This week, HP agreed to a $55 million settlement with the US Department of Justice, ending the month of August in the news- the same place the company found itself in at the start of the month. Some of our other posts this week focused on information to include in investigation reports and how your company’s CIO and CSO can be used as key players in ethics and compliance. Here’s a review of our posts from this week:

Monday:

• Blog Post- Top 10 Investigation Report Must Haves

“Is this what you look like when it comes to preparing investigation reports? Writing investigation reports doesn’t have to be daunting. A standardized reporting structure improves the consistency of reports amongst investigators. Standardized reporting provides investigators with a reporting format to follow and reduces the time spent preparing investigation reports. This information is all fine and dandy, however, a question we frequently receive is, what information do I actually need to put in an investigation report?”

Tuesday:

• Blog Post- 3 Ways Your Chief Information and Chief Security Officers Can Be Ethics Heroes

“A company’s ability to effectively use technology to monitor, share and manage information contributes to the success of its ethics and compliance program. Some laws and corporate policies contain compliance requirements that can only be executed by a company’s IT department. In my opinion, a company’s Chief Information Officer (CIO) and/or Chief Security Officer (CSO) is equally as important as the Chief Ethics and Compliance Officer (CECO) when it comes to maintaining workplace ethics and compliance. Since CIOs are responsible for implementing IT systems and controlling the flow of information into and out of a company, CIOs help protect their company from data breaches and other technical risks. As ethics and compliance grows as an IT concern, an increasing number of companies have reported looking for CIOs, CSOs and other IT staff that not only possess the required technical skills, but also have personal values and morals that are similar to those of the company.”

Wednesday:

• Blog Post- 3 Things HP Should Add to Their Ethics “To Do” List

“So long sweet summer. However, for the folks at HP, the past month has been anything but sweet. In early August, HP announced the resignation of Mark Hurd following an internal investigation into sexual harassment allegations made against the now former CEO. As August ends, HP is making headlines again- this time following an investigation into alleged kickbacks paid by the company. HP agreed to a $55 million settlement, as the company was accused of paying kickbacks to the US government in exchange for business contracts. Here’s a look at the past month at HP, as well as some lessons the company should consider applying when rebuilding its corporate ethics.”

Thursday:

• Blog Post- i-Sight Ethics and Compliance Software on Display at the ECOA Business Ethics and Compliance Conference

“September is shaping up to be a busy month for us at Customer Expressions, as we announce today that we will be exhibiting the i-Sight Compliance and Ethics Investigation Software at the 18th annual Business Ethics and Compliance Conference. The conference is hosted by the Ethics & Compliance Officer Association and this year it’s being held in Anaheim, California from September 21-24th. We attended this conference last year when it was held in Chicago and are glad to be returning again this year.”

So long sweet summer. However, for the folks at HP, the past month has been anything but sweet. In early August, HP announced the resignation of Mark Hurd following an internal investigation into sexual harassment allegations made against the now former CEO. As August ends, HP is making headlines again- this time following an investigation into alleged kickbacks paid by the company. HP agreed to a $55 million settlement, as the company was accused of paying kickbacks to the US government in exchange for business contracts. Here’s a look at the past month at HP, as well as some lessons the company should consider applying when rebuilding its corporate ethics:

Investigations, Lawsuits and Settlements…Oh My!

Sexual Harassment Investigation: August 6th- Late on a Friday afternoon, Mark Hurd resigns from his position of CEO at HP. The company received a sexual harassment complaint directed at Hurd and during the investigation, investigators discovered that Hurd had inaccurately completed his expense reports as a way to conceal his relationship with a female contractor occasionally hired by HP. Investigators felt that Hurd hadn’t committed a sexual harassment violation, but instead, claimed he violated the company’s standards of business conduct by falsifying his expenses. I feel like I share a similar opinion with many others when I say that there’s got to be more behind Hurd’s ousting.

