Business Ethical Issues: 14 Emerging Trends in 2013


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One of the hallmarks of an effective ethics and compliance program is on-going planning and improvement based on the changing environment. Whether you call it a “risk assessment” or “strategic alignment," the idea is to anticipate the ethics, compliance and reputational issues that your organization may face in the coming months, and then take steps to prepare.

Unfortunately, looking into the future is difficult – but NAVEX Global’s webinar, “Ethics & Compliance in 2013,” is designed to help. We brought together our own expertise and asked industry experts, colleagues and ethics and compliance officers what they see as the top issues pertaining to ethics and compliance in 2013. We’ve gathered their best thinking and prepared a summary of ideas that you should consider as you plan for the new year.

The session will begin with a review of trends and forces that are shaping the trajectory of the ethics and compliance field today, followed by our predictions. We will also offer practical recommendations and suggestions as to how you can better align your program to meet those critical, emerging risk areas.

Presented by:
Ed Petry, Ph.D, Vice President,
The Ethical Leadership Group, NAVEX Global

Published in: Business, Technology
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Business Ethical Issues: 14 Emerging Trends in 2013

  1. 1. Our Ethics and Compliance Predictions and Recommendations2/21/2013 1NAVEX Global: The Ethics and Compliance ExpertsEthics & Compliance:14 Emerging Trends in 2013
  2. 2. About Ed Petry, Ph.D.Ed joined ELG in 2005 after almost ten years as ExecutiveDirector of the Ethics and Compliance Officer Association(ECOA). Ed served on the Advisory Panel to the U.S.Sentencing Commission which was responsible for the2004 revisions.Earlier in his career he was a tenured Professor of Ethicsand a prolific author and researcher. He was also amember of the Ethics Oversight Committee for the U.S.Olympics.At NAVEX Global, Ed applies his more than 25 years ofexperience to help companies assess their ethics andcompliance programs. He has also written many of themost admired codes of conduct for companies worldwideand representing nearly every industry.
  3. 3. Forces Influencing Compliance14 Emerging Trends in 20132/21/2013NAVEX Global: The Ethics and Compliance Experts 3
  4. 4. Increased scrutiny: Governmentsworldwide have become moreprescriptive in terms of ethics andcompliance standards.Stricter enforcement:Enforcement agencies havegrown more sophisticated inassessing ‘real’ versus ‘paper’ethics and compliance efforts.2/21/2013NAVEX Global: The Ethics and Compliance Experts 4Forces and trends influencing Compliance
  5. 5. Cross-pollination: Companieshave fine-tuned the art ofexchanging ideas and bestpractices.Public expectations:stakeholders, investors, activistgroups, consumers, businesspartners, and employees aredemanding transparency andaccountability.High visibility: Social media, the24 hour business press, andtechnology has made itimpossible to hide2/21/2013NAVEX Global: The Ethics and Compliance Experts 5Forces and trends influencing Compliance
  6. 6. Emerging forces and trends New employees and younger stakeholders have grown up in an era whenbusiness ethics has been a regular topic in the news, in movies, as well asin their college and even high school courses. The constant drum beat of ethics scandals has engrained in the public adeepening skepticism of corporations and especially the pronouncementsof their leaders. Globalization has forced companies to think beyond their local culture,legal frameworks and norms Information technology has created new opportunities and new challenges.2/21/2013NAVEX Global: The Ethics and Compliance Experts 6
  7. 7. Our selection based onanalysis of forces and trendsInterviews with current andformer ethics and complianceofficersReview of NAVEX Globaldatabases2/21/2013NAVEX Global: The Ethics and Compliance Experts 7Our top 10 predictions and how to prepare
  8. 8. 1. 3rd party risk: The Achilles Heel Complex, multi-level supply chains and distribution networks thatspan the globe. The public – including investors but also employees and consumers - areincreasingly demanding transparency and corporate social responsibilitythroughout the manufacturing and distribution process. Companies face reputational harm from revelations of abuses and lapses inthe supply chain. Expect more of the same and look for cases to include distributionnetworks as well as suppliers.2/21/2013NAVEX Global: The Ethics and Compliance Experts 8
