You’ve heard it before- a strong ethics and compliance program begins with a top notch workplace ethics and compliance policy. But do any of these sources ever tell you exactly what makes an ethics and compliance policy “top notch”? Most of the time, the answer is no, which is why I have decided to dedicate this post to helping you better understand the elements of a top notch ethics and compliance program. It’s important to understand that each company’s ethics and compliance policy will be different, as policies are built around a company’s processes and is influenced by the industry in which it operates. However, there are common elements that must be included in every company’s ethics and compliance policy- it’s the “little extras” that are included that separate the top notch ethics and compliance policies from the not-so-stellar ones.

Begin With the Basics

A good way to determine what to include in a corporate ethics and compliance policy is to identify the ethical risks your company encounters and provide solutions and guidance for those situations. Think about ethically compromising situations employees at all levels may face, document them, and build your ethics and compliance policy around them.

Basic elements of an ethics and compliance policy include:

• Compliance with the law- Compliance with local and industry laws are the most basic forms of compliance. I believe that companies need to challenge themselves to go beyond complying with the minimum standards. Build upon existing laws to take your company’s ethics and compliance program to the next level.
• Definition of unethical behaviour- Address various forms of unethical behaviour- harassment, discrimination, theft, fraud, retaliation, etc. Define each of these terms, provide real life examples and consequences for violating the policy. Some companies choose to adopt a zero tolerance attitude towards these issues. If your company does, make it clear.
• Integrity statement- Every company should promote honest business. Many companies include their mission, vision and goals for employee conduct in this section of the ethics and compliance policy. According to the Canadian Centre for Ethics & Corporate Policy,

“A code of ethics usually proposes specific principles and rules of conduct. A key objective of a code is to provide guidance on expected behavior as well as rationale for that behaviour. A code also provides a way for a company to measure and monitor performance designed to achieve objectives and to instill values.”

• Anti-Bribery, gifts and entertainment- To avoid involvement in bribery, let employees know where your company stands on the issue of gifts and entertainment. Some companies allow gifts to be sent or received if the gift is under a given value. Isuggest eliminating as much grey area as possible from your company’s ethics and compliance policy. Make it clear- no gifts!
• Reporting unethical behaviour- Employees are likely to uncover unethical practices in the workplace before senior executives. To catch violators earlier, let employees know how to report misconduct. Include hotline phone numbers, Ombudsman information, website addresses and other information pertaining to filing a complaint. This information is usually found at the beginning or end of the policy, or sometimes even both. 
• Confidentiality- In some cases, ultimate confidentiality cannot be maintained due to the discovery of a criminal act or a court case. Make a statement that confidentiality will be upheld to the highest possible degree for those making complaints or involved in internal investigations.
• Accurate accounting- Corporate accounting is highly regulated, but often violated. Here’s a great example of an accounting integrity clause that Exxon Mobil has included in its corporate ethics policy:

“It is the Corporation’s policy that all transactions will be accurately reflected in its books and records. This, of course, means that falsification of books and records and the creation or maintenance of any off-the-record bank accounts are strictly prohibited. Employees are expected to record all transactions accurately in the Corporation’s books and records, and to be honest and forthcoming with the Corporation’s internal and independent auditors.”

Ethics and Compliance Policy Template

One of my co-workers passed along this ethics and compliance policy template to me. The template was developed by the Sans Technology Institute, and has been made available for use within organizations. The sections outlined in this template cover majority of the issues that should be outlined in an ethics and compliance policy, but I would recommend using this as guidance only. Tailor your ethics and compliance policy to your business and be specific. For example, don’t just state that consequences will be handed down to those who are found guilty of violating the policy, include the punishments in the policy.

Don’t forget, go public with your policy. Place the document on your company website to increase accountability and transparency.

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.

We, Customer Expressions, will be sending a team down to Chicago to attend the  Annual Compliance & Ethics Institute, hosted by the Society of Corporate Compliance and Ethics. The conference runs from September 12-15 and features presentations from chief compliance and ethics officers, CEOs, certified compliance and ethics professionals, lawyers, compliance analysts and many other professionals in the field of ethics, compliance and risk management. While we are away, we will be blogging from the event and interviewing industry professionals.

