Hallmark Nine of Ten Hallmarks of an Effective Compliance Program, as articulated in the 2012 FCPA Guidance, states: "a good compliance program should constantly evolve."
Keeping track of external and internal events which may cause change to business process, policies and procedures. Some examples are new laws applicable to your business organization and internal events which drive changes within a company (i.e., a company reorganization or major acquisition).
Continuous improvement requires that you not only audit but also monitor whether employees are staying with the compliance program. In addition to the language set out in the 2012 FCPA Guidance, two of the seven compliance elements in the U.S. Sentencing Guidelines call for companies to monitor, audit, and respond quickly to allegations of misconduct. These three activities are key components enforcement officials look for when determining whether companies maintain adequate oversight of their compliance programs.
The 2012 FCPA Guidance made clear that each company should assess and manage its risks. It specifically noted that small and medium-size enterprises likely will have different risk profiles and therefore different attendant compliance programs than large multi-national corporations. Moreover, this is something that the DOJ and SEC consider when evaluating a company’s compliance program in any FCPA investigation. This is why a “check the box” approach is not only disfavored by the DOJ, but, at the end of the day, it is also ineffectual. It is because each compliance program should be tailored to the enterprise’s own specific needs, risks, and challenges.
One tool that is extremely useful in the continuous improvement cycle, yet is often misused or misunderstood, is ongoing monitoring. This can come from the confusion about the differences between monitoring and auditing. Monitoring is a commitment to reviewing and detecting compliance variances in real time and then reacting quickly to remediate them. A primary goal of monitoring is to identify and address gaps in your program on a regular and consistent basis across a wide spectrum of data and information.
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In the context of mergers and acquisitions under the FCPA, in a near perfect example of the Howard Sklar maxim that ‘water is wet” the 2012 FCPA Guidance stated “mergers and acquisitions present both risks and opportunities. A company that does not perform adequate FCPA due diligence prior to a merger or acquisition may face both legal and business risks. Perhaps most commonly, inadequate due diligence can allow a course of bribery to continue—with all the attendant harms to a business’s profitability and reputation, as well as potential civil and criminal liability.” While most compliance practitioners have been long aware of the requirement in the post-acquisition context, the 2012 FCPA Guidance focused many compliance practitioners for the need to engage in robust pre-acquisition due diligence.
Under Prong 11. Mergers and Acquisitions; there were a series of queries which tied together how pre-acquisition due diligence and post-acquisition integration. Due Diligence Process –Was the misconduct or the risk of misconduct identified during due diligence? Who conducted the risk review for the acquired/merged entities and how was it done? What has been the M&A due diligence process generally?
The pre-acquisition process was then tied to post-acquisition with the following: Process Connecting Due Diligence to Implementation – What has been the company’s process for tracking and remediating misconduct or misconduct risks identified during the due diligence process? What has been the company’s process for implementing compliance policies and procedures at new entities?
One new and different item was laid out in the Evaluation of Corporate Compliance Program, supplementing the Ten Hallmarks of an Effective Compliance Program from the 2012 FCPA Guidance. This was the performance of a root cause analysis for any compliance violation which may led to a self-disclosure or enforcement action. Under Prong 1-Analysis and Remediation of UnderlyingMisconduct, the Evaluation states:
What is the company’s root cause analysis of the misconduct at issue? What systemic issues were identified? Who in the company was involved in making the analysis?
Were there prior opportunities to detect the misconduct in question, such as audit reports identifying relevant control failures or allegations, complaints, or investigations involving similar issues? What is the company’s analysis of why such opportunities were missed?
The new Department of Justice (DOJ) FCPA Corporate Enforcement Policy brought forward this requirement for a root cause analysis with the following language:
Demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes.
Initially you need to understand the difference between a root cause analysis and a risk assessment. Obviously, you would perform a root cause analysis after an incident occurs so to that extent it is reactive rather than proactive. The site Thwink.org has defined root cause analysis as:
The purpose of root cause analysis is to strike at the root of a problem by finding and resolving its root causes. Root cause analysis is a class of problem solving methods aimed at identifying the root causes of problems or events. ... The practice of root cause analysis is predicated on the belief that problems are best solved by attempting to correct or eliminate root causes, as opposed to merely addressing the immediately obvious symptoms.
Well known fraud investigator Jonathan Marks, in an interview with the author, defines a root cause analysis “is a research based approach to identifying the bottom line reason of a problem or an issue; with the root cause, not the proximate cause the root cause representing the source of the problem.” He contrasted this definition with that of a risk assessment which he said “is something performed on a proactive basis based on various facts. A root cause analysis analyzes a problem that (hopefully) was previously identified through a risk assessment.”
Leadership’s Conduct at the Top
Under the Evaluation of Corporate Compliance Programs, Prong 2, it states:
Senior and Middle Management
Conduct at the Top – How have senior leaders, through their words and actions, encouraged or discouraged the type of misconduct in question? What concrete actions have they taken to demonstrate leadership in the company’s compliance and remediation efforts? How does the company monitor its senior leadership’s behavior? How has senior leadership modelled proper behavior to subordinates?
Moving Compliance Tone Down Through an Organization
The Board and Operationalizing Compliance
What is the role of a company’s Board of Director as laid out in the Evaluation of Corporate Compliance Programs?In an area of inquiry entitled, “Oversight” the DOJ asked three basic questions. Under Prong 2, Senior and Middle Management, the Evaluation posed three questions directed at the Board, Oversight – What compliance expertise has been available on the board of directors? Have the board of directors and/or external auditors held executive or private sessions with the compliance and control functions? What types of information have the board of directors and senior management examined in their exercise of oversight in the area in which the misconduct occurred?
There are some specific areas of inquiry by a Board of Directors around the compliance. I have adapted 20 questions which reflect the oversight role of directors. These are questions which the Board should ask of both senior management and the Board itself. The questions are not intended to be an exact checklist, but rather a way to provide insight and stimulate discussion on the topic of compliance. The questions provide directors with a basis for critically assessing the answers they get and digging deeper as necessary.
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The Code of Conduct
What is the value of having a Code of Conduct?
“First and foremost, the standards of conduct demonstrate the organization’s overarching ethical attitude and its “system-wide” emphasis on compliance and ethics with all applicable laws and regulations.” They go on to state, “The code is meant for all employees and all representatives of the organization, not just those most actively involved in known compliance and ethics issues. This includes management, vendors, suppliers, and independent contractors, which are frequently overlooked groups.” 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.”
The substance of your Code of Conduct should be tailored to your 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. 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.
