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Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
Conference on Moral Imagination Compliance Programs as a ...
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Conference on Moral Imagination Compliance Programs as a ...

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  • 1. Conference on Moral Imagination Compliance Programs as a Framework for Preventing and Detecting Employee Misconduct Vickie L. McCormick Special Counsel and Consultant 612.204.4156 [email_address]
  • 2. Compliance Program Overview
    • 1991 Federal Organizational Sentencing Guidelines
      • New (in 1991) guidelines for financial penalties when sentencing organizations
        • Organizations can’t go to jail, so penalties need to be financial
      • Sledgehammer and Carrot
        • Significant financial penalties for misconduct
        • If organization had “effective” compliance program at the time of misconduct , penalties could be reduced – lower fines.
          • Recognized that organizations can not be fully accountable for all of the misconduct of its employees and agents
            • Compliance program evidences organization’s efforts to prevent misconduct and should be recognized by lower penalties.
  • 3. Compliance Program Elements
    • Sentencing guidelines identified 7 elements of effective compliance program.
      • The compliance program elements represent good business practices that well run organizations would have in place:
        • Oversight & Delegation
        • Code of Conduct and Other Policies
        • Creating Awareness
        • Assessing Compliance
        • Reporting Mechanism
        • Response & Prevention
        • Enforcement & Discipline
      • See non-presentation slides for detailed review of compliance program elements.
  • 4. Similarities of Compliance Program Elements to Findings and Recommendations in Governance and Operational Governance Literature
    • Fama and Jensen
      • Mutual monitoring, accounting and budgeting = Compliance Assessments
    • Kinney
      • Internal Controls = Policies + Compliance Assessments
    • Daft & Macintosh
      • “ Management Control” = Compliance Assessments + Response and Prevention
    • Leatherwood and Spector
      • Enforcement and Discipline
  • 5. Study Findings Alignment with Compliance Program Elements
    • Compliance Program
    • Oversight & Delegation
    • Code of Conduct and Other Policies
    • Creating Awareness
    • Compliance Assessments
    • Response and Prevention
    • Enforcement and Discipline
    • Reporting Mechanisms
    • Study Hypotheses
    • Governance structure and compensation
    • Clear policies and procedures (#2)
    • Strong and comprehensive code of conduct (#3)
    • Formal and informal communication opportunities (## 4 & 5)
    • Formal and informal communication opportunities (## 4 & 5)
  • 6. Study Supports Effectiveness of Compliance Program in Preventing Misconduct
    • Proving “effectiveness” of compliance programs
      • Limited empirical evidence to date
      • Schnatterly study supports the intuitive assumption that compliance programs can help to prevent employee misconduct
        • Or, at least those elements of the compliance program for which there is a corresponding finding
          • All of the supported hypotheses fit within one of the 7 elements of a compliance program
  • 7. The 7 elements compliance program structure provides a framework for organizations to implement the strategies supported in the study that help prevent and detect employee misconduct
  • 8. Including Values and Ethics
    • Employee Perception -- Arthur Andersen Study
      • The irony of referring to an Arthur Andersen study is recognized
      • Key Findings:
        • Values-driven program had the most positive effect on all seven outcomes:
          • lower observed unethical conduct,
          • stronger employee commitment, and
          • a stronger belief that it’s okay to deliver bad news to management.
        • Perception that ethics and compliance program exists only to protect the reputation of top management may be more harmful than having no program at all
        • Organizational culture issues matter more than the formal characteristics of an ethics and compliance program.
  • 9. Employee Perception: Program Success Factors
    • Leadership
      • Employees perceive executives care about ethics and values as much as the bottom line
    • Consistency between words and actions
      • Employees perceive management “practices what it preaches”
    • Fairness
      • Fair treatment is one of the most important variables in predicting effectiveness. To employees ethics means how the organization treats them and their co-workers
    • Open discussion of ethics in the organization
      • Open discussion about ethics and values and integration of ethics and values into business decision-making
    • Perception that ethical behavior is rewarded
      • Perception of rewards of ethical behavior has greater influence on program effectiveness than punishing unethical behavior
  • 10. Effect of Ethical Business Culture on Loyalty
    • Customer loyalty when perceive company to be highly ethical
      • If highly ethical 76% strong loyalty
      • If not highly ethical 0% strong loyalty
    • Employee loyalty when perceive company to be highly ethical
      • If highly ethical 95% strong loyalty
      • If not highly ethical 16% strong loyalty
  • 11. Benefits of Ethics & Compliance Programs
    • Maintain reputation
    • Stock value
    • Attract high quality board directors
    • Employee and customer loyalty
    • Save $$ - No fines, no attorneys fees, no lost/delayed opportunities.