Some of the topics being addressed at the conference this year include:

• Ethics Policy and Program Development
• International Compliance Issues
• Benchmarking and Best Practices in Ethics and Compliance
• Compliance Training
• Internal Investigations
• Maintaining FCPA Compliance
• Trends and the Future of Ethics and Compliance

This year’s conference is a very unique one for us at Customer Expressions, as our company president, Ray Gerard will be presenting a breakout session with Lyn Scrine, Ethics Director at Allstate. The two of them will be discussing investigation systems and how to implement them into the workplace. Joe Gerard, Vice President at Customer Expressions, stated:

“Over the past two years, we’ve completed global implementations of i-Sight for managing employee relations, ethics , privacy , compliance and security investigations. Ray Gerard, President at CEC, will be presenting at the conference this year alongside Lyn Scrine, Ethics Director at Allstate- which is an extremely exciting opportunity for us. This year, we look forward to engaging with industry professionals to learn more about their needs during challenging economic times, to continue to meet the growing demands of ethics and compliance professionals.”

SCCE’s Annual Compliance & Ethics Institute is the primary education and networking event for professionals working in the compliance and ethics profession across all industries around the world. Sessions at the 2009 conference will offer the latest compliance information on hot topics and current events. Sessions have been carefully selected and will be presented by leading experts who will explore real-world compliance issues, practical applications, emerging trends and state of the art techniques.

Pre-Conference Sessions will be presented on Sunday, September 12, 2010. The day will be divided into two longer sessions: morning sessions and afternoon sessions. The longer timeframe allows for in-depth discussion and interaction to cover the topics in more detail. Post-Conference Workshops will be completed on Wednesday, September 15, 2010. The sessions are four hour interactive work-shops designed to cover some of the most important and timely topics in ethics and compliance.

This year the SCCE has added an additional track for those wishing to focus on risk management. The risk management track will focus on topics including conflict of interest, internal investigations, data privacy, risk management and mergers and acquisitions.

To view a complete day-to-day overview of events, presentations and speakers at the Annual Compliance & Ethics Institute, view the news release we have posted on our website.

As part of the National Business Ethics Survey conducted by the Ethics Resource Centre (ERC), the ERC releases supplemental research briefs that focus on a number of topics from the survey in a more detailed manner. The most recent release featured information pertaining to the cost of retaliation on both the company and its employees. As mentioned in yesterday’s post about the Dodd-Frank Act and its whistleblower protections, retaliation is a growing concern in the workplace. In many organizations, employees are an employer’s eyes and ears when it comes to catching workplace misconduct. To establish a workplace that is safe and enjoyable for all, employers must work to create an environment that encourages the reporting of misconduct. The ERC survey concluded that companies with a zero tolerance policy for retaliation experienced very few instances of retaliation, which demonstrates that efforts to prevent retaliation do have an impact.

The ERC research brief “Retaliation: The Cost to Your Company and Its Employees,” is a free report, which can be accessed by clicking on the link provided.

ERC Retaliation Brief

The costs of retaliation stretch beyond monetary amounts, as retaliation leaves a dark mark on a company’s reputation. In the press release from the ERC, “Fear of Backlash for Reporting Misconduct is a Sure Sign of an Ethically Challenged Workplace,” they report on some of the findings outlined in the retaliation research supplement.

“Employees who report misconduct in a company with zero tolerance for retaliation experience it at a strikingly lower rate than workers at companies with weak ethical environments (4% versus 25%), the study found. Victims of retaliation trust the company’s leaders less, feel less optimistic about the company’s financial future, tend to think the head of the company is overpaid and look to quit the company sooner. Likewise, where workers feel pressured to compromise company standards, policy or the law, those who report misconduct are much more likely to experience retaliation (59%) than those who report but do not feel pressure (6%).”

These findings send employers the message that there’s a correlation between an ethical corporate culture and the rate of retaliation an organization experiences. In order to reduce misconduct, as well as retaliation, employers need to be open and appreciate that employees are looking out for the best interest of the company. There have been reports published supporting the fact that employees who decide to blow the whistle, do so because they feel it’s the right thing to do.

