding the code of conduct? Are the examples you use for harassment appropriate for your audience? Do you have a team of global reviewers who will not only preview your training, but offer suggestions on how to localize it to make it appropriate, meaningful and relevant to the teams they serve? If so, do they look at all communications pieces, or only certain ones? If only certain ones, which ones? And why?
  • Are there any leaders who go above and beyond when you launch your annual or quarterly training? I had an Asian business President who made sure he took the course the first day it was launched, and then sent a message to his leadership team about what he learned from the course, and what he wanted them to take away to their teams after they took the course. All of his team had the course done within the first month. I wanted to clone the guy, I swear!

I’m also reminded of mandatory harassment training I gave in Brazil one year. I relied upon the canned on-line training to help with my meeting amongst management, who all spoke English well. I was planning on asking them to cascade the messages to their teams while I was there, but they pointed out that the training was a farce. Women, they told me, wanted wolf calls lobbed in their direction in Brazil – it was not only culturally acceptable, but encouraged. This was substantiated by the several women in the room. Check. Fortunately, I had other examples at the ready to use for a facilitated session, which I vetted with the women on the team prior to delivery. Lesson learned? Make sure your ethics & compliance steering committee has global membership, and are willing to preview your training and communications prior to launch to ensure cultural relevance. If you don’t do this, your ethics & compliance program will be perceived as a joke. Not a desirable outcome, I would say….

  1. Monitor and Audit Compliance and Ethics Programs for Effectiveness

So, how do you measure a non-event? I often ponder…. The challenge in highly ethical organizations is that you have, at first blush, very little to measure. If everyone’s doing a good job, how do you measure effectiveness. Is it because you have a great program that you have absolutely no calls on the hotline? Or is it that everyone is trembling in fear of retaliation the reason for no calls to the hotline? Hmmm.

Some of the things you can measure include

  • Indicators and ‘yardsticks’ – do you crawl, walk, or run to goals?
  • Do you seek periodic stakeholder feedback (including E&C council input)
  • What kind of documentation do you collect – trend analyses of HelpLine metrics, feedback on program enhancements as they are implemented, feedback on training and communications
  • Do you routinely conduct a “Lessons Learned” exercise after substantiated hotline calls?
  • Does your HR team engage in site assessments when a location, facility, or team seems to have a lot of issues that arise from a single manager or set of team leaders?
  • How often are your Code, policies, procedures updated and reviewed?   Are they tested for readability and understanding? Are they just published, or is training introduced for new policies as they are issued?
  • Do you conduct risk assessments and/or change training or communications based on perceived risk areas?
  1. Ensure Consistent Enforcement and Discipline of Violations

Does your organization allow for mistakes? Many will say they do, but when the rubber meets the road, you will find that they can be unforgiving for some transgressions, and unbelievably forgiving for others…. You will want to measure

  • Whether or not there appears to be wiggle room when folks stray. Deeds in this aspect do speak louder than words.
  • Are roles and responsibilities clearly defined, with escalation clauses when things go wrong?
  • Does your organization communicate when things go wrong as well as when things go right? I know one organization that struggled mightily when I suggested we let everyone know what actions we took for certain code violations. The attorneys were all worried that someone would sue, of course, but in the end, integrity prevailed. We were able to sanitize the situations in such a way to communicate what had been done, and what discipline was taken, without anyone learning personal details. Importantly, it drew a virtual line in the sand by publicizing transgression and discipline, so that people knew boundaries. Of course, this was after years of me observing that discipline seemed to be discretionary within the organization, and as a result, trust in management “doing right” was eroding significantly. It didn’t hurt that my observations were followed by multiple hotline calls saying the same thing… but it should never get to that point, should it?

Also measure whether or not policies and communications:

  • Encourage reporting
  • Identify resources to raise concerns
  • Prohibit retaliation for good faith concerns
  • Identifies management as the primary resource for issues or concerns
  • The average timeline to resolve complaints
  • Whether or not you benchmark reports that express fear of retaliation or unwillingness to consult with management first. This is tough to do, unless you build it in to your hotline reporting mechanism as a “customer service” function at the end of every call or report, actively soliciting this very feedback when a report is made.
  1. Respond Appropriately to Incidents and Take Steps to Prevent Future Incidents

So, you are at the point where you have confidence you have the right policies and procedures in place to keep yourselves honest. But in case someone didn’t get the memo of “expected behavior” you have to make sure you respond appropriately, and take steps to avoid future missteps. One organization I worked at realized the culture of an acquired subsidiary was so awful that it opted to sell it off rather than try to fix it. They had other issues in the larger organization, but they knew a bad deal when they saw it, and took steps to rid themselves of an untenable position. Another organization I worked at kept throwing money at a subsidiary, when it probably would have been better to toss in the towel. Different organization, different results, neither perfect, but it fit them as they saw things.

When gauging the culture of your organization, some things you want to look at are the rewards and sanctions for behavior:

Positive rewards:

  • Retention of employment
  • Recognition
  • Appreciation
  • Commendation
  • Monetary or stock reward

Negative sanctions:

  • Termination or Suspension
  • Demotion
  • Probation
  • Appraisal comments/warnings
  • Reduction in compensation or bonus

You also want to measure your Performance Appraisal Systems, and look to see whether or not they include sections on:

  • Demonstrated Ethics and values in workplace conduct
  • Good communication skills
  • Building trust with stakeholders
  • Being fair or equitable
  • Maintaining a high level of quality or integrity in decision-making
  • Reporting Concerns
  • Empowering subordinates to reporting concerns
  • Training and development initiatives for the team

Tomorrow the Two Tough Cookies sum it all up…

This publication contains general information only and is based on the experiences and research of the authors. The authors are not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The authors, their affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Authors give their permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the authors.

 

July 28, 2014

Bringing It All Home, the Two Tough Cookies Wrap It Up For You, Part I

Tales from the CryptNote-I asked the Two Tough Cookies if they could put together a series of blog posts wrapping up the lessons they have seen and learned and written about in their series of Tales from the Crypt. They graciously put together a series of posts on the seven elements of an effective compliance program from their 10 tales of Business Conduct. Today, Part I of a Three Part Series…

We’ve talked a lot in our Tales from the Crypt about the signs to watch for that indicate something’s gone wrong, from minor cultural twists to lapses of integrity that are tantamount to criminal activity. We all wish we had a crystal ball we could peer into to predict how various maneuvers will translate into the larger universe of corporate culture. One of the best tools to use to gauge the cultural baseline is an organizational ethics audit, reminding yourself that “what gets reported gets measured.”

