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Great Structures Week II – Structures from Ancient Egypt and Greece and Written Standards

I continue my Great Structures Week with a focus on great structures from the earliest times, ancient Egypt and Greece. I am drawing these posts from The Teaching Company course, entitled “Understanding the World’s Greatest Structures: Science and Innovation from Antiquity to Modernity”, taught by Professor Stephen Ressler. From Egypt there are of course the Pyramids, of which Ressler says, “They’re important, not just because they’re great structures, but also because they represent some of the earliest human achievements that can legitimately be called engineering. The Great Pyramid of Giza stands today as a testament to the strength and durability of Egyptian structural engineering skills.”

From Greece we derive what Vitruvius called the “Empirical Rules for Temple Design” which define a “single dimensional module equal to the radius of a column in the temple portico, then specify all other dimensions of the building in terms of that module.” These rules are best seen in Greek temples, largely consisting of columns, which are defined as “a structural element that carries load primarily in compression” and beams, which are “structural elements subject to transverse loading and carry load in bending.” My favorite example of the use of columns is seen in the Parthenon; the most famous of all Greek temples still standing.

In many ways these two very different structures stand as the basis of all structural engineering and Great Structures that come later throughout history. For any anti-corruption compliance regime based on the Foreign Corrupt Practices Act (FCPA), UK Bribery Act or other anti-bribery statutes, the same is true for a Code of Conduct and written policies and procedures. They are both the building blocks of everything that comes thereafter.

In an article Debbie Troklus, Greg Warner and Emma Wollschlager Schwartz, stated a company’s Code of Conduct “should demonstrate a complete ethical attitude and your organization’s “system-wide” emphasis on compliance and ethics with all applicable laws and regulations.” Your Code of Conduct must be aimed at all employees and all representatives of the organization, not just those most actively involved in known compliance and ethics issues. From the board of directors to volunteers, the authors believe that “everyone must receive, read, understand, and agree to abide by the standards of the Code of Conduct.” This would also include all “management, vendors, suppliers, and independent contractors, which are frequently overlooked groups.”

There are several purposes identified by the authors that should be communicated in your Code of Conduct. Of course the overriding goal is for all employees to follow what is required of them under the Code of Conduct. You can do this by communicating what is required of them, to provide a process for proper decision-making and then to require that all persons subject to the Code of Conduct put these standards into everyday business practice. Such actions are some of your best evidence that your company “upholds and supports proper compliance conduct.”

The substance of your Code of Conduct should be tailored to the company’s culture, and to its industry and corporate identity. It should provide a mechanism by which employees who are trying to do the right thing in the compliance and business ethics arena can do so. The Code of Conduct can be used as a basis for employee review and evaluation. It should certainly be invoked if there is a violation. To that end, I suggest that your company’s disciplinary procedures be stated in the Code of Conduct. These would include all forms of disciplines, up to and including dismissal, for serious violations of the Code of Conduct. Further, your company’s Code of Conduct should emphasize it will comply with all applicable laws and regulations, wherever it does business. The Code needs to be written in plain English and translated into other languages as necessary so that all applicable persons can understand it.

The written policies and procedures required for a best practices compliance program are well known and long established. As stated in the FCPA Resource Guide 2nd edition, “Among the risks that a company may need to address include the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.” Policies help form the basis of expectation and conduct in your company and Procedures are the documents that implement these standards of conduct.

Another way to think of policies, procedures and controls was stated by Aaron Murphy, in his book “Foreign Corrupt Practices Act”, when he said that you should think of all three as “an interrelated set of compliance mechanisms.” Murphy went on to say that, “Internal controls are policies, procedures, monitoring and training that are designed to ensure that company assets are used properly, with proper approval and that transactions are properly recorded in the books and records. While it is theoretically possible to have good controls but bad books and records (and vice versa), the two generally go hand in hand – where there are record-keeping violations, an internal controls failure is almost presumed because the records would have been accurate had the controls been adequate.”

Borrowing from an article in the Houston Business Journal, entitled “Company policies are source and structure of stability”, I found some interesting and important insights into the role of policies in any anti-corruption compliance program. Allen says that the role of policies is “to protect companies, their employees and consumers, and despite an occasional opposite outcome, that is typically what they do. A company’s policies provide a basic set of guidelines for their employees to follow. They can include general dos and don’ts or more specific safety procedures, work process flows, communication guidelines or dress codes. By establishing what is and isn’t acceptable workplace behavior, a company helps mitigate the risks posed by employees who, if left unchecked, might behave badly or make foolhardy decisions.”

Allen notes that policies “are not a surefire guarantee that things won’t go wrong, they are the first line of defense if things do.” The effective implementation and enforcement of policies demonstrate to regulators and the government that a “company is operating professionally and proactively for the benefit of its stakeholders, its employees and the community it serves.” If it is a company subject to the FCPA, by definition it is an international company so that can be quite a wide community.