Preventing Workplace Retaliation

As important as it is to properly handle allegations of retaliation, employers must enact internal controls that help prevent retaliation from occurring altogether. Here are some tactics employers can use to prevent retaliation from occurring:

• Develop a Strong Corporate Culture: As made evident by the conclusions from the ERC supplement, an ethical corporate culture greatly impacts employee willingness to report observed misconduct. To develop a strong culture that works to prevent retaliation, provide training for employees and communicate with them regularly to make them feel comfortable when it comes to raising issues or concerns about events in the workplace.
• Policies: An anti-retaliation policy must be built into a company’s code of conduct. Include the company’s zero tolerance stance towards retaliation in the policy.  The anti-retaliation policy must also outline the protections in place that cover employees who report misconduct. Referring to the anti-retaliation policy is important during workplace investigation interviews, as investigators are likely to get stronger responses from an interviewee who feels less pressure and has a reduced fear of retaliation.
• Training: Employees at all levels need to understand what is and isn’t considered an act of retaliation. Tailor training to the various roles and reporting structures within an organization. Employees at different levels encounter different challenges in regards to the potential for retaliation to occur. For example, train managers to maintain confidentiality effectively handle reported misconduct allegations. Train employees to understand their rights in reporting misconduct, the confidentiality of their report and how to look for and report retaliation, should they feel they have been retaliated against.
• Monitor: KPMG has established an excellent system for monitoring employees who have reported workplace misconduct. We covered the KPMG program in detail in our post “Vicki Sweeney of KPMG Presents Best Practices in Preventing and Monitoring Workplace Retaliation.” At KPMG, they monitor past cases to identify issues of retaliation. The retaliation monitoring program at KPMG tracks those who raise issues by evaluating and analyzing data related to the investigation and the nature of the complainant’s job in order to determine the likelihood of retaliation. A typical monitoring period at KPMG is one year, and can continue for two or more years if necessary.

On Friday, HP CEO Mark Hurd was asked by the company’s board of directors to submit his resignation. As reported in the TechCrunch Article “HP CEO Mark Hurd Resigns, This Looks Messy,” the outcome of an investigation into sexual harassment allegations against Hurd “concluded that there was no sexual harassment violation, however it did find that Hurd violated HP’s ‘Standards of Business Conduct.‘” When news broke about his departure, Hurd claimed he himself hadn’t lived up to his own standards regarding integrity and respect. Therefore, if he wasn’t able to live up to these standards himself, what message does that send to the rest of the employees at HP?

Numerous reports state that the board’s decision to ask Hurd to resign was based solely on the lack of judgment he had demonstrated in violating the company’s code of conduct. This case is another example of how the unethical acts of a single individual lead to consequences that must be paid for by an entire organization. However, hopefully HP can use this event as an opportunity to rebuild and focus on ethics and compliance throughout the company.

Investigation Findings

An investigation was launched at the end of June as a response to allegations of sexual harassment that had been filed against Hurd. The woman who brought forward the complaint was a marketing consultant hired by HP for certain projects, but was never an employee at HP. During the investigation, investigators came across inaccurately documented expenses that were claimed to have been paid to the marketing consultant for her services. Falsifying the use of company funds violates HP’s Standards of Business Conduct, therefore, resulting in the demand for Hurd’s resignation. I give the board at HP a lot of credit for holding Hurd accountable for his actions and not accepting his offer to simply pay the company back the sum of the expenses he falsely claimed.

Hurd’s resignation raised many questions about the financial future of the company, as Hurd’s time at HP was marked with the success of increasing the company’s performance and value. However, in a press release issued by HP, they focus on the issue of the company’s financial sustainability, assuring investors and the public that the decision to ask Hurd to leave was due to the fact that his actions deemed him unfit to continue as the company’s leader.

The Wall Street Journal published an article, “Text of H-P Memo From Interim CEO,” which features the memo sent to all HP staff by interim CEO and HP CFO Cathie Lesjak, regarding Hurd’s departure:

“This is to advise you that Mark Hurd, Chairman and CEO of HP, has resigned from the company effective immediately. Mark’s resignation was submitted at the request of the company’s Board of Directors as a result of inappropriate behavior in which he engaged that violated HP’s Standards of Business Conduct and undermined his ability to continue to lead the company.”