Your first hurdle, of course, is getting executive leadership to support the initiative. If they don’t support it, then you have your first cultural indicator. After all, if you have nothing to hide, you have nothing to lose by peering under the covers, now do you? So let’s assume your leadership is supportive of developing, and/or sustaining, a “high integrity” organization. So what do you want to measure? The ‘seven elements of an effective compliance program’ is a good start, but by no means exhaustive. After all, many organizations fulfill “ethics oversight” by having a CCO in title (usually, the GC or CFO), but the day-to-day oversight and management of the program is led by staff members who are not empowered to work towards positive change. You know who you are, you know the daily frustration of knowing what should be done, and what leadership will allow. So while “oversight” is met, is it really “effective?”

So let’s remind ourselves of the seven elements once again:

1. Establish Policies, Procedures and Controls

2. Exercise Effective Compliance and Ethics Oversight

3. Exercise Due Diligence to Avoid Delegation of Authority to Unethical Individuals

4. Communicate and Educate Employees on Compliance and Ethics Programs

5. Monitor and Audit Compliance and Ethics Programs for Effectiveness

6. Ensure Consistent Enforcement and Discipline of Violations

7. Respond Appropriately to Incidents and Take Steps to Prevent Future Incidents

How do these elements translate into an organizational ethics audit? And how do our 10 rules of business conduct in the workplace (from our “Tales from the Crypt” series) fit in? Let’s break it down into manageable chunks.

1. Establish Policies, Procedures and Controls

Under this “bucket” include your Code of Conduct, your Vision and Values statements for your organization, and the various policies and procedures you rely upon to get business done. What you want to know, when conducting your audit, is not just do you have these, but

  • Does your Vision statement create an actionable description of the future? If so, what is it, and more importantly, do your people know it, and understand what role they play in achieving that future?
  • Is “Integrity” one of your Values?
  • What’s the purpose and Focus of your Code of Conduct? What kind of tone does it set, is it widely distributed, prominently displayed, easy to read? Does it have learning aids, and examples of not only wrong doing, but “right” doing behaviors? What expectation does it set? Is it universal or have you caved to various constituencies and created multiple versions (not translations, but actual versions) to “meet the needs” of various cultures. If you have, then you are net setting a single standard that all can live by, and you will have people applying their own standard to their behaviors, not yours. Ethics should not be subject to interpretation, nor external pressures such as Worker’s Councils, unions, or special interest groups.
  • Are your policies relevant to your business, or did someone just borrow something from an HR toolkit to get you started? Do you have a formal non-retaliation policy (and not just a nod towards the concept in your Code of Conduct), and formal procedures to deter retaliation. The rules in this area need to be cut and dry to make people know you “have their back” when the you know what hits the fan. You want to encourage people to step up, and the only way you can do that is a rock solid approach to non-retaliation.
  • Last, but not least, are your policies “uniformly enforced?” Much like the sentencing guidelines, organizations, large and small alike, should be dealing with transgressions with an even hand to truly have an ethical culture. People like boundaries, like to know where the line in the sand is drawn. Trust me on this. So do you know exactly where your organization’s boundaries are? Or does the line move from incident to incident?

2. Exercise Effective Compliance and Ethics Oversight

As I mentioned before, many organizations have day-to-day oversight managed by staff, with a titular CECO residing with one of the executive leaders, like the GC or the CFO. Larger organizations have dedicated compliance officers who aren’t forced to wear multiple hats, who truly have teams of dedicated compliance officials reporting up to their organization. This is particularly true in highly regulated industries, such as finance, insurance, healthcare, food and drug manufacturing, where government oversight plays a large role in day to day business.   It is fair to say that smaller organizations don’t need to have a dedicated compliance officer per se, but when you have a staff attorney, for instance, managing the day to day operations of your ethics and compliance program, you have put that person in a Catch 22. Period. You may want an attorney in that spot for attorney client privilege, but if you do that recognize that you’ve also handcuffed the person from being able to independently report wrong doing if something goes drastically wrong, as they are duty bound to keep matters confidential, even within the business.

So you want to measure whether or not the person with day-to-day oversight has the freedom (or mechanisms) to raise concerns.

  • If it’s a staff attorney, is the job description written so that when wearing the compliance hat, the attorney hat comes off? Tough to do, but possible.
  • Are there layers of management between the day-to-day person who is managing the ethics and compliance program, and the person with the “title” CECO?
  • Are there many people with “compliance” in their title, and do they work together, or independently? I have worked in organizations where “compliance” was part of several functions, but the right hand, and the left hand, weren’t speaking to each other. Trade Compliance reported to one division, Environmental Compliance reported to another division, product compliance reported to yet a third division, HIPAA compliance to yet a fourth, and so on. None of these units worked together, some were staffed heavily, some staffed thinly, and the actual “head” of Integrity & Compliance was ineffective at convincing senior leadership that all compliance functions should be at least working towards the same goals in the organization. It all depended on the business leader at the top of the silo and whether or not they were effective in getting the support they needed to run their business. It also depended on whether or not the business unit was a profit center or a cost center, and if a cost center, where it reported up into the business – as a G&A expense, or an administrative cost aligned with operations. Those that were part of operations were well-funded, those reporting in on the administrative side as a pure cost center (including the “head”) were poorly resourced.
  • Do you have an ethics steering committee or working group that represents all functions and business units, and is staffed by executive or senior leaders who are in a position to make decisions for the larger organization? This serves as a checks and balance that is critical if the day-to-day oversight is led by a staffer. The staffer can build consensus with a larger group that has a vested interest in the outcome by holding those critical meetings before the meeting to test run proposals, and receive important feedback on how to effectively present a proposal to the team to ensure acceptance and success. The staffer can also go to a trusted member of the committee if he or she feels that the CECO is not receptive to hearing concerns and serve as a sounding board. Hopefully, that is.

Tomorrow, elements 3-7.

Who are the Two Tough Cookies?