Policies and Procedures
There are numerous reasons to put some serious work into your compliance policies and procedures. They are certainly a first line of defense when the government comes knocking. The 2012 FCPA Guidance made 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.”
The Evaluation of Corporate Compliance Programs builds up on the requirements articulated in the 2012 FCPA Guidance. Under Prong 4, Policies and Procedures, there are two parts: Design and Accessibility and Operational Integration. This Part A has the following components.
Designing Compliance Policies and Procedures – What has been the company’s process for designing and implementing new policies and procedures? Who has been involved in the design of policies and procedures? Have business units/divisions been consulted prior to rolling them out?
Applicable Policies and Procedures– Has the company had policies and procedures that prohibited the misconduct? How has the company assessed whether these policies and procedures have been effectively implemented? How have the functions that had ownership of these policies and procedures been held accountable for supervisory oversight? The Evaluation then goes on to ask about both accessibility and effectiveness of the compliance policies and procedures by stating,
The specific written policies and procedures required for a best practicescompliance program are well known and long established. The 2012 FCPA Guidance stated, “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 for conduct in your company. Procedures are the documents that implement these standards of conduct.
Internal Controls and Compliance
What specifically are internal controls in a compliance program? Internal controls are not only the foundation of a company but are also the foundation of any effective anti-corruption compliance program.
The DOJ and SEC, in the 2012 FCPA Guidance, stated, “Internal controls over financial reporting are the processes used by companies to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements. Moreover, “the design of a company’s internal controls must take into account the operational realities and risks attendant to the company’s business, such as: the nature of its products or services; how the products or services get to market; the nature of its work force; the degree of regulation; the extent of its government interaction; and the degree to which it has operations in countries with a high risk of corruption.”
This was supplemented in the Evaluation of Corporate Compliance Programs with the following:
Controls –What controls failed or were absent that would have detected or prevented the misconduct? Are they there now?
The whole concept of internal controls is that companies need to focus on where the risks are, whether they be compliance risks or other, and they need to allocate their limited resources to putting controls in place that address those risks, and in the compliance world, of course, your two big risks are the assets or resources of a company. Not just cash but inventory, fixed assets etc., being used to pay a bribe, and then the second big element would be diversion of company assets, such as unauthorized sales discounts or receivables and write offs, which are used to pay a bribe.
There are four significant controls that I would suggest the compliance practitioner implement initially. They are: (1) Delegation of Authority (DOA); (2) Maintenance of the vendor master file; (3) Contracts with third parties; and (4) Movement of cash / currency.
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CCO Authority and Independence
The role of the Chief Compliance Officer (CCO) has steadily grown in stature and prestige over the years. In the 2012 FCPA Guidance, under Hallmark Three of the 10 Hallmarks of an Effective Compliance Program, the focus was articulated by the title of the Hallmark, Oversight, Autonomy, and Resources.
The DOJ’s Evaluation of Corporate Compliance Programs, made the following query about the CCO position: Prong3. Autonomy and Resources
Stature– How has the compliance function compared with other strategic functions in the company in terms of stature, compensation levels, rank/title, reporting line, resources, and access to key decision-makers? What has been the turnover rate for compliance and relevant control function personnel? What role has compliance played in the company’s strategic and operational decisions?
Autonomy– Have the compliance and relevant control functions had direct reporting lines to anyone on the board of directors? How often do they meet with the board of directors? Are members of the senior management present for these meetings? Who reviewed the performance of the compliance function and what was the review process? Who has determined compensation/bonuses/raises/hiring/termination of compliance officers? Do the compliance and relevant control personnel in the field have reporting lines to headquarters? If not, how has the company ensured their independence?
In the Policy, the DOJ laid out additional factors around CCO authority:
This new language would seem to signal the death knell for the dual GC/CCO role.
Compliance Function in an Organization
Autonomy and Resources
Compliance Role – Was compliance involved in training and decisions relevant to the misconduct? Did the compliance or relevant control functions (e.g., Legal, Finance, or Audit) ever raise a concern in the area where the misconduct occurred?
Empowerment – Have there been specific instances where compliance raised concerns or objections in the area in which the wrongdoing occurred? How has the company responded to such compliance concerns? Have there been specific transactions or deals that were stopped, modified, or more closely examined as a result of compliance concerns?
Funding and Resources – How have decisions been made about the allocation of personnel and resources for the compliance and relevant control functions in light of the company’s risk profile? Have there been times when requests for resources by the compliance and relevant control functions have been denied? If so, how have those decisions been made?
The Evaluation added one new set of queries based upon the evolution of corporate compliance programs since 2012.
Funding and Resources
You will now have to justify your corporate compliance spend.
You now have to justify your compliance budget request denials.
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How to Perform a Risk Assessment
One cannot really say enough about risk assessments in the context of an anti-corruption programs. Since at least 1999, in the Metcalf & Eddyenforcement action, the DOJ has said that risk assessment which measure the likelihood and severity of possible FCPA violations the manner in which you should direct your resources to manage these risks. The 2012 FCPA Guidance stated it succinctly when it said, “Assessment of risk is fundamental to developing a strong compliance program, and is another factor DOJ and SEC evaluate when assessing a company’s compliance program.”
This language was supplemented in the 2017 in both the Evaluation and the new FCPA Corporate Enforcement Policy. Under Prong 4 of the Evaluation, Risk Assessments, the following issues were raised: Risk Management Process– What methodology has the company used to identify, analyze, and address the particular risks it faced?Manifested Risks– How has the company’s risk assessment process accounted for manifested risks?In the FCPA Corporate Enforcement Policy it stated, “The effectiveness of the company’s risk assessment and the manner in which the company’s compliance program has been tailored based on that risk assessment”.
What Should You Assess?
How Do You Evaluate a Risk Assessment?
LIKELIHOOD
| Likelihood Rating | Assessment | Evaluation Criteria |
| 1 | Almost Certain | High likely, this event is expected to occur |
| 2 | Likely | Strong possibility that an event will occur and there is sufficient historical incidence to support it |
| 3 | Possible | Event may occur at some point, typically there is a history to support it |
| 4 | Unlikely | Not expected but there’s a slight possibility that it may occur |
| 5 | Rare | Highly unlikely, but may occur in unique circumstances |
‘Likelihood’ factors to consider: The existence of controls, written policies and procedures designed to mitigate risk capable of leadership to recognize and prevent a compliance breakdown; Compliance failures or near misses; Training and awareness programs.