Consequences

Anytime a company’s CEO falls under investigation, the entire company pays the price. Many begin to question the credibility of a company whose leader demonstrates unethical acts and the inability to make responsible decisions. HP has already started suffering the consequences of their former CEO’s unethical decisions. The New York Times article, “Boss’s Stumble May Also Trip Hewlett-Packard,” stated:

“But turning the page on the scandal will not be easy. While Ms. Lesjak maintained that investors remained confident in the company, H.P.’s share price tumbled 10 percent on Friday as word of Mr. Hurd’s departure rippled through Wall Street.”

As of yesterday, HP stocks have rebounded. However, it’s still too early to determine the full impact of Hurd’s actions on HP.

Opportunities

Unfortunately, it usually takes an event such as this for a company to learn from its mistakes and make positive changes within the workplace. A New York Times article, “Division of Roles Could Help H.P,” suggests that this event has opened up the opportunity for HP to divide the roles of Chairman and CEO. There is no word on whether or not HP plans on splitting up the job, however, it might be a wise decision to make based on some of the situations the company has found itself in recently. The division of these two roles has been gaining in popularity amongst corporate America, and is already common in many other countries.

The division of roles aids in increasing the accountability of those at the top. While some feel the division of roles leads to confusion over who is in charge, I feel that the separation of duties puts a system of checks in place on the CEO, making it difficult to get away with unethical acts, such as falsifying expense reports. For some companies, managing both the board of directors and the company can strain the CEO, creating an imbalance in the attention given to either side. When the CEO and chairman roles are divided between to two different individuals, there is someone present who can question the CEO on their decisions, rather than the CEO simply reporting to themselves.

In the blog post, “The FCPA – Tone at the Top and in the Middle,” by Thomas Fox, Fox raises a very good point about the importance of the tone at the top in relation to the HP case. The tone at the top sets the stage for the overall direction and culture within an organization. HP must carefully select a new CEO who will successfully lead the company with integrity and uphold their ethical commitments in order to avoid future blemishes to the company’s reputation.

As with any human relationship, once the trust is gone, the relationship usually goes with it. Last week, Deloitte released the findings of their annual Ethics & Workplace Survey. The focus of the survey this year was on trust in the workplace. Deloitte began publishing their annual Ethics & Workplace Survey back in 2007.  The points of concern identified in the survey provide business leaders with insight into growing issues that must be addressed in order to retain valuable employees. The ethics and trust gaps identified in the survey bring to light the different views employees and employers have in regards to these two areas. After reviewing the results and methodology of the 2010 Ethics & Workplace Survey, I have put together some advice for rebuilding ethics and trust within the workplace.

Survey Results

Based on the results of the Deloitte survey, it appears that employers may not be fully aware of the impact their decisions have on their employees. In order to build a transparent, trusting workplace, business decisions need to remain consistent with the organization’s culture and policies. Here are some of the results  from the 2010 Ethics & Workplace Survey as presented in the press release for the survey on the Deloitte website:

“According to Deloitte’s fourth annual Ethics & Workplace Survey,

• One-third (34%) of employed Americans plan to look for a new job when the economy gets better.  
• Within this group of respondents, 48% cite loss of trust in their employer.
• 46% say that the lack of transparent communication from their company’s leadership is the primary reason for pursuing new employment at the end of the recession.
• Additionally, a large majority (65%) of Fortune 1000 executives who are concerned employees will be job hunting in the coming months, believe trust will be a factor in a potential increase in voluntary turnover. ” 

On a positive note, a large number of the employees surveyed feel that their employers are responsive to their work/life balance needs. Majority of the employees surveyed felt that technology made it possible for employers to develop flexible arrangements that allow employees to balance work and personal commitments. The results from the work/life balance questions demonstrate that employers are aware of the varying needs amongst their employees. This also shows that employers are willing to make accommodations to retain valuable employees.

The 2010 Ethics & Workplace Survey can be downloaded for free from Deloitte. The methodology used for conducting the survey is outlined at the end of the document.

Message for Business Leaders

When companies, such as Deloitte, publish reports related to ethics and compliance, business leaders must pay attention to the findings. The results of the survey signal the need for business leaders to emphasize ethics in order to regain the trust of their employees. The press release for the survey from Deloitte states:

“Frequently, executives are forced to make decisions that broadly affect their workforces and alter what matters in the workplace. Today’s business environment is no exception; it appears that the recession has diminished two important forms of business currency: trust and ethics.”