Tough Cookie 1 has spent the more than half of her 20+ legal career working in the Integrity and Compliance field, and has been the architect of award-winning and effective ethics and compliance programs at both publicly traded and privately held companies.  Tough Cookie 2 is a Certified Internal Auditor and CPA who has faced ethical and compliance challenges in a variety of industries and geographies and recently led a global internal audit team. Their series “Tales from the Crypt: Tough Choices for Tough Cookies” are drawn largely from real life experiences on the front line of working in Integrity & Compliance, and personal details have been scrubbed to protect, well, you know, just about everyone…

This publication contains general information only and is based on the experiences and research of the authors. The authors are not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The authors, their affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Authors give their permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the authors.

July 25, 2014

Code of Conduct, Compliance Policies and Procedures-Part IV

Policies and ProceduresThis is the fourth and final installment of my series on the the importance of a Code of Conduct and anti-corruption compliance policies and procedures in your compliance program and how you should go about drafting or updating Code of Conduct and anti-corruption compliance policies and procedures. On Tuesday, I reviewed the underlying legal and statutory basis for the documents as a foundation of your overall anti-corruption regime. In subsequent posts, I looked at how to go about drafting your Code of Conduct and anti-corruption compliance policies and procedures. Today, I will end the series on how to keep all of the above vibrant and dynamic through a discussion of how to assess, review and revise them and your Code of Conduct on a timely basis.

Simply having a Code of Conduct, together with policies and procedures is not enough. As articulated by former Assistant Attorney General, for the Criminal Division of the US Department of Justice, Lanny Breuer, “Your compliance program is a living entity; it should be constantly evolving.” In an article in the SCCE Magazine, entitled “Six steps for revising your company’s Code of Conduct”, authors Anne Marie Logarta and Ruth Ward suggest considering the following issues before you take on an update of your Code of Conduct.

  • When was the last time your Code of Conduct was released or revised?
  • Have there been changes to your company’s internal policies since the last revision?
  • Have there been changes to relevant laws relating to a topic covered in your company’s Code of Conduct?
  • Are any of the guidelines outdated?
  • Is there a budget to create/revise a Code?

After considering these issues, the authors suggest that you should benchmark your current Code of Conduct against others companies in your industry. I would also add that your standards, policies and procedures should be reviewed and updated in the same manner. If you decide to move forward the authors have a six-point guide which they believe will assist you in making your revision process successful, which I have used as a basis to include revisions to your compliance policies and procedures.

  1. Get buy-in from decision makers at the highest level of the company 

The authors believe that your company’s highest level must give the mandate for a revision to a Code of Conduct and compliance polices and procedures. It should be the Chief Executive Officer (CEO), General Counsel (GC) or Chief Compliance Officer (CCO), or better yet all three to mandate this effort. Whoever gives the mandate, this person should be “consulted at every major step of the Code review process if it involves a change in the direction of key policies.”

  1. Establish a core revision committee 

You should have a cross-functional working group would be ideal to head up your effort to revise your Code of Conduct and compliance polices and procedures. This group should include representatives from the following departments: legal, compliance, communications, HR; there should also be other functions which represent the company’s domestic and international business units; finally there should be functions within the company represented such as finance and accounting, IT, marketing and sales.

From this large group, the topics can be assigned for initial drafting to functions based on “relevancy or necessity”. These different functions would also solicit feedback from their functional peers and deliver a final, proposed draft to the Drafting Committee. The authors emphasize that creation of a “timeline at the outset of the revision is critical and hold the function representatives accountable for meeting their deliverables.”

  1. Conduct a thorough technology assessment 

The cornerstone of the revision process is how your company captures, collaborates and preserves “all of the comments, notes, edits and decisions during the entire project.” They believe that technology such as SharePoint or Google Cloud can be of great assistance to accomplish this process even if you are required to train team members on their use.

In addition to this use of technology in drafting your Code of Conduct and compliance polices and procedures revisions, you should determine if they will be available in hard copy, online or both. If it will be available online, you should assess “the best application to launch your Code and whether it includes a certification process”. Lastly, there must be a distribution plan, particularly if the Code and compliance polices and procedures will only be available in hard copy.

  1. Determine translations and localizations 

The authors emphasize, “If your company does business internationally, then this step is vital to ensure you have one Code, no matter the language.” They do note that if you decide to translate your Code of Conduct be sure and hire someone who is an “approved company translation subject matter expert.” Here I would simply say to contact Jay Rosen at Merrill Brink, as those guys are the one of the top Language Service Providers and know what they are doing when it comes to translations. The key is that “your employees have the same understanding of the company’s Code-no matter the language.” 

  1. Develop a plan to communicate the Code of Conduct 

A rollout is always critical because it “is important that the new or revised Code is communicated in a manner that encourages employees to review and use the Code on an ongoing basis.” Your company should use the full panoply of tools available to it to publicize your new or revised Code of Conduct and compliance polices and procedures. This can include a multi-media approach or physically handing out a copy to all employees at a designated time. You might consider having a company-wide Code of Conduct and compliance polices and procedures meeting where the new or revised documents are rolled out across the company all in one day. But remember, with all thing compliance; the three most important aspects are ‘Document, Document and Document’. However you deliver the new or revised Code of Conduct, you must document that each employee receives it.

6.   Stay on Target 

The authors end by noting that if you set realistic expectations you should be able to stay on deadline and stay within your budget. They state that “You want to set aside enough time so that you won’t feel rushed or in a hurry to get it done.” They also reiterate that to keep a close watch on your budget so that you do not exceed it.

These points are a useful guide to not only thinking through how to determine if your Code of Conduct, and compliance policies and procedure needs updating, but also practical steps on how to tackle the problem. If it has been more than five years since it was last updated, you should begin the process that the authors have laid out. It is far better to review and update if appropriate than wait for a massive FCPA investigation to go through the process.