PRIORITY
| Priority Rating | Assessment | Evaluation Criteria |
| 1-2 | Severe | Immediate action is required to address the risk, in addition to inclusion in training and education and audit and monitoring plans |
| 3-4 | High | Should be proactively monitored and mitigated through inclusion in training and education and audit and monitoring plans |
| 5-7 | Significant | |
| 8-14 | Moderate | |
| 15-19 20-25 | Low Trivial | Risks at this level should be monitored but do not necessarily pose any serious threat to the organization at the present time. |
Priority Rating: Product of ‘likelihood’ and significance ratings reflects the significance of particular risk universe. It is not a measure of compliance effectiveness or to compare efforts, controls or programs against peer groups.
At Timken, the most significant risks with the greatest likelihood of occurring are deemed to be the priority risks. These “Severe” risks become the focus of the audit monitoring plan going forward. A variety of tools can be used to continuously monitoring risk going forward. However, you should not forget the human factor. At Timken, one of the methods used by the compliance group to manage such risk is by providing employees with substantive training to guard against the most significant risks coming to pass and to keep the key messages fresh and top of mind. The company also produces a risk control summary that succinctly documents the nature of the risk and the actions taken to mitigate it.
To purchase a copy of The Complete Compliance Handbook on Amazon.com click here.
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360 Degrees of Compliance Communications
A 360-degree view of compliance is an effort to incorporate your compliance identity into a holistic approach so that compliance is in touch with and visible to your employees at all times. It is about creating a distinctive brand philosophy of compliance which is centered on your consumers. In other words, it helps a compliance practitioner to anticipate all the aspects of your employees needs around compliance your employees, who are the customers of your compliance program. This is especially true when compliance is either perceived as something that comes out of the home office or is perceived as the Land of No, largely inhabited by Dr. No. A 360-degree view of compliance gives you the opportunity to build a new brand image for your compliance program.
The Use of Social Media in Compliance
What is the message of compliance inside of a corporation and how it is distributed? In a compliance program, the largest portion of your consumers/customers are your employees. Social media presents some excellent mechanisms to communicate the message of compliance going forward. Many of the applications that we use in our personal communication are free or available at very low cost. Why not take advantage of them and use those same communication tools in your internal compliance marketing efforts going forward?
What is Effective Compliance Training?
Also raised in the Evaluation was the focus of your training programs, where the DOJ inquired into whether your training was “tailored” for the audience. The Evaluation, In Prong 6, Training and Communication, asked, in part: Risk-Based Training – What training have employees in relevant control functions received? Has the company provided tailored training for high-risk and control employees that addressed the risks in the area where the misconduct occurred? What analysis has the company undertaken to determine who should be trained and on what subjects?
The key going forward is that you have thoughtfully created your compliance training program. Not only in the design but who receives it, all coupled with backend determination of effectiveness. Finally, all of this must be documented. In Prong 6, Training and Communication, of the Evaluation it read, in part:
Form/Content/Effectiveness of Training– Has the training been offered in the form and language appropriate for the intended audience? How has the company measured the effectiveness of the training?
To purchase a copy of The Complete Compliance Handbook on Amazon.com click here.
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Over the next five podcasts, I will visit with Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. on working with monitors. Over this series we will consider, in Part I-Fears and Concerns in Working with Monitors; in Part II-the Impact Monitors Can Have for an Organization; in Part III-How Monitors Do Their Jobs; in Part IV-Regulators Using Monitors; and in Part V-Attorneys Using Monitors. At the end of this series you will have a much broader appreciation on the benefits of an independent monitor, how monitors work and how the different types of monitorships can benefit a wide variety of businesses, transactions and business relationships.
There can be a wide variety of concerns for those considering or being required to work with a monitor, both from the corporate perspective and individual employees. From the corporate perspective, the concerns can include the costs of a monitorship and that impact on the bottom line; opening up books the books to an outsider and interference with business operations. These are acerbated by a fear the monitor does not understand the business of the organization or even how business in done in the real world. Things that tend to bring more fear are that the monitor will engage in slow but sure mission creep and exceed the boundary of the charge. Many see monitors as an extension of the government and believe that monitors are junior G-men and investigators, tasked by the by the government to investigations ongoing. Employees tend to be more afraid the monitor will come in dictatorial powers and exercise them. Employees are usually more concerned with the company’s reputation and business credibility with employees and subcontractors.
Stern believes some of the fears and concerns are understandable, particularly if a company, does not have experience with the positives of the use of an independent monitor and a monitor’s assisting a company in improving the compliance program. While some of it may have to do with the unknown, one area is simply the extra costs associated with a monitor. If the monitor is a part of a government settlement or resolution, there can be the fear, sometimes driven by war stories, that monitors will have mission creep and continue the investigation, even after a resolution. A company may fear that a monitor will come in and look under every nook and cranny. This feeds into both concerns of cost and mission creep.
Another concern is that many monitors are former prosecutors and still retain a prosecutorial mindset. This can lead many companies and their employees to fear a ‘got-cha’ mentality of a monitor who is looking for items to run back to the government or regulators with through their monitorship investigations.
Stern believes that all of these concerns can be handled if not fully alleviated, through thorough discussions with monitor candidates. . Stern noted that one of the areas a company needs to be asking during the monitor selection process is what is “the approach that the monitor is going to take? What's the approach in a meeting or an interview with a mid-level employee in a branch office. Is that person going to feel as if they're under attack or are they brought in a to explain all the good things and all the bad things that are going on so that the monitor can basically make some helpful recommendations.”
In addition to the monitor interview process, companies should understand that the terms of any monitorship are set in the resolution agreement. This is why it is important not only to address these issues during settlement discussions but also take care in the drafting of such agreements to try and remove as many ambiguities as possible. At times, the parties may not want to address what they believe are sensitive issues head on as part of the negotiation process, other times there is not a full understanding of how monitors works. Stern has been brought in as the parties have negotiating to simply educate people as to what monitors do and how they operate and, to demonstrate how the monitorship can be more successful for both sides, for the government side and the company. In drafting the resolution agreement, the key is to lay out the scope, properly and tightly designed. When there are ambiguities which come up in the process of the monitors work, the monitors should work with both sides, as a facilitator to have both parties basically come together and to resolve those issues.
The key is for companies to have a thorough understanding of the monitorship process, whether it is a post-resolution monitorship where the monitor is focused on the company’s compliance with its agreement in the resolution document, Deferred Prosecution Agreement, Non-Prosecution Agreement or other; or a pro-active monitorship. This understanding comes from discussions, reviewing and negotiating the scope of the agreement and hiring experienced monitors who understand their role and more importantly what is not their role going forward.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
I continue my five-podcast exploration of working with monitors. I am joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. Today we take up the impact using a monitor can have on an organization.