When decisions are made that are not necessarily inline with a company’s culture, employee trust is sacrificed, as they no longer know what- or who, to believe. This could lead employees to feel that there has been a change in corporate culture, pushing them to pursue alternative employment with a company that has a culture similar to the employee’s personal attitude. In a previous post, Improving Workplace Communication, we mentioned that many top level executives only increase communication and transparency when a company is undergoing significant changes.

During tough times, such as the recession, many companies resort to cutting budgets and eliminating employees from their organizations to save money. When communication lines are broken, employees may feel they are next to be eliminated. Employees may also be concerned in regards to the future implications of these events on the company. Regular communication from all levels of an organization- regardless of economic climate, is necessary to strengthen corporate culture and ensure all employees are aware of what is expected of them throughout the times of change. Managers and executives must communicate to employees the reasoning behind their decisions and inform them of how it fits into the future plans for the organization. 

The survey results reiterate the need for executives to set the tone at the top. Leaders must focus on improving workplace communication, transparency within the company and with the public and developing an ethical culture. Adopting these practices provides businesses with an advantage when it comes to attracting skilled employees. Ethical cultures that are enforced and practiced by top level management help reduce corporate risk, as employees are able to see for themselves the efforts and importance placed on ethics and compliance within the workplace. Fostering a communicative environment reduces many corporate risks, as employees can ask questions, receive answers and will most likely feel safer bringing information forward when it comes to workplace misconduct or policy violations. Employers and executives can learn a lot and benefit from communication.

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.”

Although creating an ethical culture spans much further than workplace policies and procedures, it’s important for employers to set the tone for workplace ethics within these documents. Ethics and compliance programs help to establish a more secure workplace. An organization committed to ethics and compliance can reduce their exposure to risks, such as fraud and bribery, if employees are aware of the enforcement and consequences they will face if they get caught. Typically, if an employee knows they are likely to be caught or the penalty for violating regulations is significant, employees will be less likely to make risky decisions. With an increasing number of sentences and dollar values of fines handed out to both individuals and corporations for violating laws, enforcement agencies have demonstrated the need for ethics to provide security in the workplace.

A Secure Workplace

Many of the new anti-corruption and anti-bribery legislations introduced, such as the UK Bribery Act and the FCPA in the United States, include clauses stating that an employer will not be held liable for offenses committed by an employee so long as the employer can prove that adequate measures have been established for preventing illegal acts. According to an Ethisphere interview, “The Road to a Model Ethics and Compliance Program,” with Sven Erik Holmes, Executive Vice Chair, Legal and Compliance, KPMG LLP states:

“Every organization should put in place an ethics and compliance program that ensures comprehensive reporting, clear accountability and full and effective oversight by the top decision makers. But to make the program truly effective—to maintain compliance, no matter how stressful the economic environment—it’s even more important to develop a culture that’s fully committed to ethics and compliance”

In order to create a more secure workplace, employers have to take appropriate action to put systems in place that support workplace policies and procedures. Companies need to encourage employees to come forward with information to ensure a safe workplace, as awareness of an incident is the only way to correct it. Reporting systems, when used properly, help bring managerial attention to issues early on. Early detection of workplace misconduct can assist in reducing financial losses, protecting employees and maintaining a positive corporate reputation. In previous posts, we have covered various methods for developing a code of ethics, as well as building ethics and compliance into corporate culture. Once policies and procedures have been put in place, it’s important to measure the success of the ethics and compliance program.

A Whistleblower System

According to the board of directors ethics and compliance section on the Deloitte website:

“An effective ethics and compliance program requires senior management involvement, organization wide commitment, an effective communications system, and an ongoing monitoring system. Successful whistle blowing procedures require strong leadership from the board and senior levels of management to develop a culture in which all employees are encouraged to raise their concerns without a fear of retaliation.”

When implementing an effective whistleblower system, consider using a case management system, such as i-Sight, that supports multi-channel case entry. i-Sight can be integrated with existing HR systems and hotlines.  Depending on the type of  incident or complaint being made, the complainant may wish to remain anonymous. Aside from reporting observed misconduct to supervisors, placing intake forms on company websites and intranets, as well as through a third party hotline, provides employees and members of the public with sufficient means for reporting incidents and complaints. When there are multiple channels in place for reporting, those with information pertaining to an incident are more likely to come forward.