Allen believes that there are five key elements to any “well-constructed policy”. They are:

  • identify to whom the policy applies;
  • establish the objective of the policy;
  • explain why the policy is necessary;
  • outline examples of acceptable and unacceptable behavior under the policy; and
  • warn of the consequences if an employee fails to comply with the policy.

Allen notes that for polices to be effective there must be communication. He believes that training is only one type of communication. I think that this is a key element for compliance practitioners because if you have a 30,000+ worldwide work force, the logistics alone of such training can appear daunting. Consider gathering small groups of employees, where detailed questions about policies can be raised and discussed, as a powerful teaching tool. Allen even suggests posting Frequently Asked Questions (FAQ’s) in common areas as another technique.

The FCPA Resource Guide 2nd edition ends its section on policies with the following, “Regardless of the specific policies and procedures implemented, these standards should apply to personnel at all levels of the company.” Allen puts a bit differently in that “it is important that policies are applied fairly and consistently across the organization.” He notes that the issue can be that “If policies are applied inconsistently, there is a greater chance that an employee dismissed for breaching a policy could successfully claim he or she was unfairly terminated.” This last point cannot be over-emphasized. If an employee is going to be terminated for fudging their expense accounts in Brazil, you had best make sure that same conduct lands your top producer in the US with the same quality of discipline.

Join us tomorrow where we look at the Roman Arch and resourcing your compliance program.

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Corruption, Crime and Compliance

Episode 241 – Continuous Improvement, Testing and Auditing of Your Ethics and Compliance Program

The Justice Department and various regulatory agencies continue to emphasize the importance of continuous improvement, testing and review as part of robust assessment procedures in an effective compliance program. The Treasury Department’s Office of Foreign Asset Control has specifically stated that a sanctions compliance program should include “a comprehensive, independent, and objective testing or audit function” so that a company can determine “how their program[] [is] performing and should be updated, enhanced, or recalibrated to account for a changing risk assessment or sanctions environment.” The Health and Human Services — Office of Inspector General has made similar statements underscoring the need to conduct compliance audits and testing. An important part of every compliance program focuses beyond the design and operation of the program to the important issue of whether the program is working. In this respect, DOJ and regulatory agencies have noted that CCOs should be striving to develop “continuous” monitoring systems and avoid “snapshots” in time. In order to execute such monitoring, compliance has to maintain broad access to operational data across all key functions in a company. This data must be used to regularly update risk assessments, compliance policies and procedures and financial controls.

In this episode, Michael Volkov takes a broad review of the testing and auditing of ethics and compliance programs.

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Corruption, Crime and Compliance

Episode 240 – The CCO’s Role in an Effective Compliance Program

I have been — and continue to be– hyper-focused on the proper role and responsibilities of Chief Compliance Officers. Not that I see any cause for alarm, but it is easy to lose focus in the sea of so-called hot issues — ESG, Diversity, Climate Change, Threats to Democracy, Cybersecurity and Data Privacy, each of which is an important component and focus for organizations. All of these issues intersect, are interdependent and should be addressed through organizational commitment. But I want to take a step back and return to an issue of importance — the proper role of CCOs. To do so, we need to remind everyone about basic requirements, lessons learned and ways forward to meet the fast-changing times. CCOs have to maintain and then advance their positions. In my view, given the interdependence of all the important issues mentioned above, the role of the CCO has become even more critical. In this episode, Michael Volkov reviews the standards applicable to the CCOs function in an effective compliance program.

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FCPA Compliance Report

Scott Schneider on Your Code of Conduct

In this episode of the FCPA Compliance Report I visit with Scott Schneider, Head of Content Development at Traliant. Scott has been in the compliance space for over 15 years and is passionate about the building blocks of a best practices compliance program, including Codes of Conduct. This week we take a deep dive into the foundational backbone of every compliance program, the Code of Conduct.  Some of the highlights include:

·      Importance of  Code of Conduct training.

·      Types of Code training.

·      Why have a Code of Conduct?

·      How does a Code of Conduct help establish culture?

·      Key areas the Code should cover?

·      How should a company develop its Code of Conduct?

·      When should a Code be revisited or reassessed?

·      The roles of Codes of Conduct and training down the road into 2025 and beyond?