In a news release from Reuters, “HP After Hurd: We’re Looking Forward, Not Back,” James Niccolai writes:

“The seemingly minor nature of the offenses has led to speculation that there were other reasons for Hurd’s departure. New York Times columnist Joe Nocera suggested last week that the board was simply looking for an excuse to fire Hurd because he was deeply unpopular.”

Kickback Probe: August 30th- Based on a whistleblower report filed in 2007, HP is one of a few companies that have opted to pay a settlement with the US Department of Justice. The DoJ was investigating allegations that HP was paying kickbacks to gain business from federal agencies in the US. In a post on a Wall Street Journal Law Blog, “H-P Ends August With a Bang, Settling Kickback Probe for $55 M,” Ashby Jones provides an over of the accusations directed at HP:

“The Justice Department alleged that H-P knowingly paid ‘influencer fees’ to systems-integrator companies in return for recommendations that federal agencies purchase H-P products. It also alleged that H-P’s 2002 contract with the General Services Administration for computer equipment and software was defectively priced because the company provided incomplete information to contracting officers during negotiations.”

HP continues to deny any wrongdoing, stating the company didn’t engage in any illegal acts. In a statement made by HP’s interim CEO, the company simply wants to put these events behind them and move forward.

A Light at the End of the Tunnel

Sometimes, companies need to face the facts and own up to the actions of their staff. Siemens, Tyco and Johnson & Johnson are only a few of the many companies that have had to conquer the consequences of ethical lapses and the negative media that comes with it. In each of these three cases, there were actions taken that exhibit best practices in “ethics scandal recovery.” A lesson from each company’s experiences that could be applied at HP include:

1. Siemens: Ethics Training

Employees need to know what’s expected of them. After the bribery investigation was settled at Siemens, the company began working from the bottom up to rebuild ethics into each level of the organization. A state-of-the-art ethics and compliance training program was developed, providing employees with training tailored to their specific roles within the organization. At HP, it’s apparent that certain ethics topics could use some revisiting. HP should reevaluate the different risks faced by employees and use this information to ensure training topics are up-to-date with current ethics and compliance threats. Break information down into smaller sections. This makes it easier for employees to digest information and allows training to take place on a more frequent basis. Constant communication with employees is necessary in order to get them to make the necessary ethical changes.

2. Tyco: Tone at the Top

Tyco’s ethical transformation began in 2002, after former CEO Dennis Kozlowski and former CFO Mark Swartz were given the boot for embezzling hundreds of million of dollars from the company. Tone at the top quickly became one of Tyco’s top weapons in fighting its way back from the dark side. Since HP has yet to find a permanent replacement for Hurd, HP should look for a CEO that demonstrates the ability to be an ethical leader, is passionate about conducting business in an ethical manner and who will hold employees accountable for their actions- regardless of their position in the company. Hurd admitted himself that he didn’t live up to his own standards of integrity and respect, therefore, how could he expect that of his employees? At Tyco, Ed Breen made it his mission to place ethics and integrity at the forefront of business at Tyco, the next CEO at HP should too.

3. Johnson & Johnson: Transparency and Communication

During the 1980s Tylenol recall, transparency and open communication with the public were Johnson & Johnson’s keys to success in responding to the crisis. The cyanide-laced pills were contained to a specific area and were the product of an individual tampering with the package. J&J could have just issued a statement saying they were not responsible for the cyanide entering the packages, but instead, the company launched one of the largest recalls to-date, replaced Tylenol purchased by consumers and developed an extensive media campaign to go along with the recall. The company chairman communicated regularly with the media, and in a press conference, gave a tremendously transparent overview of every detail related to the recall. The lesson to HP- open up to the public, don’t give them room to speculate. Thus far, the company has remained tight-lipped about the reasoning behind Hurd’s departure, and it doesn’t seem to be working in the company’s favour.