Monitoring the Ethics and Compliance Program

Once company policies and procedures have been brought to life through implementation and training, employers must have measures in place to monitor the success of their ethics and compliance programs.  As there are no set standards for monitoring an ethics and compliance program, determining the success of the program can be difficult. Many companies turn to industry leaders in ethics, benchmarking the elements found in leading programs against those established in their own programs. I came across an Ethisphere article, “Expert Corner: Auditing an Ethics and Compliance Program,” by Dan Swanson and Jose Tabeuna that provides a great list of factors to consider when developing a method for monitoring an ethics and compliance program:

“A summary of potential audit and related evaluative approaches are as follows:

• Review compliance program design, structure and processes
  • Identify effectiveness indicators
  • Perform gap analysis- how do your C&E program features compare to established criteria and leading edge practices?
  • Benchmarking- how do your program features compare to your peers?
• Audit the program- assess implementation
  • Validate operational features of the C&E program
  • Gauge awareness and perceptions on the C&E program and assess organizational culture (conduct cultural assessment surveys, focus groups, etc.)
• Audit compliance with standards
  • outcome/impact analysis
  • Test whether transactions and activities meet legal requirements and company policies and standards

Perform other analysis to evaluate whether C&E program activities are reducing the risks of misconduct.”

Monitoring is critical to the success of any ethics and compliance program. Policies and procedures must be consistently evaluated to measure their effectiveness and ability to mitigate risk. Updating ethics and compliance programs is also necessary in order for a company to remain compliant with updated and changing legal requirements.

With an increasing number of environmental tragedies occurring in recent years, many wonder what companies are doing to boost sustainability efforts. Growing concerns regarding the state of natural resources and their future availability must become a major focus for all corporations, as the future of their business relies heavily on the environment, and vice versa. Corporate sustainability reporting has been adopted by a number of industry-leading firms, in order to communicate their plans to the public. Reevaluating product sourcing, packaging, transportation, and other steps involved in product preparation are just a few of the changes companies have employed to reduce their environmental impact.

Sustainability Reporting/ Transparency

Transparency and reporting corporate sustainability initiatives are best practices for all organizations. Reporting on these policies prompts businesses to think about the impact of their processes on the environment, as well as the impact the environment has on their business. Sustainability reports force businesses to become conscious of their decisions. In many cases, companies have been able to save money as they reduce waste.

The Coca-Cola Company has done a fantastic job in communicating and reporting their sustainability initiatives on their corporate website. At Coca-Cola, manufacturing processes require the use of significant volumes of natural resources. Reporting on sustainability has forced decision makers at Coca-Cola to find innovative ways to reduce the impact of the company on the environment, as they understand that the possibility of future resource depletion would inhibit them from creating their products. Acknowledging that sustainability reporting is a work in progress, here are some examples of the goals set by the Coca-Cola Company to improve corporate sustainability:

Water Usage: Safely return the equivalent amount of water, to what we use in all of our beverages and their production, back to communities and the environment.

Packaging: Reduce the amount of materials and energy used in creating product packaging. Invest in recycling and recovery programs so that packaging can be reused again. The company has invested in establishing PET recycling plants in various locations around the world. Lastly, increase the use of recycled products in the manufacturing of cans, bottles, caps and other products. This allows for recycled items to be reused, and for the finished product to be recycled in its entirety when consumed.

Reduce Carbon Footprint and Greenhouse Gas Emissions: Climate change is a two way street. Emissions from manufacturing processes and delivery (ex.vending machines and refrigeration) contribute to climate change. On the flip side, droughts, flooding and extreme weather impact a company’s ability to carry out business processes, the availability of raw materials and consumer ability to purchase products. Coca-Cola has begun using energy efficient cooling systems, mixing energy sources and set standards to reduce the energy used throughout product manufacturing and delivery.

The goals and initiatives established by the Coca-Cola Company can be used as examples of goals and areas for consideration by other companies. According to experts at PricewaterhouseCoopers LLP, reporting on non-financial information, such as sustainability, requires the same amount of care given to reports that are mandatory for every business to publish:

“Currently, companies issue their sustainability reports voluntarily. Sustainability reporting is not a public relations exercise. These reports must contain factual information about a company’s policies, programs, and performance, as well as management’s analyses and interpretations of that performance. These reports help the reader understand how the company’s operations impact society and the natural environment, and what the company is doing to reduce the negative impacts.