Interestingly many of the benefits of a company in working with a monitor come from answering the employees fears and concerns. Many employees are intimidated by attorneys and some even fell guilty about themselves and their work even though they have done nothing wrong. Often employees do not feel like them can trust the company, particularly if the company does not employ the Fair Process Doctrine or institutional justice as a core value of the organization. Other employees feel validated and when they can open up to outsiders it can be a cathartic experience for employees. For the larger organization, the monitor can tell the company what it does not know and provide a much needed “Big Picture” impact; delivering insight on how the company can be run more efficiently and profitably. The bottom line is that the benefits in using an independent monitor can be as behavioral and psychological as compliance and legal.
Stern described the impact of working with a monitor is present at several different levels. The first is a very personal, at the employee level. He said, “I've seen this time and time again when we will sit with either an individual employee at different levels, it could be at a lower level, it could be at the CEO level. The employee will feel validated and in some ways innocent. It sounds odd to say that because you would think that if the company was working properly that each employee would have an opportunity to sort of say their piece, describe observations and things that they were experienced. Unfortunately, that is not the way the real world works when people have concerns and fears of retaliation and the like.”
Stern has found after doing an interview or a focus group, they will sometimes say, “ I have been wanting to say these things to somebody and I hope that, this is not attributed this to me. I'm not looking for you to go back ono anybody and say that I said this, but I hope that you will take what I have said and what others have said and make some suggestions to the company.” The bottom line is that a key impact from working with a monitor is that the monitor listens and “I do think that employees feel better kind of explaining their perspective on what's happening internally in the company.”
Another important reason all of this works is if an organization uses a truly independent monitor. This means one which is not the lawyer for the firm or with the company’s regular outside counsel. This is something most employees more fully appreciate talking to “outsiders who were being were coming in, who they do not interact with on a day to day basis.” Even if the monitorship is required under an enforcement action and in the in the context of a government settlement, Stern has found that if the monitor makes it clear they are independent from the government, employees are more likely to not only open up but also appreciate the experience.
These concepts tie directly into the Fair Process Doctrine, which most generally holds that if the process is fair, people are more likely to accept undesired outcomes. An independent monitor, who does not perform ongoing work with the company, will certainly be perceived as more fair. As Stern noted, “it’s just human nature.”
This independent nature also gives the monitor the ability to impact the company by helping it turn the page on any conduct which may have gotten it into trouble in the first place. This is particularly true where a company has gone through an enforcement action and resolved the matter with the government and is now ready to move on in a positive way. Stern said that employees typically want to feel good about the organization they work for, they want to be proud of who they work for. Stern said, “time and time again, people aspire to work for a company that they feel good about. They want to tell their spouse that wants to tell their children. They want to feel good. When the neighbors asked them, who do they work for and when companies get into trouble, um, they liked the fact that the pages being turned in that once again, that can be very proud of where they work.”
This independence from the government also works to positively impact the work of a monitor. Stern noted that although an independent monitor has “an obligation to report to the government faithfully as to what we are seeing; the good, bad and the ugly; an independent monitor is not beholding to the government.” Stern’s experience has been “at the end of the day respect us and they recognize that it's in their interest for us to be independent. If we're in the company's pocket and we do whatever the company wants it at the end of the day, the government will see right through that and it's not going to be a good outcome.”
The bottom line is that the positive impacts of working with a monitor can happen on many levels. Obviously for a company which has recently concluded an enforcement action, a monitor can yield many benefits to improve a compliance program. Yet some of the greatest benefits may be more behavioral and psychological to the company’s employees. Not only can talking to a truly independent outsider be cathartic for employees but the entire process can help to reinstill a sense of pride in who they are, who they work for and what the organization means.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
I continue my five-podcast exploration of working with monitors. I am joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. Today we consider how monitors work.
Stern explained that there are variety of tasks and roles a monitor uses when engaging in an independent monitorship. A monitor should understand type of approaches they will take to make an organization more compliant, starting with understanding the work plan. Many times, the monitor must push the organization along by getting buy-in and building consensus. Finally, there should be an awareness of helping the company being compliant in the future.
The starting point is understanding what is the mission of the monitorship. As Stern put it, “we really begin at the beginning.” We meet sometimes meet separately with the government agency to get an appreciation understanding as to why they think things have reached that point, what they see as the problems in the company, what they see as the problems in the industry. And then of course we do the same thing with the company.” Such meetings could also include “outside counsel who have been sort of living with the whatever the precipitating cause a problem which led to the settlement with the government or the investigation. They've lived with it for years. And in many cases, by the way, the company has already remediated significant portions of the problem.”
A monitor should have a particular focus on a particular goal, a particular set of tasks. Yet from there, Stern explained it is “very much a people exercise. The thing that is often obvious relatively early on, a one way or the other is whether the company has a paper program or real program.” Stern indicated that a monitor should spend time at both the higher levels of the company and at the middle and lower levels of the company. Some of the specific techniques can be one on one interviews, site visits to specific offices and with “focus groups where we get people at the same level so we don't get middle managers and upper managers together in one room.”
Stern emphasized it is critical that both company management and the regulators not be surprised by a finding. This means the monitor (and team) should literally “pour through the company” to come up an honest final assessment or report for the organization. It is important to give the company credit where it has remediated or shown improvement and this means emphasizing to the government the wins a company’s compliance program may have sustained.
Interestingly, Stern emphasized that in monitorships as with compliance programs in general, one size does not fit all. A monitor should test whether there is sufficient training on the Code of Conduct, compliance policies and procedures and other issues such as Conflicts of Interest policy. There should also be inquiries into hotline overview and use. Yet there can also be recommendations which arise from the employee interviews, which the monitor may raise to senior management for implementation.
Here Stern presented a simple yet powerful example. It was around having a compliance moment once per week at company meetings. The organization was an engineering company and they took safety very seriously, opening each company meeting with a safety moment. This led to the suggestion of opening meetings with a compliance moment, which employees used not simply to state ethics and compliance issues but to describe situations they faced daily.
A situation arose where an employee was offered tickets to a baseball game by a vendor. The company policy on conflicts of interest prevented the employee from accepting the tickets and he felt conflicted because he wanted to go to the game. More importantly he did not know what to tell the vendor to make them understand he could not accept the tickets. Through discussing this issue after a compliance moment in a company meeting, there was a dialogue allowed the company employees to feel that they have an opportunity to be part of the process. It demonstrated that ethics and compliance is not something imposed on them, but something that is part and parcel of their job and part and parcel of their responsibility.
