FCPA Compliance and Ethics Blog

March 6, 2015

GHBER and Local Ethics and Compliance Organizations

GHBERLogoDoes your locality have an ethics and compliance group that provides a level playing field for companies and organizations to discuss problems and share best practices? If you do not, it may be something that you wish to consider. Here in Houston, through foresight and perseverance, we have such an organization. It is known locally as GHBER, which stands for the Greater Houston Business and Ethics Roundtable. It is a voluntary professional organization dedicated to promoting ethical business practices and serving as a forum for the exchange of information and strategies regarding implementation, administration and compliance of ethical business conduct programs. GHBER was founded in 1996 at the University of Houston’s C. T. Bauer College of Business, with the leadership of Dr. Bette Ann Stead and was designed to provide a level playing field for companies and organizations around ethics and compliance, to discuss problems and share best practices in the profession.

GHBER is unique as it is the premier ethics and compliance organization in Houston. It facilitates a wide range of compliance practitioners, from health care to energy to tech and beyond. GHBER is made up of lawyers, compliance practitioners, auditors, CPA-types and all other manner of professionals who work in our profession. Some of the different types of activities that the group involves itself in are the following:

  • Roundtable Discussions among members of sponsoring organizations to facilitate discussions by any member of the community who has an interest in maintaining ethical business structures.
  • Service to its members and to the community in the Greater Houston area.
  • Recognition of organizations, of any size, who are making a demonstrable effort to promote ethical business practices.
  • Education of the public and for individuals and officers responsible for administering their organization’s ethics and compliance programs and to promote the study of business ethics in colleges and universities.
  • Chapter Formation for an ethical support network and implementation of programs at the local level.
  • Commitment to uphold and promote ethical business structures and values. Memberships within this organization will be open to organizations and individuals who have made a demonstrable effort to implement business ethics practices, and/or who have a strong desire to implement a business ethics policy.

Of all the goals and achievements of GHBER the one that I find to be the most significant, as the son of a college professor, is its educational goal. In 2005 GHBER initiated a scholarship program to recognize students in area MBA programs who, in the opinion of each student’s school, demonstrate ethical leadership. The scholarship is the GHBER Bette Stead Scholarship in honor of Dr. Stead and the contribution she made in the formation and initial development of GHBER. By the 10th Anniversary, GHBER had provided $10,000 in scholarships. Scholarship winners attend GHBER meetings and this process is helping to develop a new generation of compliance practitioners who will grow up as compliance professionals and not simply lawyers moving over from the corporate legal department or other corporate function.

Right up there with its educational function GHBER puts on quarterly speaker programs for its members. These quarterly programs are open to the public and enable GHBER to promote ethical business practices and serve as a forum for the exchange of information and strategies for developing strong compliance programs.

GHBER has had some very interesting and excellent speakers over the years. Two of my favorites were Scott Lane, founder of the Red Flag Group, and Andrew Weissmann, who recently returned to the Department of Justice (DOJ). Weissmann talked about his days as the head of the Enron Task Force prosecuting miscreants to Houston’s greatest corporate scandal.

This year’s initial speaker demonstrated the breadth of the organization. In February the group hosted Chris Olsen, Vice President (VP) of Football Administration for the Texans, who talked about the compliance issues facing the business of football. In April, we are very pleased to host Kathleen Edmond, of Robins Kaplan LLP and former Chief Ethics Officer at Best Buy, who continues to lead and share best practices. She will discuss building successful collaboration between compliance, risk and Audit. In September, Mark Lowes, VP Litigation for KBR, who will discuss lessons learned regarding the Barko Qui Tam vs. Halliburton case. He will explore such questions as the issue of when are investigations considered privileged? In November the great Stephen Martin will discuss how to conduct an effective compliance risk assessment.

Each year in July GHBER holds a Members Only best practice all day session that provides the compliance practitioner, general counsel (GC), procurement and ethics and compliance professionals’ insight into a timely topic. This year the group will be treated to a discussion of the Layne Christensen Foreign Corrupt Practices Act (FCPA) investigation, which concluded with the company receiving a declination from the DOJ. The presentation will be led by Layne Christensen GC, Steven F. Crooke, and outside attorney Russ Berland, of Stinson Leonard Street, LLP. There will also be a presentation by Christopher Sindik and Robert Leffel, from The Red Flag Group, who will guide you on the best practices required when publishing a Supplier Code of Conduct.     

Yet what is the very best thing about all of the above? It may well be the cost, which is only $100 for an individual membership. Even a corporate membership is still a very reasonable $500. While the SCCE is the leading organization for the compliance practitioner on a national or international basis, there is room in every city for a local ethics and compliance organization. It can be an excellent resource for compliance practitioners in a wide variety of industries. If you are in Houston I would urge you to check out the next GHBER meeting in April. Kathleen Edmond is one of the most respected compliance practitioners around and it would give you the opportunity to meet many of the local top ethics and compliance folks. If you do not have the good fortune to live in Houston or another city that has such an organization, I would urge you to consider founding such an organization.

For more information on GHBER you can visit its website by clicking here. If you want to correspond with the Group’s President (and one of my favorite people) contact Amy Lilly at amy.lilly@CenterpointEnergy.com.