The $1.6 billion fine handed down to Siemens in 2008 was much more than a record breaking fine, it was a lesson for other companies to learn from. Prior to the bribery scandal, Siemens had an ethics and compliance program in place, however, there was a missing link between leadership and the enforcement of the program. The company’s cooperation during the SEC investigation lead to a reduced penalty, but also gave way to a complete re-design of the company’s internal ethics and compliance controls. There are many lessons learned from the Siemens charges, the reaction to the investigation and the actions taken by Siemens to position the company as an ethics and compliance leader in the post-scandal era.

Bribery Investigation

An amnesty plan had been worked out with Siemens, as employees willing to come forward with information pertaining to the bribery scandal and identifying key players, would be free from prosecution. In a report from the Wall Street Journal, the amnesty program was offered to all Siemens employees (110 of which came forward with information), with the exception of the 300 employees who made up the company’s top executive team. One particular employee who provided inside information was indicted employee Reinhard Siekaczek. He reported that he managed an annual budget worth $40-50 million, which was considered to be a “bribery budget”. As reported in the New York Times article “At Siemens, Bribery Was Just a Line Item,” salepersons and managers within the company used this money- “slush fund”,  to maintain relations with corrupt government officials.

The level of cooperation in the investigation significantly reduced the cost of the settlement with the SEC. In comparison to other companies hit with scandals, Siemens responded quickly to put measures in place to detect and prevent future acts of bribery within the company. In the New York Times article “At Siemens, Bribery Was Just a Line Item,” they state Siemens was provided with additional leniency, only having to plead to accounting violations, “because pleading to bribery violations would have barred Siemens from bidding on government contracts in the United States.”

In the Ethisphere article “Prepared Remarks to Compliance Week 2010- 5th Annual Conference for Corporate Financial, Legal, Risk, Audit & Compliance Officers,” Assistant Attorney General Lanny A. Breuer states:

“In the end, the benefits Siemens received through its cooperation, even in the absence of a voluntary disclosure, were plain – the $450 million fine that was paid to the Justice Department, although quite substantial, was a far cry from the advisory range of $1.35 billion to $2.7 billion called for in the Sentencing Guidelines. Put another way, Siemens received a penalty that was 67 to 84% less than what it otherwise could have faced had it not provided extraordinary cooperation and carried out such extensive remediation.”

Ethical Recovery

An investigation was launched into the bribery scandal in 2006 and was completed in 2008. The cooperation exhibited by employees at Siemens allowed the investigation to be conducted in less time than originally predicted. Rather than replacing former executives with individuals from inside the company, Siemens filled the roles of major positions with outsiders- which was probably for the best. In 2007, Peter Solmssen was brought into to clean up the ethics and compliance disaster at Siemens.  Also in 2007, Siemens named Peter Löscher as the company’s new CEO.

Siemens has worked to improve their corporate reputation by ensuring that compliance is integrated into the furthest reaching corners of their business. Siemens hired Michael Hershman, of Transparency International, to help build a compliance and anti-corruption policy and training program. Similar to the actions taken by Ed Breen at Tyco, Löscher replaced many of the company’s top executives to start fresh. In most companies the ethics and compliance department remains fairly small, however, Siemens was determined to put their words into actions and created an ethics and compliance department consisting of 600 employees- one of the largest to date.

Since the Settlement, Siemens has divided the company into three divisions in order to clarify reporting lines and increase responsibility. In the New York Times article “Siemens’s Prosperity Doesn’t Obscure Bribery Scandal,” they discuss the reasoning behind the division:

“Mr. Löscher also put the leaders of those three sectors onto the central managing board in Munich. That puts an end to a system in which a leader of a major business, like power generating, had his own managing board and reported to Munich headquarters without being based there. Siemens officials say the old way allowed corruption to spread and inhibited accountability.”

Siemens has developed a training program, with employees at various levels receiving training in regards to issues faced based on employee role. The format and frequency of training also varies depending on level within the organization. On the Siemens corporate website, they communicate that training includes topics such as foreign laws and corruption risks. Employees are now required to sign a statement after reviewing the company’s code of conduct, in order to communicate their commitment and understanding of the code.