There are numerous reasons to put some serious work into your Code of Conduct, policies and procedure. They are certainly a first line of defense when the government comes knocking. The FCPA Guidance makes clear that “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures will also be considered by DOJ and SEC.” And by considered, I think it is clear that this means the regulators will take a strong view against a company that does not have well thought out and articulated policies, procedures or Code of Conduct; all of which are systematically reviewed and updated. Moreover, as Allen emphasized, “having policies written out and signed by employees provides what some consider the most vital layer of communication.” Together with a signed acknowledgement, these documents can serve as evidentiary support if a future issue arises. In other words, the ‘Document, Document and Document’ mantra applies just as strongly to this area of anti-corruption compliance.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

July 24, 2014

Code of Conduct, Compliance Policies and Procedures-Part III

Policies and ProceduresToday, I continue with Part III of my four-part series on the best practices surrounding your Code of Conduct and anti-corruption policies and procedures. In this post, I take a look at drafting policies and procedures. I conclude with some thoughts by well-known policy pundit Michael Rasmussen on management of policies going forward.

One of the key components of any best practices compliance regime under any anti-bribery and anti-corruption program is policies and procedures. Policies and procedures tie together a company, its business environment, the risks it faces and the compliance requirements. Policies procedures are a specific requirement for any anti-corruption/anti-bribery compliance regime. In the FCPA Guidance it stated, “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures will also be considered by DOJ and SEC.” Under the UK Bribery Act, policies are discussed in the Six Principles of an Adequate Procedures compliance program under Principle V – Communication, where it states “The business seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the company through internal and external communication, including training, that is proportionate to the risks it faces.”

As further stated in the FCPA Guidance, “Among the risks that a company may need to address include the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.” Policies help form the basis of expectation and conduct in your company and Procedures are the documents that implement these standards of conduct.

Borrowing from an article in the Houston Business Journal (HBJ) by John Allen, entitled “Company policies are source and structure of stability”, I found some interesting and important insights into the role of policies in any anti-corruption compliance program. Allen says that the role of policies is “to protect companies, their employees and consumers, and despite an occasional opposite outcome, that is typically what they do. A company’s policies provide a basic set of guidelines for their employees to follow. They can include general dos and don’ts or more specific safety procedures, work process flows, communication guidelines or dress codes. By establishing what is and isn’t acceptable workplace behavior, a company helps mitigate the risks posed by employees who, if left unchecked, might behave badly or make foolhardy decisions.”

Allen notes that policies “are not a surefire guarantee that things won’t go wrong, they are the first line of defense if things do.” The effective implementation and enforcement of policies demonstrate to regulators and the government that a “company is operating professionally and proactively for the benefit of its stakeholders, its employees and the community it serves.” If it is a company subject to the FCPA, by definition it is an international company so that can be quite a wide community.

Allen believes that there are five key elements to any “well-constructed policy”. They are:

  • identify to whom the policy applies;
  • establish the objective of the policy;
  • explain why the policy is necessary;
  • outline examples of acceptable and unacceptable behavior under the policy; and
  • warn of the consequences if an employee fails to comply with the policy.

Allen notes that for polices to be effective there must be communication. He believes that training is only one type of communication. I think that this is a key element for compliance practitioners because if you have a 30,000+ worldwide work force, simply the logistics of training can appear daunting. Small groups, where detailed questions about policies can be raised and discussed, can be a powerful teaching tool. Allen even suggests posting FAQ’s in common areas as another technique. And please do not forget that one of the reasons Morgan Stanley received a declination to prosecute by the DOJ was that it sent out bi-monthly compliance reminder emails to its employee Garth Peterson for the seven years he was employed by the company.

Interesting, Allen emphasizes, “having policies written out and signed by employees provides what some consider the most vital layer of communication. A signed acknowledgement can serve as evidentiary support if a future issue arises.” I also like it when others recognize my ‘Document, Document and Document’ mantra for FCPA compliance.

While I think that most compliance practitioners understand this need for policies and procedures, one of the things that is not usually emphasized at a company is effective policy management. Michael Rasmussen writing in Compliance Week in an article entitled “Improving Policies Through Metrics” discussed the need for effective policy management. He believes that it requires that a company must periodically review their policies to ensure that they are relevant and aligned with both current laws and corporate objectives. This is because today’s business environment is dynamic and involves both internal and external factors, so, consequently, as a company evolves and changes its policies need to be updated to reflect these changes.

Rasmussen believes that at a minimum, policies must be reviewed annually. He recommends that each policy should go through a yearly review process to determine if it is still appropriate. There should be a “system of accountability and workflow that facilitates” any policy review process. The end product should be a decision to “retire the process, keep the policy as it is, or revise the policy.” Rasmussen lists five items that a policy owner should evaluate as a part of the policy review process.

  • Violations. Here Rasmussen believes that information from reporting systems such as hotlines or other anonymous lines as well as internal or external investigations must be reviewed. Not only would such information indicate if a company policy was violated but the follow-up investigation would help to determine how the policy might have failed, whether it was through “lack of awareness, unauthorized exceptions [or] outright violations.”
  • Understanding. Here Rasmussen writes that there should be an analysis of “training and awareness programs, policy attestations” and attendant metrics to determine an appropriate level of policy understanding. He believes that questions to a helpdesk or compliance department could help to discover any ambiguities in a policy that might need to be corrected.
  • Exceptions. If you have a policy it should be followed. If an exception to a policy was granted the reason for the exception should have been documented. If there are too many exceptions granted for a policy, it might indicate that “the policy is inappropriate and unenforceable” and therefore should be revised.
  • Compliance. A policy should govern and authorize internal controls. These internal controls should be reviewed in conjunction with the policy review to determine overall policy effectiveness. This is because “At the end of the day the policy needs to be complied with.”
  • Environment. All the factors around a policy are in flux. This includes a company’s risk profile, its business strategy, laws and regulations. Since a business’ climate is dynamic, a policy should be reviewed in the context of a company’s overall situation and revised accordingly.

If there is a change in a policy it is important that not only the correct change be made but that any change is documented. An audit trail is a key component for a company to internally understand when a change is made and the reason for that change but also to demonstrate to a regulator effective policy management and to present “a defensible history of policy interactions on communications, training, acknowledgements, assessments and related details needed to show the was enforced and operational.” This audit trail should include “key data points such as the owner, who read it, who was trained, acceptance acknowledgements and dates for specific policy versions”. In addition to an audit trail, policy revisions should be archived for referral back at a later time. So, once again, the key message is document, document and document.

