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Why Invest in Ethics and Compliance? Facts & Figures

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Having an effective ethics and compliance program can have direct impact on your bottom line by minimizing the risk of fines, penalties, employee wrong doing, and by creating a better corporate reputation among your customers.

If you find this information useful, we invite you to visit our blog, and register for our mailing list to receive our articles on the FCPA and other compliance topics. Visit us at www.ethicsresources.org

This material is confidential and proprietary to IntegTree LLC and may not be reproduced, published or disclosed to others without the express authorization of IntegTree LLC. IntegTree LLC is not a law firm and is not engaged in providing legal or other similar professional advice or services. In providing our services, IntegTree LLC attempts to provide its clients with “effective practices” in light of then-current laws and/or regulations. IntegTree’s services should not replace advice from your in-house or outside counsel or their opinions concerning company practices.

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Why Invest in Ethics and Compliance? Facts & Figures

  1. 1. Copyright © IntegTree (2014) www.IntegTree.com Why Invest in Ethics & Compliance Programs Dr. Nitish Singh & Thomas J. Bussen (J.D./MBA) E-mail: ncsingh@integtree.com
  2. 2. Copyright © IntegTree (2014) www.IntegTree.com The Background • Who - 2004 Amendments to Federal Sentencing Guidelines for Organizations (FSGO) standardize sentencing guidelines for compliance breaches • What – The FSGO set out “7 Pillars of an Effective Compliance Program”. Sentences are increased or reduced based on your compliance program • Why You Care – Organizations face severe fines and penalties. Enforcement is up. Penalties are up.
  3. 3. Copyright © IntegTree (2014) www.IntegTree.com The Seven Pillars to An Effective Compliance and Ethics Program 1. Communicate to employees the standards and procedures to which they should adhere 2. Oversight should be placed with a high-level employee 3. Education and training is instrumental to ensuring employees understand the nature of their obligations 4. Companies must regularly audit and monitor their system 5. A mechanism by which employees can report ethical and regulatory violations should be in place 6. There must be enforcement of the program and discipline for violations 7. Organizations must respond to violations and seek to prevent recurrences
  4. 4. Copyright © IntegTree (2014) www.IntegTree.com Costs of Non Compliance • DOJ Collected $1 Billion-Plus in 2011 Antitrust Fines (4) • Biomet, a US medical device firm, fined $23m in 2012 by DOJ for false record keeping and bribery in China and Latin America (6). • Maxwell technologies in 2011 paid $8 million in penalty for FCPA violations. • Johnson & Johnson ordered to pay $1.1bn in penalties for misleading patients and doctors about risks associated with its antipsychotic drug (5) • EU fined Microsoft $1.35 bn: non-compliance with 2004 antitrust order
  5. 5. Copyright © IntegTree (2014) www.IntegTree.com Benefits of Compliance • Higher revenues: With effective programs – Employees 60% less likely to feel pressured to break rules or the law. –What an Effective Corporate Compliance Program Should Look Like, 9JLEP 375, 388 (2013). – Observed misconduct drops 66 percent. Id. – Employees 84 percent more likely to report misconduct; – Employee engagement increases 44 percent. Id. – Less employee sick time, disciplinary action, and HR costs. Id. • Decreased fines, reduced penalties • Improved compliance culture, employee loyalty • Better corporate image and reputation
  6. 6. Copyright © IntegTree (2014) www.IntegTree.com Benefits of Compliance: A Tale of Two Companies • Siemens was liable for making over $1.3 billion in illegal payments to government officials • Top level Morgan Stanley manager engaged in corruption, personal enrichment Morgan Stanley had an effective compliance program. Siemens’ compliance program was virtually nonexistent. The DOJ are on the record as saying they are less likely to go after companies with effective compliance programs. BUT WHY?
  7. 7. Copyright © IntegTree (2014) www.IntegTree.com Think You’re Too Small to Catch the Eye of Regulators? • A 5 person firm is not expected to have the same compliance and ethics program as a global behemoth • Small organizations may use less formality, simple systems, and rely on existing resources. -Chapter 8, Sentencing of Organizations, Section 8B2.1 commentary, 2(C)(iii), page 507. BUT • FSGO says small organizations shall demonstrate the same degree of commitment to ethical conduct and compliance with the law as large organizations -Id. Small firms account for 3/4 of sentences under the Sentencing Commission. (Wellner, 2005)
  8. 8. Copyright © IntegTree (2014) www.IntegTree.com The Bottom Line! You Cannot Afford NOT to put in place a Compliance and Ethics Program • In the long run, companies failing to implement programs spend THREE TIMES as much as those that implement effective programs (Ponemon Institute, LLC, 2001). We are here to help you implement an effective program – one that is right for you and your organization! References used in this materials are available upon request
  9. 9. Copyright © IntegTree (2014) www.IntegTree.com About the Authors • IntegTree President Dr. Nitish Singh Associate Professor at Saint Louis University’s John Cook School of Business, has been at the forefront of ethics and compliance management and developed a University Certification program used by business executives and lawyers worldwide. • IntegTree Vice President Thomas J. Bussen holds a J.D., MBA, and Ethics and Compliance Certification from Saint Louis University’s John Cook School of Business, where he is adjunct faculty. A former litigator at an AV rated law firm, Thomas knows first hand the unforeseen problems that arise with inadequate risk management.
  10. 10. Copyright © IntegTree (2014) www.IntegTree.com Additional Resources • Join The Ethics & Compliance Professors complementary subscribers list at ethicsresources.org . • IntegTree specializes in the worldwide localization of ethics and compliance programs, regulatory and ethical training, and psychometric testing to provide deep insights to improve existing compliance programs.
  11. 11. Copyright © IntegTree (2014) www.IntegTree.com Disclaimer: • This material is confidential and proprietary to IntegTree LLC and may not be reproduced, published or disclosed to others without the express authorization of IntegTree LLC. IntegTree LLC is not a law firm and is not engaged in providing legal or other similar professional advice or services. In providing our services, IntegTree LLC attempts to provide its clients with “effective practices” in light of then-current laws and/or regulations. IntegTree’s services should not replace advice from your in-house or outside counsel or their opinions concerning company practices.

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