Key Steps to Creating a Strong Compliance Culture Through Effective Leadership

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2. © 2015 Baker & McKenzie LLP
Key Steps to Creating a Strong
Compliance Culture Through Effective
Leadership
March 18, 2015

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SPEAKING TODAY
Pyter Stradioto
Chief Compliance Officer, Embraer S.A.
John P. Cunningham
Partner, Baker & McKenzie
Crystal Jezierski
Senior Associate, Baker & McKenzie

5. Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common
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© 2015 Baker & McKenzie LLP
Key Steps to Creating a Strong Compliance
Culture Through Effective Leadership
Pyter Stradioto, Chief Compliance Officer, Embraer S.A.
John P. Cunningham, Partner, Baker & McKenzie
Crystal Jezierski, Senior Associate, Baker & McKenzie

6. Agenda

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Agenda
‒ Culture and Leadership in a U.S. and
Global Context
‒ Culture and Leadership in Recent FCPA
Resolutions
‒ Best Practices for Building a Strong
Culture Through Effective Leadership

8. Culture and Leadership in
U.S. and Global Context

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U.S. Sentencing Guidelines
‒ Under the U.S. Sentencing Guidelines an “effective”
compliance program must, among other things,
“promote an organizational culture that encourages
ethical conduct and a commitment to compliance with
the law”
‒ As a result, the Guidelines expect the chief compliance
officer to have “appropriate authority within the
organization, adequate autonomy from management,
and sufficient resources to ensure that the company’s
compliance program is implemented effectively”

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Resource Guide to the FCPA
‒ In 2012, the DOJ and SEC released their Resource Guide to the
FCPA, which provides direction on the connection between the
role of corporate leaders, promoting a healthy compliance culture,
and the “hallmarks” of an effective compliance program
 An effective compliance program promotes “an organizational
culture that encourages ethical conduct and a commitment to
compliance with the law”
 Both authorities consider the commitment of corporate
leaders to building and maintaining a “culture of compliance”
when assessing the sufficiency of a compliance program,
recognizing that “a strong ethical culture directly supports a
strong compliance program”

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Key Global Guidance
‒ Global law enforcement and regulatory authorities also
cite to strong corporate leadership as a key driver of a
successful compliance program
‒ The “Good Practice Guidance” of the Organisation for
Economic Co-operation and Development (OECD)
 Support from senior management that is strong,
explicit, and visible
 Oversight of the program by senior corporate officers
with sufficient resources, authority, and access to the
board

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Key Global Guidance (cont’d)
‒ The UK Bribery Act’s “Adequate Procedures”
 Top-level commitment (Principle 2)
 “Those at the top of an organisation are in the best position to
foster a culture of integrity where bribery is unacceptable”
‒ Spanish Senate Approves New Criminal Code
 Company’s directors required to adopt a compliance program
 Program must be supervised by a body or individual authorized
to exercise high-level control
– Brazil’s Clean Company Act
 In determining sanctions, “the existence of mechanisms and
internal integrity procedures . . . and . . . denunication of
irregularities in applying the code of conduct” within the legal
entity will be considered

13. Culture and Leadership in
Recent FCPA Resolutions

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Recognition by Authorities of Effective
Leadership and Impact on Culture
‒ U.S. Attorneys’ Manual – Principles for Prosecution of
Business Organizations
 “a corporation is directed by its management and
management is responsible for a corporate culture in
which criminal conduct is either discouraged or tacitly
encouraged”
‒ Recent SEC NPA with U.S. Company
 Company leadership “thoroughly reviewed its pre-
existing program and undertook steps to further update
and enhance its compliance program, and successfully
implemented those new enhancements”

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Major Concern: Turning a “Blind Eye”
‒ In 2014, a European engineering, power, and
transportation company settled foreign bribery
allegations with the DOJ for over $700 million in fines
and penalties
 DOJ faulted the company for failing to have
procedures in place surrounding due diligence,
payments to consultants, and high-risk transactions
-- to ensure compliance with its policies
 Executives were said to have known “or knowingly
failed to take action that would have allowed them
to discover” improper conduct

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Major Concern: Failure to Address Misconduct
‒ In 2014, a U.S. products company resolved FCPA charges,
resulting in fines and penalties totaling $135 million, involving
improper gifts, travel, and entertainment provided to Chinese
government officials
 Internal Audit executives agreed to remove discussion
suggesting that gifts and hospitality provided to
government officials may have violated the FCPA from a
final, internal investigation report
 DOJ faulted the company’s leadership: “for years its
corporate parents, rather than putting an end to the
[improper conduct], conspired to cover it up”

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Major Concern: “Permissive” Environment
‒ In 2013, a multinational company agreed to pay more than
$250 million to settle cases with the SEC, DOJ and other
U.S. federal agencies involving allegations of improper
payments to foreign officials made through joint ventures,
and improper commercial transactions with Cuba, Iran,
Syria, and Sudan
‒ Lack of adequate compliance culture was specifically cited
in the enforcement action papers:
 Due to its “failure to implement such internal accounting
controls, a permissive and uncontrolled environment
existed” within the company
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18. Best Practices for Building a
Strong Culture Through
Effective Leadership

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I. Engage High-Level Stakeholders
‒ Report to your board of directors quarterly (ideally) on the
following:
 Ongoing internal investigations
 Compliance program status, compliance challenges facing
your company, and initiatives underway to address them
 General enforcement developments related to your areas of
legal and regulatory compliance risk
‒ Regularly (e.g., annually) train the board of directors
‒ Separately engage your board’s audit committee to facilitate
ongoing dialogue between primary compliance officer and the
board on program developments

