[P5(b)] Keeping Your Code Current (and Other Practical Considerations) SCCE Compliance & Ethics Institute 2009


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Educate participants on stock exchange listing requirements as well as other legal requirements for updating the Code of Conduct
This presentation includes the following topics: educate participants on considerations global organizations should take regarding translation and localization of its Code, educate participants on corporate governance considerations when updating the Code, and offer practical tips and best practices for accomplishing updates in a timely fashion.

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  • [P5(b)] Keeping Your Code Current (and Other Practical Considerations) SCCE Compliance & Ethics Institute 2009

    1. 1. Keeping Your Code Current (and Other Practical Considerations) Society of Corporate Compliance & Ethics 8th Annual Compliance & Ethics Institute September 13, 2009 Las Vegas, Nevada Jill U. Edmondson The Home Depot Manager, Corporate Compliance jill_u_edmondson@homedepot.com
    2. 2. 2 Questions to be answered today  Why is this important?  What is a Code Of Conduct (“Code”)?  Is a Company legally required to have a Code?  What should be considered when updating a Code?  What parties should be involved in the update process?  What are the practical considerations for updating?  Frequency  Public Availability  Translation/Localization
    3. 3. 3 June 13, 2007 Wellpoint fires highly regarded CFO over “non-criminal” Code of Conduct violation Wellpoint insisted that its CFO, David Colby, step down due to an unspecified violation of the Wellpoint Code of Conduct. According to the company, concerns raised in “recent days” prompted Wellpoint to act swiftly by commissioning an outside legal firm to investigate - the firm then confirmed that violations had occurred. Wellpoint stated that the violation did not involve illegal conduct and was “in no way related to the business of Wellpoint.” When the CEO of the company was asked on an analyst call whether the company had considered giving Colby a second chance, he responded, “We don’t have double standards in the company. We have one set of the Code of Conduct that applies to everyone.” Code of Conduct in the news… CEO states “Code of Conduct applies to everyone.” October 12, 2007 Conduct Forces CEO to Resign Ezra Dabah, former Chief Executive Officer of The Children’s Place Retail Stores recently resigned after an investigation revealed he failed to comply with company policy concerning securities trades as well as a violation of the company’s Code of Business Conduct. On two occasions, Dabah pledged shares of the company’s stock through a margin account during a closed trading window period. Such activity required board pre approval, which Dabah failed to receive. Additionally, the former CEO failed to disclose “an immaterial increase” in his wife’s ownership of the company stock. Former CEO violated company’s Code of Business Conduct THE NEW YORK TIMES
    4. 4. 4 What is a Code of Conduct? “The Home Depot has a strong commitment to ethics and integrity, and our core values define the means by which we do business.” ~Frank Blake, The Home Depot Chairman and CEO Embodiment of an organization’s values and ethics Primary if not sole compliance policy for most organizations A guideline meant to detect and prevent criminal conduct within the organization while directing desired behaviors
    5. 5. 5 Federal Sentencing Guidelines Chapter 8 Legal Requirements Require development and distribution of a written standard of conduct The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures Legal requirements vary NASDAQ Listing Standards (Rule 5610) Require adoption of a Code of Conduct (“COC”) for all associates (directors, officers and associates) COC must address topics outlined in the Sarbanes-Oxley Act of 2002 (“SOX”) §406 Must be made publically available Any waivers to directors or executive officers must be BOD approved and disclosed via Form 8-K w/n 4 business days
    6. 6. 6 SOX §406 Legal Requirements con’d. Defines a “code of ethics” (“COE”) as written standards that are reasonably designed to deter wrongdoing and to promote: (1) Honest and ethical conduct; (2) Full, fair, accurate, timely, and understandable disclosure in SEC filings and other public communications; (3) Compliance with applicable governmental laws, rules and regulations; (4) Prompt internal reporting of code violations to an appropriate person(s) as identified in the code; and (5) Accountability for adherence to the code. Legal requirements vary