Just as best practices in the FCPA compliance arena evolve, so do business practices, markets and risks. If you throw in the complexities from an inter-connected global business milieu, the task becomes even tougher. Business policies are one of the keystones of a company’s communications to its employees on what it expects and what is required of its employees. To keep policies up-to-date and properly take advantage of this valuable tool, policies need to be evaluated and updated as appropriate. If your company fails to do so this takes away from the value of having policies in the first place. I hope that you will use the techniques which Rasmussen has described to help you effectively manage your policies going forward.

The FCPA Guidance ends its section on policies with the following, “Regardless of the specific policies and procedures implemented, these standards should apply to personnel at all levels of the company.” Allen puts a bit differently in that “it is important that policies are applied fairly and consistently across the organization.” He notes that the issue can be that “If policies are applied inconsistently, there is a greater chance that an employee dismissed for breaching a policy could successfully claim he or she was unfairly terminated.” This last point cannot be over-emphasized. If an employee is going to be terminated for fudging their expense accounts in Brazil, you had best make sure that same conduct lands your top producer in the US with the same quality of discipline.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

July 23, 2014

Code of Conduct, Compliance Policies and Procedures-Part II

Policies and ProceduresThis week, I am reviewing the importance of a Code of Conduct and anti-corruption compliance policies and procedures in your compliance program and how you should go about drafting or updating Code of Conduct and anti-corruption compliance policies and procedures. Yesterday, I reviewed the underlying legal and statutory basis for the documents as a foundation of your overall anti-corruption regime. Today, I want to look at how to go about drafting your Code of Conduct. In subsequent posts, I will consider both anti-corruption compliance policies and procedures and how to assess, review and revise them and your Code of Conduct on a timely basis.

What is the value of having a Code of Conduct? I have heard many business folks ask that question over the years. In its early days, a Code of Conduct tended to be lawyer-written and lawyer-driven to “wave in a defense situation” by claiming that “see we have one”. But is such a legalistic code effective? Is a Code of Conduct more than simply, your company’s law? What is it that makes a Code of Conduct effective? What should be the goal in the creation of your company’s Code of Conduct?

Carol Switzer, President of the Open Compliance and Ethics Group (OCEG), explored some of these questions in an article in Compliance Week, entitled “The Code of Conduct Conundrum”. As a part of her article, Switzer interviewed Jimmy Lin, Vice President (VP) of Product Management and Corporate Development at The Network, and Kendall Tieck, VP of Internal Audit at Workday, for their thoughts on what makes an effective Code of Conduct.

Tieck views a Code of Conduct as not simply a static piece of paper or document “but as a set of expected behaviors that are integral to the fabric of the business and an organization’s value system. A Code of Conduct is not a compliance activity, but how an entity demonstrates integrity and acquires trust from markets, shareholders, customers, partners, and governments. To achieve these outcomes, a careful plan, aligned with a policy lifecycle management framework, should articulate how the Code is integrated in the core of the company’s activities and culture.”

Switzer believes that one of the key components of a best practices Code of Conduct is to integrate the connection between a business’ objectives, its risk and compliance management. There are numerous factors, which can move a company towards having such an effective integration. Switzer wrote that some of these include, “external stakeholder expectations and pressures, internal culture and context, objectives for the code, process of development and implementation, content of the code, consequences for non-conforming conduct, strength of sub-codes (e.g. policies), and employee character.”

Switzer ends her piece by relating that there is a huge benefit to a company for a well thought out Code of Conduct, as a tool to drive both corporate values and sinew the expectations of conduct into the fabric of the company. By designing a Code of Conduct, which can be measured for effectiveness, you can continuously keep the goals moving.

A GRC Illustrated series, provided with Switzer’s article, entitled “The Next Generation Code of Conduct”, lays out six steps for the compliance practitioner to think through and implement during a Code of Conduct upgrade or rewrite. These six steps are (1) design; (2) deliver; (3) interact; (4) measure; (5) maintain; and (6) improve.

Design

Under this step, a company needs to define the behavior that it desires to inspire and allow employees to collaborate at all levels. Lin, said that a key aspect was relevancy, “But times change—business environments change, cultures change, risk appetites change. We all need to keep in mind that the Code, the ultimate policy, should not be a stale document on the shelf. It needs to inspire, engage, and change with the organization.” Tieck said that your Code of Conduct should be “considered a part of the entity’s overall policy landscape. Leveraging an effective policy lifecycle management framework will promote integration and alignment across the policy governance landscape.”

Deliver

Switzer also identified the delivery of a Code of Conduct as a key element of its effectiveness. She said, “modern communication methods that allow the user to engage, interact, and research further behind the Code into related policies, procedures, and helplines for additional guidance can be better monitored and measured. Code content that is integrated with efforts to monitor changes in the external and internal environment can be updated as needed rather than on a static schedule.” This should also include relevant third parties such as suppliers and sales agents. “And failure to comply with the Code can be better identified and tracked, indicating possible need for clarification, additional training, or better screening of employees.”

Interact

Lin pointed out that a Code of Conduct is both a corporate governance document and a marketing document. As such you will need to create a marketing campaign to get the message of your Code of Conduct out to not only your employee base but also relevant third parties. If you have a large number of non-English speaking personnel or employees without access to online training, these factors need to be considered when determining the delivery method.

Measure

Initially, you should prioritize both qualitative results with positive feedback by including such metrics as speed of completion, reminders, which must be sent to facilitate completion of Code of Conduct training, and the percent of employees and third parties who attest to the review of your Code of Conduct. You should also measure the effectiveness of your communication campaign. Tieck suggests drilling down further because each component of your Code of Conduct sets “an expected behavior. Selecting a few critical behaviors to measure and monitor may be adequate for most organizations. These selected measures might represent an aggregate measure of the overall conformance to the code. Large organizations may be able to mine HR data to capture statistics associated with the identified behaviors. For instance, termination reason codes may be one source.”

Maintain

All commentators note that it is important to keep your Code of Conduct design and content fresh. One of the ways to do so is by employee feedback, which can assist you in identifying if your Code of Conduct is not only effective, but also truly reflective of your company’s culture. Lin points out that to gain these insights you need to incorporate both formal and informal techniques for gauging the relevant employee and third party populations. He states, “Questionnaires, surveys, forms and hotlines can be good anonymous sources, but engaging employees in conversation is just as, if not more, important. Make sure executives and managers alike spend time in small-group and one-on-one conversations. Have these conversations throughout the year and across your employee base to get the “real” story. This helps engage the employees and ensure they know you value their input.”