Resources

Scott Schneider on LinkedIn
Traliant website

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Blog

Driving the Digital Transformation of Compliance

The digital transformation of compliance will probably be the biggest change in our profession since the move to operationalizing compliance in the past decade. Legal professionals are generally ill-suited to lead this effort due to the legal focused training we all received, not quantitative training that most business students received. This means that many Chief Compliance Officers (CCOs), compliance professionals and corporate compliance functions struggle to reap the benefits of investments in digital transformation. I was therefore intrigued by a recent Harvard Business Review (HBR) article, by Marco Iansiti and Satya Nadella, Microsoft Chief Executive Officer (CEO), on a five-step approach to digital transformation. The article, Democratizing Transformation, sets out how innovation can be pushed out throughout a company’s workforce. I have adapted it for the compliance professional.
For a true digital transformation, technologists and data scientists alone cannot bring about the kind of wholesale innovation both a compliance function and a business unit need. This means that your organization should pair “data scientists with business [and compliance] employees who had insight into where improvements in efficiency and performance were needed.” Another strategy, which is near and dear to the heart of Carsten Tams, Ethical Business Architect and founder and CEO of Emagence LLC, is to use Design Thinking concepts in designing and implementing a digital innovation of compliance. The authors note, “A growing number of teams adopted agile methods to address all kinds of opportunities. The intensity and impact of transformation thus accelerated rapidly, driving a range of innovation initiatives.” This same strategy can work in sales as well as compliance.
It is this step which “democratize access to data and technology” outside of compliance and can lead to true and permanent innovation. The potential for employee-driven digital innovation cannot be accomplished by small groups of technologists and data scientists walled off in organizational silos. It will require much larger and more-diverse groups of employees – executives, managers, and frontline workers – coming together to rethink how every aspect of the business should operate. Once again this is what Tams has talked about with his articulation of Design Thinking, the engagement of business unit employees can well be a significant driver of compliance.
To achieve the type of engagement which will drive real digital transformation, a CCO must create synergy in three key areas: Capabilities, Technology and Architecture. The authors state, “Digital transformation requires that executives, managers, and frontline employees work together to rethink how every aspect of the business should operate.”

  1. Capabilities. It is axiomatic that successful transformation and innovation efforts in compliance requires “that companies develop digital and data skills in employees outside traditional technology functions. These capabilities alone, however, are not sufficient to deliver the full benefits of transformation; organizations must also invest in developing process agility and, more broadly, a culture that encourages widespread, frequent experimentation.” It is all a long-winded way of saying “Call Carsten Tams” and use his framework for Design Thinking as a starting point for your digital transformation.
  2. Technology. As always, “investment in the right technologies is important, especially in the elements of an AI stack: data platform technology, data engineering, machine-learning algorithms, and algorithm-deployment technology. Companies must ensure that the technology deployed is easy to use and accessible to the many nontechnical employees participating in innovation efforts.” Fortunately, there are more compliance product providers you can provide the right tech to you. See the Rise of ComTech.
  3. . One of the things that many compliance professionals do not often consider is that of architecture. The authors believe the “investment in organizational and technical architecture is necessary to ensure that human capabilities and technology can work in synergy to drive innovation. That requires an architecture—for both technology and the organization—that supports the sharing, integration, and normalization of data (for example, making data definitions and characteristics consistent) across traditionally isolated silos. This is the only real, scalable way to assemble the necessary technological and data assets so that they are available to a distributed workforce.” This is similar to what the Department of Justice (DOJ) intoned in the 2020 Update to the Evaluation of Corporate Compliance Program where they mandated for the first time that both the CCO and corporate compliance function should have access to all corporate data, literally cutting across all siloes.

The authors concluded, “mandate for digital transformation creates a leadership imperative: Embrace transformation, and work to sustain it.” I would add that these words apply even more so to the CCO who is leading the digital transformation of a compliance program. You should put together a clear strategy and sell it to the Board and senior management as well as communicating it “relentlessly” throughout your organization. Work to inaugurate a compliance “architecture to evolve into as you make the myriad daily decisions that define your technology strategy. Deploy a real governance process to track the many technology projects underway, and coordinate and integrate them whenever possible. Champion agility in all business initiatives you touch and influence. And finally, break free of tradition. Train and coach your employees to understand the potential of technology and data, and release the innovators within your workforce.”
Momentum is growing for the digital transformation of compliance; from the regulators to business units to investors. Indeed, it will be the driving strategy for compliance in 2025 and beyond. But we must always remember that it is the human element that will be the critical component to drive the transformation and more importantly use those tools to drive compliance up to the next level of effectiveness and engagement.

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The Affiliated Monitors Expert Podcast

Is Your Compliance Program Effective?


In this 5-part podcast series I visit with Eric Feldman, Senior Vice President of AMI. We look at the Department of Justice Evaluation of Corporate Compliance Programs, (the “2019 Guidance”), which was released in April 2019. Over the next five podcasts we will explore what the 2019 Guidance changes are from the Evaluation of Corporate Compliance Program, released in February 2017, the structure and emphasis of the 2019 Guidance and what it means for the compliance practitioner going forward. In Episode 3, we consider the question “Is it being effectively implemented?” We look at commitment by top management, autonomy and resources for the CCO and compliance function and incentives and disciplinary measures taken by an organization.