  9. 9. 3rd party risk: Our recommendations Create a supplier code of conduct and update all relevant policies. Clearly assign managers within your organization with the responsibility toensure that third parties are aware of their responsibilities and yourexpectations, Be specific in contracts regarding ethics and compliance requirements andensure that your contracts allow you to periodically audit these third parties ona schedule of your choosing, Hold third parties accountable if they do not meet their responsibilities, Ensure that you are using a rigorous and defensible third party due diligenceprocess and if necessary create a system to determine the risk level – legal andreputational – of your business partners, and Offer to share your ethics and compliance best practices with your businesspartners.2/21/2013NAVEX Global: The Ethics and Compliance Experts 9
  10. 10. 2. Damage control: Scandals go viral If you want to lose sleep, think how easy it would be for:o A video depicting what appear to be poor working conditions in one of yourmanufacturing plants to go viral.o For employees to post a YouTube spoof about your customer service.o For revelations to surface in chat rooms or cable news about a senior executive whofalsified his or her credentials. Before you know what happened, your reputation – and your sales – are ina free fall. Few companies are prepared for such a fast moving crisis requiring acoordinated response from various corporate functions.2/21/2013NAVEX Global: The Ethics and Compliance Experts 10
  11. 11. Damage control: Our recommendations Ensure that your internal reporting processes require prompt internalescalation of allegations involving senior executives or which could causeserious financial or reputational harm. Conduct an annual crisis management drill. Ensure that the Board, seniorleadership, investor relations, public affairs, communications and ethics andcompliance are included. Use the drill to test preparedness and identifygaps. Make sure that your employees and business partners know what to do ifthey come across on-line posts that could be damaging. Who do they needto alert? Should they respond with posts of their own – (hint: the answer is‘No’).2/21/2013NAVEX Global: The Ethics and Compliance Experts 11
  12. 12. 3. The Internationalization of Ethics and Compliance The ethics and compliance world has shrunk. Increasingly, we all play by the same rules. One consequence of this is the internationalization of ethics scandals. Nottoo long ago a list of top business ethics scandals would be dominated byUS-based companies. But in recent years, we’ve added to list:o Siemans, NewsCorp, BAE Systems, Barings Bank, Standard Chartered, Olympus, SocieteGenerale, Snamprogetti, Technip, JGC Corporation, Daimler AG, Alcatel-Lucent, MagyarTelekom and Panalpina, to name just a few.2/21/2013NAVEX Global: The Ethics and Compliance Experts 12
  13. 13. Think Global: Our recommendations Watch your language. Review your code, policies and training for any U.S.-centric language including idiomatic expressions and unnecessaryreferences to US-specific regulations. Broaden your benchmarking. Be sure to identify high risk employees and train them on topics such asimport and export controls, trade restrictions, technology transfers and ofcourse, bribery and corruption.2/21/2013NAVEX Global: The Ethics and Compliance Experts 13
  14. 14. 4. Election results mean more of the same No one should expect the regulatory pressure to let up any time soon. Enforcement seems to go in just one direction: more. As has been the case in recent years, much of the ‘action’ will take placewithin the bureaucracies as agencies Every company, especially those that do business with governments, needsto be sure that they are ‘in the loop’ and well positioned to ensure thatthere are no surprises.2/21/2013NAVEX Global: The Ethics and Compliance Experts 14
  15. 15. Focus on high-risk topics Recent enforcement actions are a pretty good road map to risk areas that youneed to address. Review your code, policies and training to make sure that the right people aregetting the right information, especially on these topics:o Insider tradingo Antitrust/fair competitiono Business partner/supply chain integrityo Employment issues (Safety, rights, wage and hour)o Data privacy and securityo Government contracting and inappropriate government relations i.e. conflicts of interesto Fraud, tax and accounting issueso And of course, bribery and corruption.2/21/2013NAVEX Global: The Ethics and Compliance Experts 15