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, 2015

October 3, 2013

Financial Controls in a Best Practices Compliance Program

IMG_3310Financial controls are rarely given top billing in an anti-corruption compliance program under the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. However, it turns out that financial controls are essential to the long term success of not only a compliance program but also to the great health and success of a company. This was the message delivered by Stephen Arbogast, Executive Professor at the University of Houston, Bauer College of Business, Department of Finance, in a presentation to the Greater Houston Business and Ethics Roundtable (GBHER). Arbogast worked at Exxon Chemical and ExxonMobil Chemical Company from 1997-2004. In his academic career he has focused on International Finance, Project Finance and Business Ethics.

Arbogast thesis was that while financial controls are generally viewed as a set of burdensome rules and procedures, which are designed to constrain how a person does business, the reality is that they are essential to the long term success of any organization. He cited general propositions for this thesis. The first is that financial controls promote a culture of honesty, so that employees do not cheat in doing business and do not steal from the company. The second is that having financial controls in places helps to ensure information and data integrity so that reporting up the chain provides accurate information about what is really happening, not what people want the higher-ups to believe. The third reason is that financial controls not only assist in effective risk management but also help to identify risks and develop procedures to manage those risks. Arbogast believes that such practices do not ensure a business will be successful but without them a business will fail, sooner or later. I would add that I cannot think of any FCPA enforcement action where there was not a failure or lack of financial controls in place.

While most compliance practitioners will certainly be familiar with financial controls in the detect prong of a compliance program, I came away from Arbogast’s presentation with a greater understanding of how financial controls help to prevent compliance violations. Arbogast explained that financial controls are a “structure of checks and balances” that can (1) compensate for human ethical weakness and (2) provide necessary support to individuals of integrity who are facing unethical behavior. More specifically, financial controls provide assistance to compliance regimes. In other words, they are designed to not only prevent cheating but promote doing business ethically.

Arbogast said that financial controls work by helping to set the expectations of the ethical behavior which is required of a company’s employees. It does so in a couple of ways. First it narrows the scope for unethical behavior, coupled with raising the risk of discovery and punishment. Having financial controls in place also acts to train employees in proper practice and procedures. And, finally, but certainly not least, is that financial controls help to protect employees who report unethical behavior. This final point is not to be discounted when considering the Dodd-Frank and Sarbanes-Oxley Whistleblower protections and the Dodd-Frank whistleblower bounty.

A large part of the reason that I found Arbogast’s talk so persuasive is that he made clear that financial controls are not about rules and regulations but they are really about a company’s culture. A commitment to financial controls is a commitment to doing business the right way. He said that the most effective controls are those embedded “in the line” which he defined as being used directly by line management and not simply the company’s finance or accounting group. In this manner, such financial controls became the responsibility of management and simply a corporate function such as Internal Audit. Further, if it is only Internal Audit which “owns” or uses financial controls, it becomes an “us against them” mentality.

Arbogast believes that, as with a safety first doctrine, successful management teams have determined that the “mindset underpinning good financial controls is also critical to good operations”. Some of these key management mindsets Arbogast identified were to “do it right the first time and do it right every time”. With everyone working under the same set of financial controls, it is the team or company which is emphasized; that everyone must buy in to be on the same page. Financial controls can also provide the information to allow continuous improvements through continuous feedback. Finally, Arbogast emphasized the importance of management having accurate data to be successful. He characterized this as “You are what the data says you are”. The rewards for using financial controls include accountability, data integrity and improvement of results.

Arbogast concluded by noting that company management often under-estimated the contributions that financial controls make to a long term strategy success. He listed six economic rationales for their incorporation into your company’s system. He divided them into “Preventative” and “Positive” Contributions.

Preventative Contributions included not only a check on employee behavior such as preventing theft from a company but also as a check on what he called the “management agency behavior” where a company’s management runs the business for the themselves and their personal benefit rather than for the stakeholder. Also included in the Preventative column are that financial controls help a company to avoid claims, judgments, lawsuits and monetary damages. I would add that financial controls certainly help to avoid FCPA liability because in addition to the actual fines and penalties assessed in a FCPA violation, the actual costs for such an investigation and resolution are usually estimated to be at a factor of 3 to 6 times the final financial penalty. Under this prong, Arbogast brought up a point not discussed often enough which is that by preventing claims or unethical behaviors which lead to FCPA violations, a company can avoid disrupting normal business and implementation strategy.

In the area of Positive Contributions, Arbogast said that financial controls help to preserve accurate information which allows management to better run a business. Put conversely, if such financial controls are not in place, employees will only report up the chain the information that they want management to know, which will present a false picture of the organization. Having the financial controls in place will establish accountability within the management team of the company. Lastly, financial controls help to create a culture of continuous improvement because they allow for a more meaningful assessment and amelioration of risk.

I found Arbogast’s presentation very useful for the compliance practitioner. He directly addresses how financial controls can help your anti-corruption compliance program to do business more ethically and in compliance with the relevant legislation. Moreover, I found that his overarching thesis that financial controls are really about a culture of doing business ethically and in compliance equally applies to compliance programs in general. This is a strong message that compliance practitioners can take to management; that there is an economic rationale for having a best practices compliance program going forward.

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, 2013

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