Day 3 of 31 Days to a More Effective Compliance Program

Under the Evaluation of Corporate Compliance Programs, Prong 2, it states:

2. 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?

This requirement is more than simply the ubiquitous ‘tone-at-the-top’ as it focuses on the conduct of senior management. The Justice Department wants to see a company’s senior leadership actually doing compliance. The DOJ asks if company leadership has through their words and concrete actions brought the right message of doing business ethically and in compliance to a company. How does senior management model its behavior on a company’s values and finally how is such conduct monitored in an organization?

How can senior management operationalize compliance going forward? One of the best places to start is the article from the Harvard Business Review by Professor Lynn Paine entitled, “Managing for Organizational Integrity”. Five factors, derived from the article, can be used guideposts to not only to set the right tone from senior management on doing business ethically and in compliance but also lay the ground for senior management to model appropriate behavior and then have it monitored by the company going forward.

1. The guiding values of a company must make sense and be clearly communicated by senior management in a variety of settings, to the entire company workforce.
2. The company’s leader must be personally committed and willing to take action on the values. This means that management must not simply ‘overlook’ the transgressions of top producers.
3. A company’s systems and structures must support its guiding principles and these internal systems and structures cannot be over-ridden by senior management without both justification and Board approval.
4. A company’s values must be integrated into normal channels of management decision-making and reflected in the company’s critical decisions. Sometime a company must turn down business if there are too many red flags present or by engaging in such behavior the company’s value and ethics will be violated.
5. Managers must be empowered to make ethically sound decisions on a day-to-day basis. This means senior management must fully support and back-up such decisions.

David Lawler, in his book, Frequently Asked Questions in Anti-Bribery and Corruption boiled it down as follows “Whatever the size, structure or market of a commercial organization, top-level management’s commitment to bribery prevention is likely to include communication of the organization’s anti-bribery stance and appropriate degree of involvement in developing bribery prevention procedures.” Lawler went on to provide a short list of points that he suggests senior management engage in to communicate the type of tone to follow an anti-corruption regime.” I had a CEO of a client, who after I described his role in operationalizing his company’s compliance program observed the following, “You want me to be the ambassador for compliance.” I immediately averred in the affirmative. The following is a list of things that a CEO can do as an ‘Ambassador of Compliance’ to fully model the conduct that senior management must show.

• Reject a ‘do as I say, not as I do’ mentality;
• Not just ‘talk-the-talk’ but ‘walk-the-walk’ of compliance;
• Oversee creation of a written statement of a zero tolerance towards bribery and corruption;
• Appoint and fully resource, with money and headcount, a Chief Compliance Officer;
• Oversee the development of a Code of Conduct and written compliance program implementing it;
• Ensure there are compliance metrics on all key business reports;
• Provide leadership to middle managers to facilitate filtering of the zero-tolerance message down throughout the organization;
• Not only have a whistleblowing, reporting or speak up channel but celebrate it;
• Keep talking about doing the right thing;
• Make sure that you are seen providing your Chief Compliance Officer with access to yourself and the Board of Directors.

Coming at it from a different perspective, author Martin Biegelman provides some concrete examples in his book entitled, “Building a World Class Compliance Program – Best Practices and Strategies for Success”. Biegelman begins the chapter discussed in this posting with the statement “The road to compliance starts at the top.” There is probably no dispute that a company takes on the tone of its top management. Inspired by a list from Joe Murphy of actions that a CEO can demonstrate to set the requisite tone from the Captain’s Chair of any business, you can do some of the following.

1. Keep a copy of the Code on your Desk. Have a dog-eared copy of your company’s Code of Conduct on your desktop and be seen using it.
2. Give Your CCO Real Authority. Make sure your compliance department has authority, influence and budget within the company. Have your Chief Compliance Officer (CCO) report directly to the Board of Directors.
3. Hold them Accountable. At Senior Executive meetings, have each participant report on what they have done to further the compliance function in their business unit.
4. Reward and Punish. Have both sanctions for violation of company compliance policies and incentives for doing business in a compliant manner.
5. Walk the Walk. Turn down an expensive dinner or trip offered by a vendor. Pass on a gift that you may have received. Turn down a transaction based upon ethical considerations.
6. Be a Compliance Student. Be seen at intra-company compliance training. Take a one or two-day course or attend a compliance conference outside your organization.
7. Recognize Compliance at Your Company. You should recognize outstanding compliance efforts with companywide announcements and awards.
8. Enshrine Compliance at the Board. Recruit a nationally known compliance expert to sit on your company’s Board and chair the compliance committee.
9. Independent Review. Obtain an independent, outside review of your company’s compliance program and report the results to the Board’s Compliance Committee.
10. Push Compliance into Your Supply Chain. Mandate that all vendors in your Supply Chain embrace compliance and ethics as a business model. If not, pass on doing business with them.
11. Create an Executive Network for Compliance. Talk to other CEOs and senior executives in your industry on how to improve your company’s compliance efforts.

Another area a CEO can forcefully engage an entire company through is a powerful video message about doing business the right way and in compliance. A great example was a CenterPoint Energy video put out in 2015 after the Volkswagen (VW) emissions-testing scandal become public. The video featured Scott Prochazka, CenterPoint Energy President and Chief Executive Officer (CEO). He used the VW scandal to proactively address culture and values at the company and used the entire scenario as an opportunity to promote integrity in the workplace. But more than simply a one-time video, the company followed up with a with an additional resource, entitled “Manager’s Toolkit – “What does Integrity mean to you?””, which managers used to facilitate discussions and ongoing communications with employees around the company’s ethics and compliance programs. Finally, as noted by Amy Lilly, Director, Corporate Ethics and Compliance at CenterPoint Energy, the cost for the video was quite reasonable as it was produced internally.

Three Key Takeaways

1. Senior management must actually do compliance; walk-the-walk, not simply talk-the-talk.
2. Use your CEO to talk about current events and how those ethical failures are lessons to be learned for your organization.
3. CEO as Compliance Ambassador.

This month’s podcast sponsor is Convercent. Convercent provides your teams with a centralized platform and automated processes that connect your business goals with your ethics and values. The result? A highly strategic program that drives ethics and values to the center of your business. For more information go to Convercent.com.