  16. 16. 5. Consequences of Morgan Stanley Prosecutors have always had the option to exercise considerable discretion - and evendecide not to prosecute an organization - if it had an effective ethics and complianceprogram in place. The option was to go after the individual wrongdoer, while giving the organization abreak – both as a way of encouraging other companies to also create effective programsbut to also acknowledge that by having a program the company did all it was asked to doand the ‘bad apple’ simply acted contrary to the company’s directives. In a 2012 Foreign Corrupt Practices (FCPA) case, the US DOJ declined to prosecuteMorgan Stanley because of strong internal controls and cooperation with governmentinvestigators. Similar efforts in Brazil, China, South Africa, Japan, EU Question: To what extent will government agencies take into consideration theeffectiveness of ethics and compliance programs when determining whether or not tocharge an organization?2/21/2013NAVEX Global: The Ethics and Compliance Experts 16
  17. 17. Making the case: Our recommendations In the wake of Morgan Stanley, it certainly is worth the effort to: Invest time and resources in ensuring documentation of all elements ofyour ethics and compliance program. Be sure to cast a wide net. Critical documentation on, for example, hiringpractices and discipline, may be housed in HR. Audit, Security, and Legalalso need to be included in the process.2/21/2013NAVEX Global: The Ethics and Compliance Experts 17
  18. 18. 6. Whistleblower cases in the headlines As whistleblower rights and protections expand, we should expect evenmore jaw-dropping whistleblower awards. Cases and bounties, along with the provisions of the U.S. SECWhistleblower Program under Dodd-Frank, are bringing more and moreattention to whistleblowing.2/21/2013NAVEX Global: The Ethics and Compliance Experts 18
  19. 19. Whistleblowing: Our recommendations Demystify the reporting process. Clearly communicate to employees what happens after a helpline report isfiled, how your organization actually handles non-compliance, and how theinformation is tracked and followed up on. Be more transparent. In most companies, there is good news to share withemployees. Sharing more information and trend data can go a long way to overcomingcynicism and building employee trust.2/21/2013NAVEX Global: The Ethics and Compliance Experts 19
  20. 20. 7. Retaliation takes an unexpected turn The NAVEX Global 2012 survey on retaliation identified a shift in howretaliation is defined. While once viewed primarily as a management action against an employee,such as firing or demotion, the definition of retaliation now increasinglyincludes being shunned or being the target of negative comments orbehaviors from peers. When you combine this broader understanding of retaliation with thepopularity of Facebook and similar sites, we expect to see incidents in thecoming year of retaliation via social media – the adult version of cyber-bullying.2/21/2013NAVEX Global: The Ethics and Compliance Experts 20
  21. 21. Retaliation via social media: Our recommendations While companies have been playing catch-up to put in place social mediapolicies, add to your to-do list Code and policy language as well as trainingthat addresses the topic of social media used as an avenue for retaliation; Communicate to and train managers on their role in maintaining an openculture without fear of retaliation; Create a system to track and investigate claims of retaliation; and Consider creating a retaliation monitoring program for identified reportersand participants in an investigation, which can allow you to watch carefullyfor signs of retaliation over a period of time.2/21/2013NAVEX Global: The Ethics and Compliance Experts 21
  22. 22. 8. Even more focus on governance and accountability 2012 saw even more high-profile cases that illustrated the vulnerability ofcompanies at the top of the organization:o Wal-Marto Yahooo Penn State Recent years saw Boards and leaders are demanding much more thanperfunctory reports from ethics and compliance officers.2/21/2013NAVEX Global: The Ethics and Compliance Experts 22
  23. 23. More than tone at the top: Our recommendations Boards and senior leadership need concise, contextualized information as well as advice,training and assistance that are appropriate to their roles and responsibilities. Target training for the Board of Directors and executive leadership on their specific rolesand responsibilities and the unique risks their actions could bring to the organization. Review Board reports - Boards don’t want to be immersed in details; instead they needclear information on trends, context and significant developments that could pose criticalrisks. Once these risks have been identified, the Board and senior management need tounderstand the organization’s risk mitigation strategies and ensure that these strategiesare implemented and effective. Given the number of high profile cases involving Board members, it is important toassess how, and how well, the Board and senior leaders identify, surface and resolve theirown ethics and compliance issues. Is there an appropriate resource? Are theycomfortable using available formal and informal reporting and resolution processes?2/21/2013NAVEX Global: The Ethics and Compliance Experts 23
