Transcript Corpedia - International Legal Technology Association

Corporate Compliance & Ethics
Programs
Leveraging Technology, Best Practices and
Outcomes in Execution
LawNet, Inc. Conference - August 2004
Today’s Outline
What isn’t eLearning (and what is)
Driving forces behind adoption
How it works
Execution issues and 10 case studies
GOOD vs. BAD
Why compliance/ethics programs?
The 3 Driving Factors…
Improve behavior & work environment
Reduce risk/avoid liability
Align with Federal Sentencing Guidelines
Improving Behavior – Stats to Consider
46% observe one or more specific types of misconduct
44% don’t report misconduct due to belief:
– (1) no corrective action will be taken;
– (2) information not be confidential
1 in 3 say employees show respect for fellow employees whose
success is based on questionable ethics practices
Newer and younger employees 2x less likely to report
misconduct… yet experience 2x greatest pressure to engage in
misconduct
Source: National Business Ethics Survey, 2003, Ethics Resource Center
ROI Benefits of an Effective Program
Where effective program in place, employees more likely to:
Trust the actions of top management.
Have a higher level of job satisfaction overall (lower turnover, more
productive)
Report misconduct; believe those who violate are held accountable
Feel less pressure to commit misconduct
Safeguard company brand and reputation
Focus on sustainable long term business performance contributions
as opposed to looking for short-term gain
Weather transition (mergers/acquisitions/layoffs) more easily
– National Business Ethics Survey, 2003, Ethics Resource Center
Reduced Risk/Avoided Liability
Compliance is expensive ($$$)
– Electronic discovery, disruption,
legal expenses
Litigation, settlements and claims
are even more
– PLI-Corpedia solutions recognized
by insurance industry for risk
reduction
– Lower D&O, EPL, E&O rates
Consider a different LH outcome…
Some Numbers…
• $20b spent by regulatory agencies
• $850b spent by corporations to
comply
• $850b reduction in market cap due
to scandals
• $200b - $565b in white collar crime
• $$$b in litigation / penalties / fees
Federal Sentencing Guidelines
New guidelines in effect as of Nov 1. 2004
“An organization shall exercise
due diligence to prevent and
detect criminal conduct and…”
“Otherwise promote an
organizational culture that
encourages ethical conduct and
a commitment to compliance
with the law.
- US Sentencing Commission
“When determining whether to
charge a corporation criminally
for the acts of employees,
“prosecutors should determine
whether the corporation’s
employees are adequately
informed about the
compliance program and are
convinced of the
corporation’s commitment to
it.”
- Larry D. Thompson,
Deputy Attorney General
Sentencing Guidelines Overview
Establish standards & procedures
Assign high-level authority
Not bestow authority to unethical executives
Communicate & educate
Monitor, audit & evaluate
Implement anonymous reporting systems
Apply consistent incentives & discipline
Respond, correct & modify
What do we have to do?
Types of Topics Covered
200+ Topics Include
•Sarbanes-Oxley Code of Conduct
•Financial Integrity & Assurance
•Ethical Decision
•Intellectual Property
•Information Security
•Harassment
•Record Keeping & Destruction
•Health & Safety
•Anti-Money Laundering
•Conflicts of Interest
•Insider Trading
•Gifts & Gratuities
•Illegal Business Practices
•Antitrust
•OSHA
•etc..
How does “an effective compliance program”
appear to an organization?
99% Workforce
Penetration
Proof of Employee
Comprehension
Proof of Employee
Comprehension
How does “an effective compliance program”
appear to employees?
Step 1: Open Registration Email
Step 3: View CEO Introduction
Step 2: Access Training Menu
Step 4: Take Course
Learning Methodology
Compliance and ethics situations vary
Teach the underlying concept FIRST…
Use cases to reinforce
Result: More effective decision making vs. imitative learning
Legal concept-based
Reinforcing story-based scenarios
Customized to client organization
Testing for comprehension
Best Practices
Q:
Can we define the practices of leading
corporations?
A1:
Process-based Practices: Open Compliance &
Ethics Group (www.oceg.org)
A2:
Principle-based Practices: The 5:8 Principles
OCEG Nonprofit Initiative (www.oceg.org)
Akin Gump, Strauss Hauer and Feld LLP
American Bar Association (ABA)
American Corporate Counsel Association
(ACCA)
American Institute of CPAs (AICPA)
American Insurance Group (AIG)
American Society of Corporate Secretaries
(ASCS)
Arent Fox, LLP
Blackboard
Bridge Associates
Bryan Cave, LLP
CalPERS
Corpedia Education
Corporate Integrity Services
Center for Applied Business Ethics
Debevoise & Plimpton
Dechert LLP
Deloitte & Touche
Deutche Bank
doubleDrum Capital, LLC
DuPont de Nemours
Ernst & Young
EthicsPoint
Ethics Resource Center (ERC)
Fleetwood Retail
Frank B. Friedman and Associates
Foley Hoag LLP
General Dynamics
General Electric
General Electric Aircraft Engines
Gilbert and Associates
Governmental Insurance Exchange
Goodwin Procter, LLP
Grant Thornton
Groupo Nuevo
Gulf Insurance
Harris, Wiltshire & Grannis, LLP
Holland & Knight, LLP
Honeywell
Howrey, Simon LLP
Institute of Business Ethics
Institute of Internal Auditors (IIA)
Intel
ISS
IRRC
KPMG
Kaye Scholer, LLP
Kraft Foods
Latham & Watkins, LLP
Lehman Bros.