A monitor must literally work with groups as diverse as the Board of Directors to employees on the shop floor. It is incumbent to use a variety of tactics and techniques to fulfill the mission of a monitor. An independent and experienced monitor is required to use a variety of tools to help an organization move forward with a compliance regime. Stern noted, “a monitor should also have the experience to come in and not only look at how your company is doing, but also benchmark against what is happening not only in your industry but in other industries. And at the end of the day it's a little bit like the making of sausage. At the end of the day we're going to have some recommendations and the expectation is that your company is going to be top of the heap, that you will have a state of the art compliance and ethics program and you will have contributed to making it better.”
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
I continue my five-podcast exploration of working with monitors. I am joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. Today we consider the various manners in which regulators at all levels, from the federal, to state and local levels, use monitors. We also consider how monitors can be used outside the regulatory context in areas as diverse as mergers and acquisitions, business ventures, IP and licensing.
Most compliance practitioners are aware of the role monitors play in the Foreign Corrupt Practices Act (FCPA) enforcement arena. However, the use of independent monitors is much broader than simply in criminal or civil enforcement actions involving a Deferred Prosecution Agreement, Non-Prosecution Agreement, Corporate Integrity Agreement or other form of resolution. Federal agencies use monitors for a wide variety of roles to ensure compliance with agreements.
At its most basic level, an independent monitor is a way for the government to extend its reach. Both in terms of lengthening out the time that you have true government oversight and in terms through many of the techniques we discussed earlier: focus group meetings, review documents, talking senior and middle management. It is a very cost-effective way for federal, state and even local governments to extend out their reach. This cost-effectiveness is driven home by that fact that the cost is not borne by the governmental entity or the regulators. The cost is borne by the entity involved.
Stern pointed to the use of an independent monitor by the Federal Communications Commission (FCC) to ensure that the conditions around anti-competitive and other issues, the FCC approved for the merger between AT&T and Direct TV, were fulfilled. He went on to provide an example where “one of the conditions was they had to offer a discounted broadband service to certain low-income households. The FCC wanted access to broadband for low income families, particularly for school kids. The monitor assessed the marketing program on this issue, looking at their efforts to provide discounted broadband, low income households.”
Stern provided another example of regulator use of an independent monitors, this time by a state regulator, the Attorney General of Rhode Island in the area of hospital conversions. This is the situation where a non-profit hospital is purchased by a for profit chain. In such situations, the state attorney general in most states will have to approve that transfer of assets from charitable assets to for-profit assets, applying certain conditions. It could be in the area of recruiting physicians or requiring the acquiring institutions to keep the mental health services open. You don't have to spend x millions of dollars on new equipment. It is generally around very specific metrics and it is “increasingly being used by government agencies as a way of not only having confidence that the regulatory decisions are being followed but provides some comfort and confidence to the public knowing that who is looking over the shoulder of the organizations in the public’s interest.”
Yet an independent monitor can be used in non-regulatory areas. One that certainly comes up is pre-acquisition due diligence in the FCPA realm. An independent monitor can be used to assess whether a target or takeover candidate has a robust compliance program. These same concepts also work in the licensing area in pre-acquisition work and even for company which want to test the audit compliance of customers.
The bottom line is independent monitors can come in and look at the system of controls in a wide variety of regulatory and legal areas. This is true because there is no substitute for having somebody independent of the company with some expertise and common sense and practical reality coming in and asking, how are you doing? Stern concluded, “You don't have to do this all the time. It isn't something you need to do even every year, but every once in a while, have somebody come in and take a hard look at how you're doing and then reporting back internally to the company. It is money well spent because you have established that the organization being reviewed has a good program and if you need to fine tune your program in certain ways. Here again, I think that's all to the good.”
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
I conclude this five-podcast exploration of working with monitors, where I have been joined by Don Stern, Managing Director, Corporate Monitors and Consulting Services at Affiliated Monitors, Inc. (the sponsor of this five-part series) on working with monitors. In this final episode we consider lawyers using monitors, most typically where the clients are under investigation for some regulatory issue, such as a Foreign Corrupt Practices Act (FCPA) enforcement action.
Stern said the biggest mistake lawyers make is to wait too long before bringing in an independent monitor. His experience is that if you wait until after the conclusion of a matter, you have lost valuable time and potentially cost yourself money, in the form or higher fines and penalties, by waiting. The government expects compliance shortcomings to be remediating during the pendency of an investigation. A monitorship can even begin before self-reporting to the government. This is because a company should want to find the problem before it voluntarily reports the problem to the government. In this manner, the company could receive get the credit for having done so. It also allows the company to package the entire process “in a way to say not only we discovered the problem, not only are we reporting the problem, but we fixed the problem. We did with an independent third party and we may even want to keep that third party with us to independently assess how we do going forward. That's very persuasive to prosecutors and I've certainly seen situations where in some cases it's resulted in a declination or in a significantly diminished” fine and penalty.
This is using an independent monitor in a pro-active manner which demonstrates how serious the company is about compliance. It can also be a way to demonstrate any illegal conduct may simply have been an outlier and does not reflect the values, culture and the way the company generally does business. This can provide quite a positive story to present to prosecutors, particularly under the new FCPA Corporate Enforcement Policy.
If your company is active in the remediation phase, particularly through an independent monitorship, it is looking at the problem in a holistic approach. It is more than assessing that problem, coming up with some solutions and then implementing the solutions. More importantly an organization is taking that information and looping it back in, in a literally a feedback loop so the companies can improve their compliance program. This is an approach which can be persuasive to regulators.
Stern noted this approach is even more critical for what he called ‘repeat customers’ or recidivist actors. He said government regulators are becoming much more sophisticated in understanding whether a compliance program is simply a paper program. The government wants to know if this a real program. One clear indicia is the feedback loop from an assessment by an independent monitor looping the information back to the company, making changes, testing to see whether the changes are real changes are working changes.
One final area that using an independent monitor is in the area of credibility. One thing I have consistently heard from white-collar practitioners perhaps the most important thing in any FCPA investigation or enforcement action is credibility with the prosecutors. By having a truly independent monitor who is even independent of the outside counsel, who may be heading up an investigation and assessing the compliance program; is one more way to bring that credibility to a, in front of the prosecutors. Stern noted that as the former US Attorney for Massachusetts, your reputation in representing clients before the government is absolutely critical. Having that independence as a monitor can aid a company by giving credibility to their compliance program efforts and this can pay off with real benefits in terms of lesser penalties all the way to a declination.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
In this episode, Matt Kelly and I go into the weeds to consider the recent racial incident at Starbucks store in Philadelphia where two African-American males were arrested for criminal trespass while waiting for a third colleague to join them for a business meeting. They had not purchased any products but were not engaging any type of disruptive behavior. They were released with no charges filed.