    • Save time – No disruption by government investigation or litigation
    • Avoid government compliance plan
    • Avoid “perp walk” by executives
  • 12. Compliance Programs What & How
  • 13. Oversight & Delegation
    • Structure
      • Board of Directors
        • Audit and/or Compliance Committee
      • Senior Management Committee
      • Ethics/Compliance Officer
    • Regular Reporting
      • Metrics regarding risk areas and key impact areas
    • Delegation
      • Background checking of employees, agents and contractors
      • Question(s) on employment application
      • Job description and performance evaluations
      • Performance bonuses
  • 14. Code of Conduct & Other Policies
    • Code of Conduct
      • Emphasize ethics and values – not just rules
        • Can’t have a rule for every situation, need to have ethical framework employees can apply to situations without clear rules
        • Employee resources, not just a rule book
      • Comprehensive
        • Address wide array of issues faced by employees
          • Accuracy of company records; business courtesies; protecting and using company assets; conflicts of interest; employee relations; government customers; government investigations and interviews; health, safety and security; international business practices; media contact and communication; political and community activities; property rights of others
      • Relevant – real life examples
        • Q&As that reflect the types of situations employees will face
      • Reading level
      • Resource for questions and clarification
  • 15. Code of Conduct & Other Policies
    • Other Policies
      • Multi-tiered approach
        • Holding company/corporate
        • Subsidiaries/divisions
        • Departments
      • Cover broad areas of concern
        • Don’t assume employees:
          • Recognize issues
          • Understand/know related considerations
      • Policies vs. procedures
        • Broad guidance vs. detailed processes
        • Standard format and structure
      • Web-based policies with links and resources
  • 16. Code of Conduct & Other Policies
    • Contractors
      • When are they subject to company’s Code of Conduct and/or policies
        • On-site workers
        • Type of services
      • Requirement to maintain compliance program and right to audit
        • Contractual provisions, i.e., Ethics and Compliance Attachment to all contractor agreements.
  • 17. Creating Awareness
    • Employees (and contractors) can not comply unless they know what the expectations are
    • Types of Awareness Initiatives
      • Website
      • Newsletter articles
      • Emails
      • Posters in commons areas
      • New employee orientation
      • Training programs
        • Classroom
        • Self-study
        • Web-based
  • 18. Compliance Assessments
    • Monitoring
      • Regularly scheduled and ad hoc internal review to assess compliance with operating or other standards.
        • Often part of quality processes
          • Not specifically directed to compliance
          • Scheduled in frequency and amount of review
          • Performed under direction of department being monitored
    • Auditing
      • Conducted by independent reviewer not associated with hierarchy of audited area
      • Attorney/Client Privilege?
      • Annual planning
  • 19. Compliance Assessments
    • Exit Interviews
      • Employees who resign
        • Question of reliability of information from employees involuntarily terminated
      • All Managers above a certain grade level
        • Most likely to have information that could represent non-compliance
        • Reduce likelihood they become whistleblowers
      • Ensure all allegations are investigated and resolved.
  • 20. Reporting Mechanism
    • A mechanism, i.e., hotline, that employees can utilize to notify the organization’s management about possible misconduct.
      • Ability to make anonymous reports is important feature.
    • Operational Considerations
      • Visibility
      • Credibility
      • Privacy and anonymity
      • Responsiveness
      • Non-retaliation
  • 21. Reporting Mechanism
    • Benefits
      • Reduce litigation and likelihood of whistleblowers
        • If employees feel like they have a credible and reliable avenue to voice complaints, less likely they will seek other avenues
      • Promote compliance
        • Sense that others are watching and could report may help employees walk away from the opportunistic non-compliance
      • Encourage managers to deal constructively with complaints
        • If the manager doesn’t, the employee has another avenue
      • Boost morale
        • Organization seems to be good and fair place to work
      • Provides feedback on how policies are working
  • 22. Response & Prevention
    • Identify and fix it – don’t hide it
      • Cover-ups worse than original offense
        • Watergate
        • Iran-contra
        • Lewinskygate
    • Always respond to allegations of misconduct
      • Investigation is frequent response
    • Fixing and Preventing – Corrective Action Plans
      • Fix current problem
      • Improve controls to avoid problem in the future
      • Establish accountability and responsibility
      • Audit implementation and effect
  • 23. Enforcement & Discipline
    • Goal is to minimize need for discipline by avoiding misconduct
    • Discipline should be uniformly and consistently applied
      • Inconsistent discipline affects employees’ perceptions and the credibility of the Ethics and Compliance Program
    • Tracking disciplinary action for reporting to senior management and board and to ensure uniformity and consistency
    • Public disclosures regarding disciplinary actions?

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