Improve

OCEG advocates that your Code of Conduct should be evaluated for revision at least every two years. This should be done to keep abreast of the changes in laws and regulations and your own business operations and risk tolerances. Switzer said, “Code content that is integrated with efforts to monitor changes in the external and internal environment can be updated as needed rather than on a static schedule.”

Switzer ends her piece by relating that there is a huge benefit to a company for a well thought out Code of Conduct, as a tool to drive both corporate values and sinew the expectations of conduct into the fabric of the company. By designing a Code of Conduct, which can be measured for effectiveness, you can continuously keep the goals moving.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

July 22, 2014

Code of Conduct, Compliance Policies and Procedures-Part I

Policies and ProceduresFor the remainder of this week, I will have a four-part episode on your Code of Conduct and anti-corruption compliance policies and procedures. In today’s post I will review the underlying legal and statutory basis for the documents as a foundation of your overall anti-corruption regime. In subsequent posts, I will review how to go about drafting your Code of Conduct and anti-corruption compliance policies and procedures and how to assess, review and revise them on a timely basis.

The cornerstone of a US Foreign Corrupt Practice Act (FCPA) compliance program is its written protocols. This includes a Code of Conduct, policies and procedures. These requirements have long been memorialized in the US Federal Sentencing Guidelines (FSG), which contain seven basic compliance elements that can be tailored to fit the needs and financial realities of any given organization. From these seven compliance elements the Department of Justice (DOJ) has crafted its minimum best practices compliance program, which is now attached to every Deferred Prosecution Agreement (DPA) and Non-Prosecution Agreement (NPA). These requirements were incorporated into the 2012 FCPA Guidance. The FSG assumes that every effective compliance and ethics program begins with a written standard of conduct; i.e. a Code of Conduct. What should be in this “written standard of conduct? The starting point, as per the FSG, reads as follows:

Element 1

Standards of Conduct, Policies and Procedures (a Code of Conduct)An organization should have an established set of compliance standards and procedures. These standards should not be a “paper only” document, but a living document that promotes organizational culture that encourages “ethical conduct” and a commitment to compliance with applicable regulations and laws. 

In the FCPA Guidance, the DOJ and Securities and Exchange Commission (SEC) state, “A company’s code of conduct is often the foundation upon which an effective compliance program is built. As DOJ has repeatedly noted in its charging documents, the most effective codes are clear, concise, and accessible to all employees and to those conducting business on the company’s behalf.” Indeed, it would be difficult to effectively implement a compliance program if it was not available in the local language so that employees in foreign subsidiaries can access and understand it. When assessing a compliance program, DOJ and SEC will review whether the company chapter has taken steps to make certain that the code of conduct remains current and effective and whether a company has periodically reviewed and updated its code.”

In each DPA and NPA over the past 36 months the DOJ has said the following as item No. 1 for a minimum best practices compliance program.

  1. Code of Conduct. A Company should develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA, including its anti-bribery, books and records, and internal controls provisions, and other applicable foreign law counterparts (collectively, the “anti-corruption laws”), which policy shall be memorialized in a written compliance code. 

Stephen Martin and Paul McNulty, partners in the law firm of Baker and McKenzie, developed one of the best formulations that I have seen of these requirements in their Five Elements of an Effective Compliance Program. In this formulation, they posit that your Code of Conduct, policies and procedures should be grouped under the general classification of ‘Standards and Procedure’. They articulate that every company has three levels of standards and controls. First, every company should have a Code of Conduct, which should, most generally express its ethical principles. But simply having a Code of Conduct is not enough. So a second step mandates that very company should have standards and policies in place that build upon the foundation of the Code of Conduct and articulate Code-based policies, which should cover such issues as bribery, corruption and accounting practices. From the base of a Code of Conduct and standards and policies, every company should then ensure that enabling procedures are implemented to confirm those policies are implemented, followed and enforced.

FCPA compliance best practices now require companies to have additional standards and controls, including, for example, detailed due diligence protocols for screening third-party business partners for criminal backgrounds, financial stability and improper associations with government agencies. Ultimately, the purpose of establishing effective standards and controls is to demonstrate that your compliance program is more than just words on a piece of paper.

In an article in the Society for Corporate Compliance and Ethics (SCCE) Complete Compliance and Ethics Manual, 2nd Ed., entitled “Essential Elements of an Effective Ethics and Compliance Program”, authors Debbie Troklus, Greg Warner and Emma Wollschlager Schwartz, state that your company’s Code of Conduct “should demonstrate a complete ethical attitude and your organization’s “system-wide” emphasis on compliance and ethics with all applicable laws and regulations.” Your Code of Conduct must be aimed at all employees and all representatives of the organization, not just those most actively involved in known compliance and ethics issues. From the board of directors to volunteers, the authors believe that “everyone must receive, read, understand, and agree to abide by the standards of the Code of Conduct.” This would also include all “management, vendors, suppliers, and independent contractors, which are frequently overlooked groups.”

There are several purposes identified by the authors which should be communicated in your Code of Conduct. Of course the overriding goal is for all employees to follow what is required of them under the Code of Conduct. You can do this by communicating what is required of them, to provide a process for proper decision-making and then to require that all persons subject to the Code of Conduct put these standards into everyday business practice. Such actions are some of your best evidence that your company “upholds and supports proper compliance conduct.”

The substance of your Code of Conduct should be tailored to the company’s culture, and to its industry and corporate identity. It should provide a mechanism by which employees who are trying to do the right thing in the compliance and business ethics arena can do so. The Code of Conduct can be used as a basis for employee review and evaluation. It should certainly be invoked if there is a violation. To that end, suggest that your company’s disciplinary procedures be stated in the Code of Conduct. These would include all forms of disciplines, up to and including dismissal, for serious violations of the Code of Conduct. Further, your company’s Code of Conduct should emphasize it will comply with all applicable laws and regulations, wherever it does business. The Code needs to be written in plain English and translated into other languages as necessary so that all applicable persons can understand it.