We consider several points around this incident from the compliance perspective, including the lessons for compliance officers are really about the challenges of policy and procedure at large organizations. The gap between those two requirements is filled by employee judgment — and that is where things went awry. We consider if a single solution, such as all seats and bathrooms are reserved for patrons who have already purchased a product, create more problems than they solve. We also review the underlying premise of ‘what is Starbucks’ to see if a more robust risk assessment process might have helped identify these gaps.
This week’s discussion is literally torn from recent headlines. It provides an excellent example of the many compliance challenges every business and CCO face.
For more reading, see Matt’s blog post Starbucks and Policy Management Perilsand Tom’s blog post Starbucks and Lessons for the Compliance Practitioner in Risk Management
In this episode of the FCPA Compliance Report, I visit with Laura Perkins, a partner at Hughes Hubbard & Reed. Perkins formerly worked with the Department of Justice, FCPA Unit, departing in September 2017. We discuss the decision to self-disclose a potential FCPA violation to the Justice Department. Some of the highlights include:
We next turned to the resolution phase and discussed several topics including:
For more information on Laura Perkins and Hughes Hubbard & Reed, check out the firm’s website, here.
In this episode of the FCPA Compliance Report, I visit with Laura Perkins, a partner at Hughes Hubbard & Reed. Perkins formerly worked with the Department of Justice, FCPA Unit, departing in September 2017. We discuss the decision to self-disclose a potential FCPA violation to the Justice Department. Some of the highlights include:
We next turned to the resolution phase and discussed several topics including:
For more information on Laura Perkins and Hughes Hubbard & Reed, check out the firm’s website, here.
In this episode of the FCPA Compliance Report, I visit Hogan Lovells partner Stephanie Yonekura on the always difficult decision on whether a company should self-disclose a potential FCPA violation or even allegations of a potential FCPA violation to the Justice Department. We consider such questions as:
Yonekura is the Former Acting US Attorney for the Central District of California so she brings a wealth of knowledge to the topic. We consider all of these questions and more in light of the new FCPA Corporate Enforcement Policy and whether it has changed the calculus for self-disclosure or not. We also visit on whether the recent lack of monitors required under DOJ/SEC FCPA enforcement actions is an omen of things to come or not.
She ends with one of the great pieces of advice you can receive, “You don’t want to poke the bear, whether there is no bear to be poked.”
This week, in a five-part podcast series, I have been exploring the role of corporate monitorships in compliance and some of the key issues which companies and compliance professionals may face in dealing with monitors. I have been joined in this exploration by Vincent DiCianni, founder and President of AMI and Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. (AMI), who is the sponsor for this series. Today, for our final episode in this series, we consider the always controversial topic of monitorship costs and expenses.
DiCianni noted that in any post-resolution monitorship, the monitor is coming in at the end of a long process. If it was a Foreign Corrupt Practices Act (FCPA) enforcement action, it could have been a years-long process with a lengthy investigation, coupled with an extensive remediation and then long negotiation with the government over the final penalty. Yet there is an approach that a company can use to help the final leg of this process more palpable.
DiCianni breaks the process down into three key areas. The first is the scope of the monitorship. You must understand the settlement documents so that you can fully appreciate the scope of the monitor’s remit and what the government expects from the monitor. DiCianni noted that some resolutions can have a narrow focus, with a finite number of records or other documents to review. With such information, you can work to scope out a range of what your costs might be. Conversely the settlement documents can literally be wide-open, which obviously will have a dramatic impact on potential costs and even estimating.
DiCianni related the next factor to consider is frequency. By this he meant how often is the monitor actually engaging in monitorship activities for the company. Is it daily? Is it weekly? Is it quarterly? The frequency of monitoring will have a significant role on your overall monitorship costs. The final factor to consider is duration. Tied to this question of frequency is the length of the monitorship. How long will the monitorship last, one-year, two-years, three-years or even five years; is a critical element.
The final factor is the experience of the monitor. As we explored in Episode 4 of this series, you really need to have a very direct conversation with monitor candidates to determine if they have the experience to work with other individuals or teams of individuals. Does the monitor understand their role, as prescribed by the four corners of the settlement document(s). Are they going to reinvent the wheel for each new part of the monitorship? DiCianni said, “as they are going along which is going to add to the cost of the monetization so that's a factor that I think companies should consider”. This brings up another important factor on costs is the not only the scope of the monitorship but also the efficiency of the monitor.
DiCianni noted a key document for cost control can be the monitor’s workplan, which lays out the monitor’s anticipated services. This gives the monitor, the company and the government a set of expectations for the tasks to be accomplished. Even though it may turn out to be a preliminary document, it does help to provide a level of certainty. Equally important is for the monitor to understand they do not have to look at everything during the monitorship. You can randomly sample and drill down to test if you need to do so. A monitor does not have to interview all persons in a high-risk location but can select certain employees for a focus group and then perform a round of interviews if required. The workplan and its execution can be a powerful tool to help not only estimate the total cost but also keep them down.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
What is the role of a corporate monitorship? Is a corporate monitorship to be feared if your company is in the middle of a Foreign Corrupt Practices Act (FCPA)? Can a monitor be used in a manner other than post-settlement, such as in a pro-active manner to help forestall a government enforcement action, fine or penalty? If your company is in the market for a monitor what are some of the indicia you should consider? Finally there are lots of rumors about the alleged exorbitant costs of monitorship? Is this an urban myth or is it based on facts? If the former, what can a company do to protect itself. I will explore these and many other questions in a new podcast series I am putting on sponsored by Affiliated Monitors, Inc. (AMI).
In this five-part podcast series, I am exploring the role of corporate monitorships in compliance and some of the key issues which companies and compliance professionals may face in dealing with monitors. I am joined in this exploration by Vincent DiCianni, founder and President of AMI and Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for AMI. Today, we consider what is a corporate monitorship?
DiCianni explained that most generally, a corporate monitorship is “an individual or team of individuals that are independent of an entity that is subject to the monitoring group bring a level of expertise perhaps in that subject matter that has to be overseen.” The person or group would have the ability bring a level of expertise, training and learning to any task where a true independent is needed to assess the validity of the required criteria, as that criteria is defined in the four corners of the relevant document. In the FCPA world that could be a Deferred Prosecution Agreement (DPA), Non-Prosecution Agreement (NPA) or other document.
