CONVERGE is in its 5th year of bringing together the world’s leading companies for 2 days of dynamic speakers, thought-provoking breakout sessions, and opportunities to connect with like-minded professionals. This year the conference has gone virtual. You will leave the conference with new resources and best practices allowing you to continue the hard work of driving ethics to the center of your business. In today’s episode I visit with Lisa Stewart Hughes, Chief Compliance Officer at Endeavor. We visit about her presentation at Converge20 on Accountability Beyond Diversity and Inclusion.
What is your role in diversity and inclusion? How are you responsible for not only those who work at your organization today but tomorrow as well? What about your local community stakeholders? Find out more as Lisa explores these and other questions on this panel. For more registration and information on Converge20, click here.
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Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. In this episode Matt and Tom go into the weeds to look at two recent pronouncements by FinCen on customer and PEP due diligence. We ask the question: Is the Guidance so vague as to actually hurt the efforts of a compliance practitioner.
Resources
See Matt’s blog posts on Radical Compliance
Regulators Talk PEPs and Due Diligence
FinCen Gives Guidance, Says Little
CONVERGE is in its 5th year of bringing together the world’s leading companies for 2 days of dynamic speakers, thought-provoking breakout sessions, and opportunities to connect with like-minded professionals. This year the conference has gone virtual. You will leave the conference with new resources and best practices allowing you to continue the hard work of driving ethics to the center of your business. In today’s episode I visit with Russ Berland, Chief Integrity and Risk Officer at Aventiv Technologies. We visit about his presentation at Converge20 on The Ethics Movement Part 1: Aligning your Allies. In this interactive session Berland will share experiences and techniques to truly engage other departments as champions of your program, enabling greater efficiency, trust and communication. In 2020 and beyond, ethics and compliance not only deserve a seat at the table—it demands cross-collaboration from your peers. Sometimes, you have to bring pizza. For more registration and information on Converge20, click here.
How should you assess your internal controls regime for international operations? It is incumbent that you need to review as much information as you can to understand the financial and operational structure of an entity and how it is integrated with the corporate headquarters, or the U.S. business unit’s financial and operation structure, if the foreign operation is part of a U.S. business unit.
You could begin with the TI-CPI to garner a sense of the reputation of the country in which your business unit is located, as well as the CPI for all other countries in which the location either markets business or has current customers. Another area for inquiry or review is the scope of your foreign operations. This means you will need to consider your sales model, whether employee based or primarily using third party representatives. You will also need to consider if such third-party representatives are coming into a commercial relationship with your company through your supply chain.
Other areas of inquiry should include whether your company’s finance and accounting staff produce financial statements that are integrated into the parent’s financial statements; whether your international business locations utilize a local bank account for local sales receipts as well as funds transfers from the U.S. and whether the account has local check signers and whether dual signatures are required on the checks. You may also want to consider the extent to which disbursements are made in the local currency and, of course, is there a local petty cash fund.
Three key takeaways:
- You must understand the financial and operational structure of your company and how that structure outside the U.S. is integrated with the corporate headquarters.
- Are your financial statements and reporting systems integrated?
- Always consider the fraud triangle.
The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What are some of the skills a CCO needs to success navigate the compliance waters in any company? What are some of the top challenges CCOs have faced and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, my guest is DeAnna Nwankwo who served as Corporate Compliance Officer for Core Laboratories from 2003 May 2020. In that capacity, she led Core Laboratories ethics and compliance activities.
As CCO, DeAnna reported to the general counsel and secretary and to the audit committee of the board of directors. She was responsible for formulating and implementing Core Lab’s ethics policies and procedures, including its Code of Ethics and Corporate Responsibility and making sure they were communicated and trained upon across the company. DeAnna managed the company’s employee Helpline resources and served as a final internal resource which concerned parties could communicate after other formal channels and resources were exhausted. As Corporate Compliance Officer, she was authorized to implement all necessary actions to ensure achievement of the objectives of an effective compliance program. In her role, she collaborated with other functional departments (Internal Audit, Human Resources, Information Security, etc.) to receive and direct compliance issues to appropriate resources for investigation and resolution.
In this first episode, we consider Deanna’s journey to the CCO role, which she described as “no different than anyone else’s because it was so different. She began her professional career in QA/QC at NASA. She later moved to Core Laboratories. From there she transitioned into a compliance position and then the CCO.