    7. 7. 7 SOX §406 cont’d. Legal Requirements con’d. COE not required, however, must disclose why COE doesn’t exist Specifically refers to COE that applies to its principal financial officer, comptroller or principal accounting officer, or persons performing similar functions Requires prompt disclosure of COE amendments or waivers for these associates on Form 8-K or company’s website 8-K requires disclosure within 5 business days after COE amended or waiver granted Can opt to disclose on Company’s Internet site within 4-5 business days of occurrence Must disclose this preference in its most recently filed annual report Must remain on Internet site for at least 12 months Legal requirements vary
    8. 8. 8 Sarbanes Oxley §406 cont’d. Legal Requirements con’d. Waiver - a company’s approval of a material departure from a provision of the COE or failure to take action within a reasonable time period regarding a material departure from the COE that has been made known to an executive officer Executive Officer - president, any vice president in charge of a principal business unit, division or function), any other officer who performs a policy making function or any other person who performs similar policy making functions for the registrant. Executive officers of subsidiaries may also be deemed executive officers (See SEC Rule 3b-7) Legal requirements vary
    9. 9. 9 Legal Requirements con’d. Legal requirements vary NYSE Listing Standards (Rule 303A) Requires adoption and disclosure of a Code of Conduct & Ethics (“COCE”) for all associates Must address following topics: Conflicts of interest Corporate opportunities Confidentiality Fair dealing Protection and proper use of company assets Compliance with laws, rules and regulations Encourage reporting of any illegal/unethical behavior Requires prompt disclosure of any waivers for directors or executive officers
    10. 10. 10 Frequency of Code Updates  In response to new laws or issues  Whenever waivers granted  Pursuant to listing requirements or other laws  Post certification results/trending  Technical, administrative, non-substantive changes (don’t necessarily have to be disclosed per SEC Rule 5.05)  Absent these changes, consider benchmarking with industry companions to make business case for why updates required (make more user friendly, more engagement, more visually appealing, more interactive)
    11. 11. 11 Who Should Drive Update Process? THD Corporate Compliance coordinates with Legal & Business Other Involvement Cross Functional Team Key Stakeholders Board of Directors Audit/Corporate Governance/Compliance Committee Compliance/Risk Council Associates Customers Vendors/Suppliers Third party Contractors Local Community Groups Corporate Compliance Legal HR Operations
    12. 12. 12 Substantive Change Policy Update Approval Process Big change… Business Partner (BP) Legal Partner (LP) Corporate Compliance ERC Audit Committee • Identifies business /legal reason for Code update • Creates redline • Reviews & approves BP redline or makes further revisions • Determines whether changes requires Audit approval • Creates change synopsis •Format & standardi- zation •Ensure proper LP/ BP sign off • Reviews, and approves changes •Escalate to Audit • Reviews and approves substantive changes •Considerable •Involving matters of major or practical importance to all concerned Approval Process Corporate Compliance • Coordinate localization/trans- lation •Post to intranet and internet
    13. 13. 13 Non Substantive Change Policy Update Approval Process cont’d. Big change or little change? Business Partner (BP) Legal Partner (LP) Corporate Compliance • Identifies business /legal reason for Code update • Creates redline • Review & approves BP redline or makes further revisions • Determines whether changes requires Audit approval • Creates change synopsis •Format & standard- ization •Ensure proper LP and BP sign off •Coordinate localization/ translation & posting when appropriate •A technical or administrative update •At THD, only implemented during 2nd and 4th quarters Approval Process
    14. 14. 14 Practical Considerations The devil is in the details! Formatting & Standardization Translation/Localization Make Publically Available? NASDAQ SOX §406 NYSE guidelines requires posting to public website Makes good business sense Foreign laws vary on this topic (e.g. Canada varies by province) Involve in-house for localization. Don’t simply rely on external translation service Can be costly and time consuming Makes good business sense Ensures consistency among versions Keep margins broad to allow adequate white space Avoid legalese (think am I smarter than a 5th grader)
    15. 15. 15 How to reach me Jill U. Edmondson Manager, Corporate Compliance The Home Depot E-mail: jill_u_edmondson@homedepot.com Telephone: (770) 433-8211, ext. 84499