  24. 24. 9. Is this the year to (finally) engage with HR? On a daily basis no corporate function touches more employees more oftenthan Human Resources. Hiring, firing, discipline, performance reviews, and compensation – howthese key areas are handled shapes morale and corporate culture far morethan anything else. Given their importance – which was singled out in the 2004 amendmentsto the Sentencing Guidelines – it is astounding how we still find companiesthat have not yet found a way to align HR and the goal setting process withethics and compliance.2/21/2013NAVEX Global: The Ethics and Compliance Experts 24
  25. 25. A bridge to HR: Our recommendations Update the information that is currently being shared with prospective hires aswell as material including during orientation. These are important opportunitiesto be sure that the ethics and compliance message is on target. Make sure an assessment process is in place for new employees and thosebeing promoted that includes not only background screening but a review oftheir past support and alignment with your values and standards. Determine whether performance measurements – especially for leadership –encourage their active participation in implementing ethics and complianceinitiatives. Utilize exit interviews as an additional method to gain insight into potentialproblem areas. Take steps to include reports that are made to managers, HR, Audit and othersin addition to your helpline reports - otherwise, you are only seeing a fractionof the whole.2/21/2013NAVEX Global: The Ethics and Compliance Experts 25
  26. 26. 10. Cracks in the Ivy Tower Universities are large, complex institutions. Given the exposure to so manyethics and compliance risks, it seems to be only a matter of time beforeacademic institutions begin to have their share of problems. When the inevitable happens, the repercussions will be significant. Collegesand universities are often the cornerstone of communities and they arebusiness partners and suppliers to industry on a number of levels. Corporations have a vested interest in assisting academic institutions indeveloping more effective ethics and compliance controls.2/21/2013NAVEX Global: The Ethics and Compliance Experts 26
  27. 27. Back to school: Our recommendations Though academic institutions have a wealth of expertise on ethics andrelated matters, when it comes to managing an ethics and complianceprogram they have much to learn from corporations. Take the initiative to share your expertise with your alma maters or localuniversity. Our professional associations can and should do more to encourage andenable academics to participate in best practice forums and in meaningfulresearch. Corporations should apply the same ethics and compliance due diligence totheir academic partners as they do other suppliers and third parties.2/21/2013NAVEX Global: The Ethics and Compliance Experts 27
  28. 28. Too big to jailIPOs and conflicts ofinterestEmployee mobility and therisk to confidentialinformationTaming Ethics andCompliance ‘Big Data’2/21/2013NAVEX Global: The Ethics and Compliance Experts 28Other topics on our ‘Watch List’ for 2013
  29. 29. The Last Word: Introspection After twenty years of business ethics will the continuation of scandals generatea backlash or at least a serious rethinking of our approach and methods? Is the public beginning to become disenchanted with our approach to businessethics? Are our employees becoming more cynical and are we turning a blindeye to our own hypocrisy? Over the years surveys and focus groups have identified a gap between thepublic view of business ethics and what we, as ethics and complianceprofessionals, actually do. What is the impact of this disconnect? How long can we maintain our credibilityif we continue to focus on a narrow range of topics that is out of sync withpublic expectations? Is this the year for us to step back and assess our approach and to broaden ourunderstanding of the scope of our jobs?. Better to do some soul searching nowthan to be unprepared if (and when) the backlash occurs.2/21/2013NAVEX Global: The Ethics and Compliance Experts 29
  30. 30. You will receive an email with anarchived version of thepresentation with 72 hours.If you have furtherquestions, please contact:Ed PetryVice PresidentEthical Leadership Group,ed@ethicalleadershipgroup.comThank you for your Participation!