This week’s special guest is Yonason Goldson, an expert in ethical leadership, TEDx speaker, and consultant. He joins Tom Fox to discuss why ethics matters, as well as five important lessons the COVID-19 pandemic is teaching us.
Trust – the Key to Business Success
Yonason shares a story that illustrates how one moment of disrespect can destroy trust between an employer and an employee. He explains, “When you create a culture of trust, that generates loyalty, it generates passion, it generates productivity… The employees are engaged and want to give their all… And so they’re looking for opportunities to prove themselves by doing the best they can. And you have a company culture that thrives, it’s vibrant, it’s exciting. People want to come to work, and success is a foregone conclusion.” How Alcoa’s market value increased by 900% because of Paul O’Neill’s ethical leadership is a testament to the value of building a culture of trust, he says. He then talks about the huge cost of worker disengagement and points out that “Companies that are ranked highest for ethics, they grow faster than average, employees report being more satisfied, being more energized, being more loyal, recommending this job to friends and family.”
Listening Is a Key Leadership Skill
Tom comments that the ability to listen is the second most important step in fostering a speak-up culture. Yonason says that listening is how we get to know other people, and the more we know other people, the more we know ourselves. “The more discussion there is looking from every possible angle, the more likely it is that the conclusions and the decisions that we reach are going to be the best possible conclusions and decisions that we can reach,” he remarks.
Lessons from Coronavirus
Tom asks Yonason to share the practical lessons about ethics that we can learn from the pandemic. Yonason summarizes them as:
- Everything you do matters: the essence of ethics is to be aware of how your actions affect the world around you.
- Protect your ethical health: behavior is infectious.
- What you don’t see can hurt you.
- We need each other.
- Don’t wait for the next epidemic.
Secrets of Ethical Affluence
You can become ethically affluent by minding the CoDE of ethics. Yonason explains that this acronym stands for Communication, Diversity, and Ethics. He details why each aspect is important. Of diversity, he says, “Diversity is not just cultural or ethnic diversity, it’s intellectual diversity. It’s having people coming from different points of view… and different experiences… That intellectual diversity stimulates thought and new ideas…”
Resources
YonasonGoldson.com
Yonason Goldson on LinkedIn
The ROI of Ethics
The Ethics of Epidemic
TEDx Talk: How I Became My Own Worst Nightmare
Ebook: The Secrets of Ethical Affluence
In today’s edition of Sunday Book Review:
- Chocky by John Windham
- Moderan by David Bunch
- Store of the Worlds Stories by Robert Sheckley; edited by Alex Abramovich
- Machines in the Head by Jonathan Lethem
Next, I want to consider some of the issues around internal controls outside the U.S. and why your company’s internal controls might require changes for different countries across the globe. However, this provides an opportunity to further operationalize your compliance program through internal controls more narrowly tailored to mirror your business practices. Every CCO should consider entity-wide internal controls for a company. Under the FCPA accounting provisions, issuers can be held liable for the conduct of their foreign subsidiaries, even though the improper conduct occurred outside of the U.S. The scope of liability is based on the issuer’s incorporation of the subsidiary’s financial statements in its own records and SEC filings. So, as with the use of third-party distributors to sell product, FCPA enforcement looks past the structure of the transaction and makes enforcement decisions based upon the substance.
While a CCO should expect (or at least hope) that internal controls at locations outside the U.S. are of the same effectiveness as internal controls within U.S. business units and at the U.S. corporate office; unfortunately, that might not always be the case. It is often the case that corporate level internal controls are stronger than those in foreign business units. There may well be several reasons for this. First, the CFO may be paying closer attention to the corporate level internal controls, with the idea that the corporate level internal controls are the final “filter” to detect issues. This follows partly from the focus in most companies on the controls over financial reporting, which does not include all controls needed for compliance. A second reason is that many companies were built through acquisitions, resulting in many business units (both in and outside the U.S.) having completely different accounting, ERP and internal control systems than the corporate office. There is often a tendency to leave acquired companies in the state in which they were acquired, rather than trying to integrate their controls and conform them to those of current business units. After all, the reason for the acquisition was the profitability of the acquired company and nobody wants to be accused of negatively impacting profitability.
Three key takeaways:
- Modifying your internal controls can work to more fully operationalize your compliance program.
- Check the effectiveness of your internal controls for your international locations.
- Revisit your internal controls when a country or region experience large growth or other disruption.