As I often say, the three most important things about your FCPA compliance program are ‘Document, Document and Document’. The same is true of communicating your company’s Code of Conduct. You need to do more than simply put it on your website and tell folks it is there, available and that they should read it. You need to document that all employees, or anyone else that your Code of Conduct is applicable to, has received, read, and understands the Code. For employees, it is important that a representative of the Compliance Department, or other qualified trainer, explains the standards set forth in your Code of Conduct and answers any questions that an employee may have. Your company’s employees need to attest in writing that they have received, read, and understood the Code of Conduct and this attestation must be retained and updated as appropriate.

The DOJ expects each company to begin its compliance program with a very public and very robust Code of Conduct. If your company does not have one, you need to implement one forthwith. If your company has not reviewed or assessed your Code of Conduct for five years, I would suggest that you do in short order as much has changed in the compliance world.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

July 21, 2014

World Cup Finale – Compliance Lessons to be learned from Success and Failure

World Cup 2014Over the past few weeks, I have written several articles on the lessons a compliance practitioner can draw from this year’s World Cup and the international group which runs the event, the Fédération Internationale de Football Association or more commonly know as FIFA. Over on my podcast site, the FCPA Compliance and Ethics Report, Mike Brown, the Managing Director of Infortal and myself have just concluded a 7 part World Cup Report, where we discussed issues surrounded FIFA and this year’s World Cup in the context of anti-corruption programs. Whatever else FIFA may be, it is certainly is a compliance practitioner’s dream for lessons learned on bribery and corruption.

The 2014 championship is over and Germany came through this year’s tournament as the clear victors. Over the past couple of weeks, I was lucky enough to see the current Queen/Adam Lambert Tour. They ended both concerts with We Are the Champions and I could not but help think of the German soccer team and indeed the entire German country, winning its first World Cup title since unification. And, of course, any discussion of Germany, its title and this year’s World Cup will have to include is absolute destruction of the Brazilian team and the hearts of the host country with its 7-1 uber-win in the Semi-Finals. How long will that game be remembered? My guess is as long as soccer is played.

While Argentina did have its shots at Germany in the finals, in order to win they were required to play a near perfect game, which, unfortunately for the team and the country, it failed to do in the finals. Does this mean that Messi is not the greatest player in the game today? I really do not know but I still love watching him play and that is good enough for me.

From all of this, the lessons for the compliance practitioner can be many but I wanted to focus on two leadership lessons: What can you learn from failure? and What can your learn from success? Losing first. In an article in this week’s issue of Sports Illustrated, entitled “And Then There was Ein”, Grant Wahl wrote about how Germany turned its national soccer program around from one of its most devastating performances in Euro 2000 where it finished last in its group and did not win a single match in the tournament. From that nadir, “the national federation teamed up with German clubs to overhaul the country’s youth development.” Players from this development program were instrumental in leading the 2014 German team to the 2014 World Cup win. In other words, the German soccer federation learned from its past mistakes and grew a team that became champions.

Contrast this lesson with Wahl’s take on Brazil. He quoted Alex Bellos who said the following, “What does it mean to be the five-time champion if you let in four goals in six minutes?… The world’s biggest footballing country hosting a World Cup, in front of their own fans, and were made to look like they couldn’t play football. And against a team that was playing with artistry and sophistication and happiness, all the thing that Brazil is supposed to play with. You couldn’t have devised a more devastating epitaph for the Beautiful Game.” Bellos went on to say, “Brazil’s week from hell revealed a nation satisfied with resting on past soccer achievements and unwilling to seek new ideas abroad.”

Just as lessons can be learned from failure they can also be learned from success. In this week’s Corner Office section in the New York Times (NYT), Adam Bryant profiled Kat Cole, the President of Cinnabon, in an article entitled “Questioning Success More Than Failure”. While thinking about Germany’s success in the World Cup I was intrigued when Bryant quoted Cole for the following, “I’ve learned to question success a lot more than failure. I’ll ask more questions when sales are up than I do when they’re down. I ask more questions when things seem to be moving smoothly, because I’m thinking: “There’s got to be something I don’t know. There’s always something.” This approach means that people don’t feel beat up for failing, but they should feel very concerned if they don’t understand why they’re successful. I made mistakes over the years that taught me to ask those questions.”

Both of these perspectives can be very useful for the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance practitioner. Just as it is axiom that your compliance program should not be static but dynamic and evolving, what are you learning from your compliance failures and compliance successes? Most lawyers and compliance practitioners can review root cause/analyses to help determine how a compliance failure might have arisen. But how many are looking at your compliance successes. By this I do not mean celebrating your compliance successes but performing the same type of root cause/analyses to determine how a fact pattern arose but was prevented from becoming a full-blown FCPA violation. If something came in through the hotline, did you interview the whistleblower about what caused them to have confidence to report in that manner? Did you look at the training delivered to the whistleblowing employee? How about their supervisor? Did you interview that supervisor to see how he or she got the message out to not only use the hotline but stress the message of no retaliation?

In her interview Cole put it another way when she said, “I learned to make sure I take the full authority of my role. When I haven’t, I knew it immediately. And so I keep a keen eye out for whether my young leaders are forgoing an opportunity to lead. Their intentions might be right but the action and outcome are wrong. I remind people that they were hired for their point of view: “I want 100 percent of your brain 100 percent of the time, and there is a respectful way to communicate and disagree. Please do not hold back, because I want 100 percent of my investment in you.””

For the compliance practitioner, I found Cole’s insights useful in other areas. Although given in the context of ambitious employees who might want to succeed at Cinnabon, I found them to be useful in compliance as well. “First, I talk about being incredibly coachable, because we all give each other feedback. If you want to move up, you’ve got to get as many inputs as possible to continue to develop. Second, take your development into your own hands and be curious about the entire company. If there’s something you want to learn, go learn it. The structure here is like a start-up. Then I talk about productive achievers and destructive achievers, and that I only promote and support productive achievers. And that’s about mentoring and helping others while you are delivering results.

Germany is the new king of the soccer world. Long live the King, at least until the next World Cup. The lessons that Germany took to heart in the wake of its disaster in Euro 2000 directly led to it hoisting the trophy this year. Conversely, Brazil rested on its considerable laurels and now must live with the ignominy of a 7-1 shellacking, probably for the rest of the country’s collective memory. For a compliance program to be effective it must evolve. As Wahl’s Sports Illustrated article makes clear, lessons can be learned and evolution made from failure. However, as Bryant’s Corner Office article interview of Cole makes clear as well, lessons can be learned from successes as well.