Brand Image

Sustainability efforts create significant benefits for brands. When an environmental catastrophe is caused by a business or business process, the public response can be detrimental. Just look at the hit BP has taken for the explosion and oil leak in the Gulf of Mexico. The damages of the events in the Gulf are still unclear; however, it’s likely the impacts will be felt for many generations to come.

In the SustainAbility article, “Five Principles for Sustainable Brands,” they write: 

“Brand is the embodiment of an organization– the symbols, experiences and associations connected to it. The connection between sustainability and brand helps build better relationships across value chains, creates new market opportunities, reduces risk, and, critically, more deeply embeds sustainable practices by making them part of the organization’s identity, its story – and when sustainability is part of the brand promise, it is far less likely to be compromised.”

As mentioned earlier in the post, sustainability forces organizations to consider a number of risks and implications of their processes on the environment. Building sustainability into corporate compliance or social programs is becoming increasingly common. When a company comes forward with their goals, they are held accountable for achieving them. Sustainability goals can also be credited for improving overall corporate performance, as waste and costs are reduced.

The state of the economy and selecting countries to expand into are only two of the many factors raising questions related to the risks of workplace fraud. There have been a number of studies completed to determine changes in the levels of workplace fraud and the factors impacting them. In recent years, surveys and reports consistently conclude workplace fraud is increasing. The risks associated with fraud can be mitigated as ethics and compliance enforcement continues to grow. However, it’s important to remember the focus on ethics and compliance varies globally.

As companies look to reduce costs by expanding overseas, it’s important to consider the risks organizations will face by making the move.

Fraudulent Findings

The 2009/2010 Annual Global Fraud Report published by Kroll, along with the Economist Intelligence Unit also concluded an increase in workplace fraud levels. Based on the responses gathered from the study:

“The economic crisis in isolation has raised some fraud risks. 30% of survey respondents say that the global financial crisis has increased the levels of fraud at their organizations, compared with just 5% who saw a decline. Lower profits heighten some risks. 1 in 6 companies are seeing greater vulnerability from reducing internal controls to save money, 1 in 7 from pay restraint, and one in eight from reduced revenues overall.”

Ernst and Young released their 11th Global Fraud Survey on May 19th. Many of the conclusions drawn from this report are similar to the findings in other studies published since the start of 2010.

Ernst and Young’s Global Fraud Survey

Ernst and Young sought out Chief Financial Officers (CFO), as well as heads of legal, compliance and internal auditing departments to report on managing fraud, bribery and corruption risks. The respondents come from 36 countries, providing excellent insight into the risks and occurrences of fraud around the globe. In the press release for the study, Ernst and Young report:

“Despite the significant time and money already spent by many companies, our respondents’ confidence in the effectiveness and level of adherence to internal compliance programs varied widely, both by geography and role.”

Some of the conclusions generated from the survey are:

In the past year, fraudulent acts have increased globally, while they have decreased in the United States.

Senior level executives are increasingly concerned about personal liability as opposed to the financial hit taken by the company as a result of fraud.

Corporate boards in Latin America (95%), the Middle East and Africa (87%), Central and Eastern Europe (84%) and Australia (81%) are concerned about personal liability for company fraud, bribery or corruption.

72% of directors in North America are concerned about these risks.

More than half of the North American compliance officers see data security as the most significant compliance concern in the next 18 months, followed by concerns over unethical business conduct and health and safety.

1 out of 7 respondents has never formally conducted a fraud risk assessment.

Moving Forward

Understanding cultural differences and evaluating the level of risk in each country are considerations that must be made if a company wishes to reduce the risk of fraud. Overcoming the risks associated with expanding business operations overseas will continue to take time. In North America, there have been significant resources devoted to fighting workplace fraud. Companies are responsible for complying with a number of laws and regulations involving workplace fraud that have yet to be adopted on a global scale.

There have been cases of fraud in the US where control person liability has been used, holding supervisors or managers responsible for unethical employee actions. This remains inline with the growing personal concerns faced by CFOs, compliance professionals and auditors, as it’s possible for them to be held accountable for fraudulent acts they were not aware of. Control person liability requires stricter controls and oversight within the workplace in order to ensure company policies and laws are abided by.