Monitors generally report to an oversight agency or regulator but work with a company or individual. The cost of the monitorship is borne by the company being overseen. It is a unique model that has been created where an unrelated, independent private person or entity who is still being overseen by a government agency or regulator monitoring a company but with specific terms for that third party. It is spelled out in the settlement documents which for the basis of the monitorship.
Another key for a successful corporate monitorship is in the area of subject matter expertise. Obviously first-rate knowledge of compliance and ethics is critical but as monitoring is used across multiple industries and businesses, a wider variety of technical experience is required. Monitors have been used in health care, financial services, police department just to name a few. A wide variety of subject matter experts may be needed to be a part of the monitorship team to successfully complete the assignment.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
This week, in a five-part podcast series, I am exploring the role of corporate monitorships in compliance and some of the key issues which companies and compliance professionals may face in dealing with monitors. I am joined in this exploration by Vincent DiCianni, founder and President of AMI and Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. (AMI), who is the sponsor for this series. Today, we consider what is a post-resolution monitorship.
Feldman explained that most generally, a “post resolution monitor ship is essentially a situation where a government agency and a private organization, it could be a corporation it could be a nonprofit organization, as a requirement of settling some kind of a dispute or a matter between those two entities the company; the regulator agrees they are going to use a monitor to ensure that any specific conditions of the agreement to settle the matter are met.” He went on to note it is usually an independent third-party who is brought in for this purpose.
Post-resolution monitorships are well-known to the compliance community through the Foreign Corrupt Practices Act (FCPA) enforcement. Yet Feldman stressed they are use in a much wider area of practice than simply FCPA. He said, “Other kinds of enforcement scenarios would involve state Attorneys Generals that perhaps are investigating and settling cases with companies involving consumer protection or even civil rights cases. State regulatory boards medical boards and other types of licensing institutions and various states they could sign agreements that require a monitor to monitor the conditions of those agreements.” Of course, there are situations where there is court ordered enforcement as a result of a court ordered settlement and “a monitor is required to report to the court and both parties’ compliance with that particular agreement.”
Yet monitorships have been employed in anti-trust scenarios to ensure compliance not with Consent Decrees but with Federal Trade Commission or Federal Communications Commission-approved merger conditions. Here Feldman pointed to the example of the merger conditions between DirecTV and AT&T. In that case, the monitor was charged with reviewing and assessing compliance with certain merger conditions. Feldman noted there was no enforcement action and no wrongdoing but a recognition by all parties involved for the need of a truly independent third party to assess compliance with the acquisition conditions.
One thing about the post-resolution monitorship is that if viewed as a tool for compliance, a wider variety of uses can be envisioned. In the FCPA world, we have seen shareholder actions brought against Boards of Directors and companies for failing in their duties to put compliance programs in place. Occasionally, these actions are resolved before the conclusion of a FCPA investigation or enforcement action. If you had a post-settlement monitorship for the shareholder action, both the findings of the monitor and the monitor’s report could potentially help the recalcitrant company under the new FCPA Corporate Enforcement Policy. In such a scenario a post-resolution monitorship could have the impact of a pre-settlement monitorship.
Feldman concluded by noting, there are a number of applications and uses of an independent, credible third-party to facilitate the resolution of disputes. There are different ways having a third party come in and help to resolve issues; the number of ways is almost infinite or at the very least, limited to your imagination. Often a monitor could come in collect information on what one or both of the parties are doing to help facilitate a settlement. Feldman discussed matters such as consumer protection issues. He noted that AMI has done monitorships where state agencies have done investigations of consumer protection and AMI would come in as a “secret shopper” to determine whether an organization is in fact doing what it is supposed to be doing.
The bottom line is that there is certainly no finite number of categories for the post-resolution monitorship. They can be utilized in a wide variety of ways to help facilitate not only resolution of enforcement actions but to satisfy compliance with a wider variety of cares, concerns and issues.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
This week, in a five-part podcast series, I am exploring the role of corporate monitorships in compliance and some of the key issues which companies and compliance professionals may face in dealing with monitors. I am joined in this exploration by Vincent DiCianni, founder and President of AMI and Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. (AMI), who is the sponsor for this series. Today, we consider what is a pre-settlement monitorship and how it can be such a powerful tool for the compliance professional.
Feldman explained that most generally, a “pre-settlement monitorship is an organization using an independent body to conduct any kind of a third-party review or assessment.” It can also be considered as a proactive monitorship. It involves a company desiring to assess its implementation of a compliance and ethics program on a proactive basis. Such a monitorship does more than simply focus on whether there is a compliance program in place but more fully assesses its effectiveness. This assessment can be used by a wide variety of parties, such as the corporation itself, with its stakeholders, with regulators or even with the public to demonstrate compliance with a wide variety of issues.
Feldman explained that a key piece of the pre-settlement monitorship is to assess the company’s culture of compliance. Using such a proactive monitorship can help an organization to assess not only where they might be at this point in time but also work to create a road map to improve and strengthen their culture of compliance and ethics. Finally, as Feldman noted, “Another reason for doing a pre-settlement monitorship might be when a company wants to explicitly demonstrate its due diligence to law enforcement or regulators should something occur in the future that would result in action against the company.”
He noted German enforcement authorities are now assessing if companies engage in sufficient investigations of not only whom they are doing business; which is traditional third-party due diligence, but these same authorities are inquiring if a company is putting the same effort into assessing itself. The pre-settlement monitorship is an excellent mechanism to do so. He stated, “in Germany there have there has been a move on the part of the governments to take into account all due diligence activities that a company has taken in the past which would include a pre-settlement kind of monitorship when there is any fine or penalty or action on any issue against the company in the United States.”
Another way to consider it might be as a “preemptive strike against more punitive action on the part of government agencies”. Feldman related that his company, Affiliated Monitors has had instances where companies subject to an action with one level of government, such as a US Attorney’s Office in one area of the country, will use the pre-settlement monitorship to avoid being suspended or barred by the federal government and from federal government contracts. The pre-settlement monitorship performed a complete review, then made recommendations for remediations. This led to positive resolution with the government in the form of no suspension or debarment.
When viewed in the light of the three prongs of any best practices compliance program, prevent, detect and remediate, the power of a pre-settlement monitorship comes more clearly into focus. A monitorship was traditionally viewed as an after-the-fact piece of an enforcement action. However through the pre-settlement monitorship, the tool becomes not only proactive but prescriptive as you are using as an ongoing monitoring solution. It is even more powerful because of the independent nature of the monitor, in bringing an unbiased eye to a compliance program.