Perhaps that is the final lesson from the 2014 World Cup…

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

July 18, 2014

Looking Back on Johnny Winter and GSK’s 2001 China Bribery Scandal

Johnny WinterJohnny Winter died yesterday. He was one of the greatest rock and roll guitarists of all-time. As posted in Rolling Stone’s online article “Johnny Winter, Texas Blues Guitar Icon, Dead at 70” by Kory Grow, Winter “was born in Beaumont, Texas in 1944 and rose to prominence in his early 20s after a Rolling Stone cover story on Texas music in December 1968. “If you can imagine a 130-pound, cross-eyed albino with long fleecy hair playing some of the gutsiest, fluid blues guitar you ever heard, then enter Johnny Winter,” wrote Larry Sepulvado and John Burks in the issue. “At 16, [Mike] Bloomfield called him the best white blues guitarist he ever heard…. No doubt about it, the first name that comes to mind when you ask emigrant Texans about the good musicians that stayed back home is Winter’s.””

I was introduced to him by two long forgotten friends in the spring of 1976 through the album Johnny Winter Captured Live and most particularly the song ‘It’s All Over Now’. I spent most of yesterday afternoon listening through my ear buds to that song blasting at the highest volume possible and went immediately back to those nights in 1976 listening to Winter’s axe hammer guitar and vocals. I also considered how great Winter was as he is Number 63 on Rolling Stone’s list of the Top 100 Guitarist’s of all-time.

Interestingly yesterday, there was an article in the Financial Times (FT) by Demetri Sevastopulo and Andrew Ward, entitled “GSK admits to 2001 Chinese bribery scandal”, which reported that the UK pharmaceutical company GlaxoSmithKline PLC (GSK) had been involved in a prior bribery scandal in China back in 2001. They reported, “The Financial Times has learnt that GSK also found problems with its China vaccine business in 2001 that led to the firing of about 30 employees.” The article went on to say, “Two people familiar with the 2001 scandal said GSK found that staff were bribing Chinese officials and taking kickbacks. The company acknowledged the matter for the first time to the Financial Times, but said it had dealt with the issue rigorously.”

Obviously having a prior bribery scandal in the very same country as another current scandal portends poorly for GSK, as the FT noted. “The US Department of Justice, which is investigating the current allegations, will take a close look at the earlier scandal, said a former senior DoJ official who asked to remain anonymous. If it found a pattern of such behaviour, the justice department was likely to take a tougher stance towards the company, legal experts said.” The FT article quoted Timothy Blakely, a partner at the US law firm of Morrison & Foerster, who said, “US prosecutors would have to examine the 2001 case under justice department guidelines to see whether there was a pattern of behaviour. “It is something that a prosecutor would have to take into account,” said Mr Blakely.”

Unfortunately for GSK the 2001 scandal has some other rather inconvenient facts, which may well impact how the company fares in the current imbroglio in which it finds itself. The first fact is that unlike the current scandal, which unfolded beginning in 2013 when an anonymous whistleblower presented evidence of bribery and corruption in the company’s China operations, in the 2001 scandal the company took swift actions to investigate the allegations. In 2001, GSK hired PricewaterhouseCoopers (PwC) to investigate the allegations “at the time the corruption suspicions emerged.” The 2001 investigation, as noted above, led to the termination of “about 30 (GSK) employees”.

One of the difficulties for GSK is that it appears this robust response in 2001 contrasts dramatically with its response in 2013. It is now known that GSK was notified by the anonymous whistleblower of allegations of bribery and corruption as early as January 2013. Yet the company gave itself a clean bill of health, finding no evidence of any wrongdoing. However, it did not take Chinese authorities long at all to investigate and conclude that there was “evidence of “massive and systemic bribery”” in GSK’s China business operations.

Interestingly, one of the PwC investigators back in 2001 has played prominently in this current bribery problem. It is Peter Humphrey who is currently under indictment for his actions around some of GSK’s current problems. But, as reported by the FT, back in 2001 “One member of the PwC team in 2001 was Peter Humphrey. Now an independent investigator, he is being held in China on charges of illegally buying private information in connection with GSK’s current scandal.”

Humphrey, his naturalized American wife Yu Yingzeng and their companyChinaWhys Co., were hired by the GSK after GSK received a copy of a sex tape made of the company’s head of its China operations, Mark Reilly and his girlfriend having sex. Their assignment was to investigate the matter, the genesis of the tape and try to determine who filmed the couple. Humphrey has claimed that he was kept in the dark about the bribery and corruption allegations made at the same time as the notice about the sex tape was made to GSK officials. But if he was part of the investigation team back in 2001, do you think he might have inquired about any current allegations of bribery or corruption or any ongoing company investigations? What are the implications for GSK if he did make such inquiries but was not given correct information?

Another very interesting issue for GSK is that its current Chief Executive Officer (CEO), Sir Andrew Witty, “was the company’s head of Asia-Pacific, but his responsibilities excluded China. GSK said Sir Andrew “was not involved in and was not aware of” the case at the time. Sir Andrew has tried to cast GSK as a leader in ethical reforms since it was hit with a record $3bn DoJ fine for marketing abuses in 2012. But his clean-up effort, including measures to cut the link between sales volume and pay for marketing personnel, has been overshadowed by the latest scandal in China.”

All of these ‘coincidences’ may lead the US Department of Justice (DOJ) or the UK Serious Fraud Office (SFO) to conclude that GSK has a culture of non-compliance or worse yet – a culture of corruption. The FT article cited to un-named legal experts for the following, “If prosecutors find a pattern of such behavior, they are likely to take a tougher stance towards the company.” Do not forget that GSK had paid a $3bn fine for false marketing and is currently under a Deferred Prosecution Agreement (DPA) for those illegal actions.

While it is not clear how all of this will end up for GSK, I do fear it will end poorly. So if you are in GSK now, I might suggest that you put on your best headphones and crank up the volume on your receiver (or iPhone as I doubt many people have receivers anymore) and listen to my fellow Texan Johnny Winter blast out “It’s All Over Now”. Because you know, it is….

For a blast from the past, check out this version of Johnny Winter playing “It’s All Over Now” on YouTube.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

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