Littler Mendelson, LLP
Louisiana Pacific
Marsh, Inc.
Mathews and Green, LLC
McKenna Long & Aldridge, LLP
Michelin North America
Microsoft
NCS Pearson
New York City Pension Funds
Orrick Herrington and Sutcliffe, LLP
Practising Law Institute (PLI)
Professional Liability Underwriting Society
(PLUS)
Pfizer
Proskauer Rose, LLP
PricewaterhouseCoopers
Skadden, Arp LLP
Swidler Berlin, LLP
Walgreen
Winstead Sechrest & Minick, LLP
Zurich Financial Services
200+ individuals
100+ organizations
since January 2003
The 5 Principles
Start with compliance and move to integrity
– Effective programs are not built overnight
Model ethical behavior expectations
– Living out the words
Test for impact and measure against peers
Focus on the frontline
– Younger & newer employees are most vulnerable
Systems awareness is not the same as credibility
– 44% don’t report misconduct due to lack of system credibility
The 8 Practices
1.
2.
3.
4.
5.
6.
7.
8.
Titled officer with board-level exposure
Make available & educate on multiple reporting channels
Distribute & test entire workforce on “Code”
Integrate to job and provide case study decision-support tools
Communicate CEO’s message & personal ethics experience
Survey for impact & benchmark a minimum of every 2 years
Internally visible reward & discipline as reasonable/feasible
Educate by core functional area within 30, 60, 120 DFH rule*
* Days From Hire: 30 for “Code”; 60 for sales, finance &
purchasing; 120 for general management
Case Study (1):
Lockheed Martin & Norm Augustine
“Nobody will follow you if they can’t trust you… And when they
see a leader that doesn’t cut corners, they say, ‘Oh, that’s the
way it’s done around here.’ ”
“My advice would be that I think the only thing in the world
more important than your health is your reputation”
Case Studies
– Firing the “Dumpster Diver”
– The Jack Welch Handshake
Innovative Way to Instill Believability & “Tone from the Top”
Case Studies (2-6):
Distributing & Testing on the Code
No Computers.
– Uses kiosk system (Airline)
– Paper-based w/tests entered by managers into HRIS (Medical)
No Regular Internet Access.
– Run locally, upload when email is accessed (Pharma Reps)
No Email.
– Tracks training by employee ID# (Retail Chain)
No Land.
– CD-ROM based with satellite uplink (Oil Rigs)
“Will” creates “Way” – Innovative Internal and External Drivers
Case Study (7):
Testing/Surveying for Feedback on the Code
Company: Major Energy Producer
Surveying Segment: Conflicts of Interest
Sample Quote:
– “My brother works for MCI and they are our
company’s telecom provider. Is there a problem?”
You want this type of dialogue to take place
Case Study (8):
Building Credibility to Report Channels
Company: Heavy Equipment Manufacturer
Original Reporting System:
– Developed In-House
– Specific Individual to Call
Revised Reporting System
– Augmented by Externally-Based Online & Offline Versions
– Invested in education –provided relevant case study how it works
44% of employees who witness misconduct but don’t report it
42% don’t believe corrective action will be taken
Case Study 9:
Internally Visible Reward & Discipline
Case Study: High-Technology Company
Problem: Unauthorized Use of Resources; Violation of
Company Policies
Action:
Termination of 35 employees – announcement to the
rest of the workforce
Difficult yet possible to reward behavior without being
condescending...
but failing to publicize discipline may undermine system confidence
Case Study 10:
30, 60, 120 DFH Rule
Company: Consumer Products
Former Training: Ad Hoc & In-Person
Revised Training: 30, 60, 120 DFH via eLearning
Impact:
– No systemic problems discovered; 50%+ expense reduction
– Institutionalized repeatable system
– Focused on the frontline risks
Newer and younger employees 2x less likely to report misconduct…
yet experience 2x greatest pressure to engage in misconduct
Other Outcomes
Not everything is measurable… but good examples exist
Reduced Cost of Risk
–
Companies achieving 15-30% reduction in E&O, EPL and D&O
insurance
Witnessed Misconduct Reduced by 75% Across Board
–
When senior managers demonstrate “illustrative behavior”*,
misconduct witnessed drops to 15% from 56%
* (1) Talk about importance; (2) Model behavior; (3) Inform employees; (4) Keep promises
Other Leading Practices Observed…
Planning Practices
– CEO buy-in at outset
– Temporary cross-functional teams with EVP-level “TieBreaker”
Design Practices
– Invest in quality & customization - less expensive than you think
– Instructional methodologies vary by type of workforce
Implementation Practices
– Respect employees’ existing knowledge & time
Vendor Contracting
– Demand disclosure of possible conflicts of interest
– Get copies of the software code & records
– Due diligence on financials & commitment to industry