Another use of the pre-settlement monitorship is in the mergers and acquisition arena. Feldman noted, “We have had situations where companies will, as part of the merger and acquisition pre-acquisition due diligence process, will hire an independent third-party monitor to review the target company to ensure that they in fact have the right kind of ethics and compliance posture and corporate ethical culture to be able to fully integrate into their organization if closing occurs.” Once again, this scenario speaks to the breadth and scope of the pre-settlement monitorship as a tool.
Feldman concluded that it is critical that the monitor bring real value through the monitorship. He said the monitorship should provide insight through using a variety of investigative techniques, including interviews, document reviews and forensic auditing. All of this can provide solid information to not only a Chief Compliance Officer (CCO) but also the leadership of an organization.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
This week, in a five-part podcast series, I am exploring the role of corporate monitorships in compliance and some of the key issues which companies and compliance professionals may face in dealing with monitors. I am joined in this exploration by Vincent DiCianni, founder and President of AMI and Eric Feldman, Senior Vice President and Managing Director of Corporate Ethics and Compliance Programs for Affiliated Monitors, Inc. (AMI), who is the sponsor for this series. Today, we consider what issues a company should consider when hiring or retaining a corporate monitor.
It is important to note right of the bat, that the selection of an appropriate monitor can either make or break the entire monitorship program for an organization. Feldman advises that the forestall such a problem a company needs to have a clear understanding of what it is trying to get out a monitorship. If you are at the end of a Foreign Corrupt Practices Act (FCPA) enforcement action, your goals may be different than attempting to engage in a pre-settlement monitorship. You also need to understand what might be required by the government in any post-resolution settlement.
After this initial self-assessment of the company’s goals, you can move to considering the monitor. Here you need to assess the what Feldman called the philosophy of potential candidates. Is the monitor coming in to simply investigate the company or help to prevent or resolve issues? This means staying away from the prosecutorial ‘gotch-ya’ mindset and move towards a monitor who is focused on remediation “to help you be a better company”.
The next line of inquiry is can the company obtain the maximum value it can get from the expertise, the independence and the viewpoints the monitor can provide. In other words, what is the value the monitor will deliver to your organization? Feldman suggests asking a question such as: “Can the Monitor help my business?”
Third is the expertise of the monitor. But this is more than being a subject matter expert in the area of law being applied such as the FCPA; it is being an expert in monitorships. It is also more than simple cost-effectiveness. It is also how the monitor will work without disrupting your organization or working to keep such disruptions to a minimum. Such expertise would include how to conduct an evaluation, how to create a work plan which is rigorous yet cost-effective, and to “socialize the work plan with the company and with the government.” This means the monitors should have experience in balancing the interests of the government and the company. Other skills necessary include interview skills, ability to conduct focus groups, together with data gathering and analytics are also critical. Finally is the writing of the report and communication of information, for as Feldman stated, “There's no value added if there's not a clearly written factually based monitoring report, at the end of the process, that makes recommendations that logically flow from the information gathered and are culturally appropriate for that particular company. There is no one size fits all for the reporting or for the recommendations.”
Feldman spoke about the different types of value a monitor can bring. Obviously, the situation where there is a Deferred Prosecution Agreement (DPA) or other enforcement action resolution document in place would suggest one type of value. Yet there are other more business-process focused values a monitor can add. In the area of internal controls, a monitor’s assessment can lead to more effective internal controls, often through a reduced number of overall internal controls.
Feldman spoke to another ‘soft’ factor when he noted, “There's also another interesting factor involving value in a company. That is that the actual methods that we use to do the monitoring to go in and talk to employees, to do employee surveys to do interviews. That alone can have something of a cathartic effect on the company's employees and on the mood and the morale in the company. And we've seen that over and over again, when employees see that the company cares enough to bring in a firm that asks their opinions on what works and what doesn't work and ask their opinions about whether their managers are creating and an open environment to communicate issues and to report issues. It helps improve the company and as we know better morale in the company improves the bottom line.”
Finally a company needs to consider whether monitor who is “independent and conflict free”. Feldman says this is important “Because if not, then the value of the findings the value of the entire effort can be at risk. And we've seen this over time in organizations that bring in monitors that you know may within their broader organizational structure have some kind of a conflict within the industry or within that company.”
Any company faced with the selection of a monitor should take care in the process. Use a deliberative process which allows you to understand not only your goals, but also your requirements back from a monitor.
For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.
In this episode, I welcome back Steve Durham, a partner with Labaton and Sucharow to discuss the continued reverberations from the recent Supreme Court decision narrow the definition of whistleblowers in Digital Realty Trust v. Somers. Durham discussed the impact the decision may portend for the SEC Office of the Whistleblower and both the quality and quantum of tips and information brought forward to the SEC after the decision.
In this podcast I welcome back John Hanson, founder and President of the International Association of Independent Compliance Monitors (IAICM) the only professional group for independent corporate monitors. The IAICM was announced one year ago in conjunction with the ABA White Collar Conference. At it's one-year anniversary, Hanson returns to the podcast to reflect on the growth the IAICM, assess the first year of IAICM, discuss of the highlights of the first year for you as President of the IAICM and then goes into some of the goals or initiatives for the IAICM in year 2.
With the announcement of the Justice Department’s Evaluation of Corporate Compliance Programs in February and new FCPA Corporate Enforcement Policy in November, the landscape for monitors will likely continue to evolve in 2018. Hanson and I consider what these and other DOJ announcements may portend, including the following questions:
As with all visits with Hanson, they are thoughtful, well-informed and very insightful. If you practice in the FCPA world or in the broader international anti-bribery/anti-corruption sphere, you will not want to miss this interview.
For more information on the IAICM, including membership, resources, its Code of Conduct and services, check out the website IAICM.org.
In this episode Matt Kelly and I go meta as we podcast about another podcast that Matt posted this week on his site, Radical Compliance, where he interviewed Paul Sobel, the incoming Chairman of COSO. We discuss how Sobel sees his new role at COSO, some of the initiatives that he has in mind for the organization and how companies can use the various COSO frameworks, including the Internal Controls and ERM frameworks to better manage risk some the strategic perspective.
We use the Sobel interview as a starting point to consider how Boards of Directors can think about risk management for a wide variety of issues, from climate change to cybersecurity to sustainability. We also discuss how the COSO frameworks can be used in conjunction with more tactical forms to create a more robust overall risk management program. Join Matt and myself as we go meta this week and take going into the weeds to a new level.
For Matt Kelly's interview with Paul Sobol click here.
For Matt Kelly's blog post on the COSO ERM Framework see, "COSO Debuts Final ERM Framework”
For Tom Fox's blog post on the COSO ERM Framework see, "The COSO ERM Framework”