Here is a link to a slide deck I came across from a presentation prepared by Siemens titled “Compliance Program at Siemens,” presented at Strengthening Integrity In Private Sector Organized by UNDP, MENA-OECD. The slides contain specific information related to the ethics and compliance program currently in place at Siemens.

There’s no point investing in and implementing an ethics and compliance program unless the time is spent integrating the program into every aspect of an organization. The need for companies to develop effective ethics and compliance programs has been acknowledged by several government agencies- examples are the SEC in the US and the government in the United Kingdom. Both groups have recently passed legislation or made amendments to existing guidelines, focusing heavily on the importance of ethics and compliance at all levels of an organization- especially at the top. Employees at each level contribute to the success of a company’s ethics and compliance program. Integrating ethics and compliance at each level helps ensure the message from the top makes it all the way down to the lower levels of the organization. Training, messages and other ethics and compliance initiatives must be developed to evolve with employees as they move through the company. That being said, employees at various levels need to be prepared to address different ethical issues they may encounter based on the role they play in the organization.

Integrating Ethics at the Top

The tone of the organization is set at the top, therefore, a strong commitment and understanding of ethics and compliance must be instilled in top level executives and managers. Ethics and compliance must be built into a company’s corporate culture, as culture determines “the way things are done” within an organization. Top level executives serve as examples for fellow employees. Those at the top must frequently communicate and demonstrate to their staff  the company’s commitment to ethics and compliance, as well as ensure ethics and compliance are built into all company projects. Top level managers must adopt and act on the values and messages they communicate to be considered credible in committing to ethics.

If your company hasn’t done so already, establish the role of a Chief Ethics/Compliance Officer (CECO). This person will be responsible for maintaining and executing ethics and compliance related activities (policy development, training, policy enforcement, program monitoring) to ensure company compliance with laws and regulations. One of the areas many companies must improve on is providing the CECO with appropriate resources and authority to effectively carry out their mission. In many organizations, the ethics and compliance department is relatively small in comparison to the total number of employees at a company. With the recent economic downturn, a number of companies were forced to reassess budgets, cutting ethics and compliance spending at a time when it was needed most. Don’t create positions or policy documents for the sake of looking good in the eyes of the public- the public can tell if a company is faking it.

Integrating Ethics in the Middle

In many companies, employees report that the middle level is where ethics and compliance commitments break down. Since many of the lower level employees report directly to those in the middle, a commitment to ethics and compliance from middle managers is equally as important as it is at the top. Top level managers can use a number of techniques to assist mid-level managers in understanding the role they play in creating an ethical workplace. In the article “Ethics and the Middle Manager: Creating Tone in The Middle,” by Kirk O. Hanson, the author lists 8 ways top management can motivate middle level employees to reinforce an organization’s ethical culture:

“Top executives must themselves exhibit all the ‘tone at the top’ behaviors, including acting ethically, talking frequently about the organization’s values and ethics, and supporting the organization’s and individual employee’s adherence to the values.

Top executives must explicitly ask middle managers what dilemmas arise in implementing the ethical commitments of the organization in the work of that group

Top executives must give general guidance about how values apply to those specific dilemmas.

Top executives must explicitly delegate resolution of those dilemmas to the middle managers.

Top executives must make it clear to middle managers that their ethical performance is being watched as closely as their financial performance.

Top executives must make ethical competence and commitment of middle managers a part of their performance evaluation.

The organization must provide opportunities for middle managers to work with peers on resolving the hard cases.

Top executives must be available to the middle managers to discuss/coach/resolve the hardest cases.”

Integrating Ethics at Lower Levels

Lower level employees are usually the ones on the frontlines acting as ambassadors for a company/brand. Ensuring the commitment to ethics and compliance is as strong at the bottom as it is at the top is critical to the success of a fully integrated ethics and compliance program. One of the easiest ways to begin implementing ethics and compliance within lower levels is to provide new hires with extensive training on company expectations and ethics and compliance. During the interview process, ask questions related to ethical situations and decision making. This can be used as a way to ensure new hires are a proper fit with the existing corporate culture. It’s important to remember that ethics training and implementation doesn’t stop here- this is just the beginning.

