The 2022 Monaco Memo emphasized the basic point that the key to every company is culture. The bottom line is that corporate culture matters and corporate culture that fails to hold individuals accountable, or fails to invest in compliance—or worse, that thumbs its nose at compliance—leads to bad results.
From the enforcement perspective, the DOJ will be assessing companies for the ethical cultures. From the compliance perspective, the ethical tone of a company and accountability all starts at the top and, most specifically, senior management. The 2020 FCPA Resource Guide, 2nd edition, stated, “Beyond compliance structures, policies, and procedures, it is important for a company to create and foster a culture of ethics and compliance with the law at all levels of the company. The effectiveness of a compliance program requires a high-level commitment by company leadership to implement a culture of compliance from the middle and the top.” To assist companies in understanding this requirement the 2023 ECCP sets out the following inquiries.
Conduct at the Top—How have senior leaders, through their words and actions, encouraged or discouraged compliance, including the type of misconduct involved in the investigation? What concrete actions have they taken to demonstrate leadership in the company’s compliance and remediation efforts? How have they modelled proper behavior to subordinates? Have managers tolerated greater compliance risks in pursuit of new business or greater revenues? Have managers encouraged employees to act unethically to achieve a business objective, or impeded compliance personnel from effectively implementing their duties?
These requirements are more than simply the ubiquitous “tone-at-the-top,” as they focus on the conduct of senior management. The DOJ wants to see a company’s senior leadership actually doing compliance. The DOJ asks if company leadership has, through their words and concrete actions, brought the right message of doing business ethically and in compliance to the organization. How does senior management model its behavior on a company’s values and finally, how is such conduct monitored in an organization?
This means you must document corporate decisions where a compliance solution was proposed but rejected. In other words, is there a business justification for moving forward with the action. If this action occurs, how was the compliance risk managed going forward? Similarly, compliance techniques used should be documented to demonstrate that your compliance function has met the requirements of the final question.
Senior management must share these same values through operationalizing compliance going forward. Lynn Paine, in her seminal article, Managing for Organizational Integrity, laid out five factors, which can be used as guideposts to not only to set the right tone from senior management on doing business ethically and in compliance, but it can also lay the groundwork for senior management to model appropriate behavior and then have it monitored by the company going forward.
1. The guiding values of a company must make sense and be clearly communicated by senior management in a variety of settings, to the entire company workforce.
2. The company’s leader must be personally committed and willing to act on the values. This means that management must not simply ‘overlook’ the transgressions of top producers.
3. A company’s systems and structures must support its guiding principles and these internal systems and structures cannot be over-ridden by senior management without both justification and Board approval.
4. A company’s values must be integrated into normal channels of management decision-making and reflected in the company’s critical decisions. Sometimes a company must turn down business if there are too many red flags present or by engaging in such behavior the company’s value and ethics will be violated.
5. Managers must be empowered to make ethically sound decisions on a day-to-day basis. This means senior management must fully support and back-up such decisions.
I once had a Chief Executive Officer (CEO), observe the following, “You want me to be the ambassador for compliance.” I immediately said yes, that is exactly what I need you to do. A CEO, as an “Ambassador of Compliance”, can fully model the conduct that senior management engage in going forward. Another area a CEO can forcefully engage an entire company is through a powerful video message about doing business the right way and in compliance. A great example was a CenterPoint Energy video put out in 2015 after the Volkswagen (VW) emissions-testing scandal became public. The video featured Scott Prochazka, former CenterPoint Energy President and CEO. He used the VW scandal to proactively address culture and values at the company and used the entire scenario as an opportunity to promote integrity in the workplace. But more than simply a one-time video, the company followed up with an additional resource, entitled Manager’s Toolkit—What does Integrity mean to you? that managers used to facilitate discussions and ongoing communications with employees around the company’s ethics and compliance programs. Finally, the cost for the video was quite reasonable as it was produced internally.