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II. Collaborate with Officers and Senior
Management
‒ It is important that employees at all levels of the company view the
CCO, CEO, board, and other senior leaders as a team, equally
committed to the program’s success
 Actively solicit your CEO’s input (e.g., monthly meetings) and
engage your CEO in program design, implementation, and, in
particular, compliance messaging
 Meet regularly with the business heads to obtain their
feedback on evolving risks, program design, and program
implementation
 Conduct monthly meetings with company leaders responsible
for other compliance related functions (i.e., Legal, Internal
Audit, Accounts Payable, CFO, Finance, HR) to ensure
adequate communication on compliance program
effectiveness

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III. Implement Performance Incentives
‒ Incorporating specific compliance requirements into annual
evaluation criteria and connecting compensation to meeting
these criteria can be an effective means of guiding
employee behavior towards greater respect for compliance
 Apply incentives at all levels of company
 Work with senior management and HR to incorporate
unique evaluation criteria for senior executives that
encourages them to take a leading role in promoting
compliance throughout their areas of responsibility

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IV. Push Compliance Out to Field
‒ Identify and designate compliance liaisons or
representatives throughout your corporate operations
 Determine numbers and location based on regular risk
assessments
 Incorporate performance incentives into their evaluation
and compensation criteria to ensure accountability
 Train them to conduct future training in their local office
or assigned department (i.e., “train the trainer”)

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V. Deputize Compliance Reps in Field
‒ When effectively utilized, compliance representatives allow
you to extend the reach of key parts of your program
 Duties can include ongoing monitoring of compliance
with the program’s policies and procedures in the
compliance representative's department
 Can serve as another channel through which your
company’s compliance communication messages are
delivered
 Develop a system to facilitate regular implementation
updates to central compliance

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VI. Develop and Implement a Strategic
Communications Calendar
‒ Plan out your compliance communications on an annual basis to
ensure regular and consistent messaging from senior management
 Time delivery of messages to ensure company’s commitment to
compliance remains “top of mind” throughout the year
 Target client alerts to specific areas of the business based on
recent enforcement developments
 Ensure business leaders reinforce message as part of regular
operational interactions and meetings (e.g., develop incentives
for middle managers to include compliance with policies and
procedures as part of weekly coordination meetings)

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VII. Diversify Delivery of Compliance
Message
‒ Harness internal communications mechanisms such as internal
blogs and video systems, intranet, and social media to deliver
compliance message throughout your organization
‒ Work with internal marketing staff to develop compliance
messages and themes
 Showcase leaders from across business areas and functions
to demonstrate senior management’s full commitment to the
successful implementation of the compliance program
 Implement a compliance messaging series focused around
key members of senior management such as your CEO

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VIII. Identify Key Initiatives to Lead
‒ Certain initiatives should be led by the CCO, ensuring
centralized evaluation and management of your company’s
highest risks
 Regular risk assessments allowing you to understand the
business’s risks across all operations as the business
evolves and changes
 Implementation of key compliance policies and procedures
 Serve as the gatekeeper and evaluator of risk screening
and analysis for high-risk transactions
 Oversight of monitoring, auditing, and testing processes

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IX. Incorporate Training into Supervisor
Performance Evaluations
‒ An effective training program is critical to the success of your
compliance program, yet ensuring that employees keep up with
their training is an ongoing challenge
 Enlist the partnership of supervisory personnel by
connecting their performance evaluation to the training
completion rates of personnel they supervise
o Requires supervisors to re-enforce message of
importance of compliance
o Fosters greater employee accountability for completion
o If possible, employ technology to track training

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X. Make Training Compliance
Professionals a Top Training Priority
‒ Ensure compliance department personnel participate in
key compliance conferences and trainings annually
‒ Ensure personnel from offices that are key compliance
partners (e.g., Legal, Internal Audit) participate in annual
compliance conferences as well
‒ Provide function specific compliance training where
appropriate (e.g., provide Accounts Payable training on
key anti-corruption red flags)

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XI. Coordinate Audit and Testing Plans
‒ Compliance policies and procedures should be audited and
tested in consultation with the CCO
 The CCO should provide feedback on areas of the
program in need of verification as informed by risk
assessments and continuous program monitoring led by
the CCO (i.e., compliance “health checks”)
 Similarly, subsequent program enhancements should be
designed and led by the CCO in consultation with Audit
and any other relevant personnel

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Baker & McKenzie - Additional Resources
Follow ongoing developments in global anti-
corruption enforcement and compliance via:
 http://globalcompliancenews.com/
 Baker & McKenzie’s acclaimed “Inside the FCPA”
Newsletter http://www.bakermckenzie.com/insidethefcpa/

31. Thank you!
Questions?

32. © 2015 Baker & McKenzie LLP 32
Contact Information for Presenters
John P. Cunningham, Partner, Washington, DC
 Email: john.cunningham@bakermckenzie.com
 Phone: + 1 202 835 6148
Pyter Stradioto, Chief Compliance Officer, Embraer
S.A.
Crystal Jezierski, Senior Associate, Washington, DC
 Email: crystal.jezierski@bakermckenzie.com
 Phone: + 1 202 835 6168

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Optimizing Compliance Programs in Organizations: A
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