An Ethisphere article, “If Ethics Isn’t Everywhere, It’s Nowhere,” reviews some of the tactics deployed at Jones Lang LaSalle to ensure ethics is integrated into every level of their organization:

“We begin the process by mentioning ethics in our offer letters. We continue by having new hires read and agree to our Code of Business Ethics, which has been translated into 14 languages. And employees see ethics posters displayed in lunchrooms and receive wallet-sized reminders at meetings. To further entrench our ideals in the minds of employees, our Ethics Officers attend business meetings and lead discussions with employees about ethical dilemmas. These sessions require active participation because we don’t just want a ‘talking heads’ presentation with a forgettable PowerPoint. To receive a bonus, everyone, including me, is required to re-certify to his or her commitment to the Code of Ethics. The norm, as you can well imagine, is 100% compliance. When employees leave the firm, we send them a reminder about their on-going obligations regarding confidential client and employee information they received while employed by Jones Lang LaSalle.”

At the end of 2008, Cisco Systems revealed their unique approach to ethics training for their workforce. Many companies look for ways to make training enjoyable for employees- Cisco Systems has been able to prove that you can effectively incorporate humor into an ethics training program and still get your message across. Ethics Program Manager Jeremy Wilson stated in this article by Andrew Singer published in “Ethikos and Corporate Conduct Quarterly” that “all too often training officers are inhibited by the thought that “legal would not like that.” Compliance-related topics are inherently dry, and companies shouldn’t shy away from seeking new ways to connect with your code and your employees.”

Connecting with a “Connected” Bunch

One of the key factors that allow Cisco to carry out a more creative approach to their ethics training is that all of their employees work on computers and are connected to the Internet. The “Ethikos” article by Andrew Singer also featured Christine Style, the Ethics Marketing Manager at Cisco, who mentioned “Cisco’s ethics office has at any time between two and five individuals working in it—yet it must get the message out to more than 50,000 employees. We are utilizing technology to do this, including communication instruments like blogs and discussion forums so we are not answering the same question 50 times.”

Even if your entire organization isn’t connected to computers and Internet, there may be certain groups within your organization that are, and these types of tools could be implemented into their training program.

Cisco’s “Ethics Idol”

Another way to connect with employees is to engage them with something that they are familiar with. At Cisco, they created animated videos as part of a series called “Ethics Idol”, a parody of the tv show ”American Idol”, in order to spark employee interest in the training process. Jeremy Wilson explained the premise of “Ethics Idol” in this article:

“Featured on Cisco’s Intranet, it presented a series of animated ethics scenarios that are evaluated by judges. Cartoon characters sing about different ethics situations—sales practices, procurement issues, and other common dilemmas. Employees also vote, making their judgment calls on each ethical situation. The ‘contests’ have also been run by DVD in a live setting. Cisco managers use ‘Idol’ handbooks that explain how to run the contest. Ethics Idol helped raise awareness to Cisco’s employees that each ethical dilemma is not always cut and dried, and if they should have any questions to refer to the Cisco Code of Business Conduct for guidance.”

In another article by Jim Duffy on NetworkWorld regarding Cisco’s innovate ethics training program, Jeremy Wilson was quoted saying “We even had several employees volunteer to sing or perform in future Ethics Idol modules. For the first time in Cisco’s history, employees are excited for the next round of ethics training.”

We have discussed the importance of ethics and compliance training in our article “How to Maximize Your Compliance Training ROI“. The example at Cisco Systems ties in nicely with the article because it shows that training can be something employees look forward to. During training, you are asking employees for their attention and time away from their work tasks, make the most of the time and present the content in the form of something your employees can relate to. Cisco Systems has done a great job tapping into their employees in order to get a strong return on investment in their training programs.