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.