Tag: compliance

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 10 – Sales Incentives and Compliance

In the DOJ’s 2023 ECCP, Incentives and Disciplinary Measures it stated:
Incentive System – Has the company considered the implications of its incentives and rewards on compliance? How does the company incentivize compliance and ethical behavior? Have there been specific examples of actions taken (e.g., promotions or awards denied) as a result of compliance and ethics considerations? Who determines the compensation, including bonuses, as well as discipline and promotion of compliance personnel?
When considering how a company could use incentives to further a compliance program and the role of HR in this process, we should also consider how incentives might lead to the converse, as they did in the now-infamous Wells Fargo fraudulent-accounts scandal. When you misalign these two concepts with a faulty sales strategy it can lead to a catastrophic failure, literally costing the company millions of dollars in fines, loss of business and depreciation of shareholder value. Whatever your incentive structure, there will be employees who try to game the system. Some will do it with the tacit or explicit approval of management. You, as the CCO, may be required to act.

Three key takeaways:

  1. Even a benign sales incentive program came become skewed.
  2. A sales incentive program can become high risk or illegal if not properly monitored.
  3. If there is alignment between the strategy, purpose and structure of an incentive system, it often makes the difference between a good and a bad one.

For more information, check out The Compliance Handbook, 4th edition here.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 9 – Clawbacks

In this podcast series, host Tom Fox explores the growing emphasis on clawback provisions in compliance programs and employee compensation.

Tom Fox delves into the crucial topic of clawback provisions in compliance programs and employee compensation. In light of the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) prioritizing individual accountability for misconduct, clawbacks have become essential in promoting ethical behavior and ensuring compliance. So, let’s dive in and explore the significance of clawbacks in today’s evolving compliance landscape.

Understanding Clawbacks and Incentive-Based Compensation:

Clawbacks, as discussed in the podcast, are provisions that enable organizations to reclaim incentive or bonus funds from employees engaged in misconduct. They serve as a powerful deterrent and hold individuals accountable for their actions. Previously, clawbacks were not seen as necessary, but the DOJ now mandates their inclusion in compensation agreements.

The DOJ’s Focus on Ethical Business Practices:

The DOJ, in its pursuit of punishing officers and employees who fail to conduct business ethically, has made clawbacks a part of best practices compliance programs. To evaluate a company’s compliance program, the DOJ and SEC consider whether the organization has appropriate disciplinary procedures in place. Publicizing disciplinary actions internally and under local law can have a deterrent effect, emphasizing the importance of transparent consequences for misconduct.

The Role of Clawbacks in Compliance Programs:

Having clawback provisions is now seen as a crucial aspect of a good corporate compliance culture. It promotes compliant behavior and demonstrates a company’s commitment to its compliance program. The DOJ investigates whether corporations have included clawback provisions in their compensation agreements and taken steps to execute on such agreements. This highlights the significance of documenting and reflecting these policies and procedures in a company’s own compensation practices.

The SEC’s Final Rule on Clawbacks:

The SEC’s final rule, titled “Listing Standards for Recovery of Erroneously Awarded Compensation,” directs issuers to establish policies for recovering incentive-based compensation in the event of required accounting restatements. This rule applies to both Big R and Little R restatements and provides guidance in the anti-corruption world. Companies are now required to claw back incentive compensation erroneously received by current or former executives during the three-year period preceding the required restatement date.

Ensuring Compliance with Clawbacks:

It is essential for companies to construct well-documented clawback programs that align with the SEC’s guidance. The recoverable amount may differ from what executives would have received based on the required restatement, emphasizing the need for clarity and transparency in compensation agreements. Additionally, the SEC’s final rule prohibits companies from obtaining indemnity insurance to protect executives from clawbacks, further reinforcing the importance of accountability.

Conclusion:

As we’ve explored in this episode, clawbacks play a vital role in promoting ethical behavior and compliance within organizations. The DOJ’s emphasis on individual accountability and the SEC’s final rule on clawbacks demonstrate the evolving landscape of compliance. By implementing well-documented clawback provisions, companies can deter misconduct, hold individuals accountable, and showcase their commitment to ethical practices. Remember, incorporating clawbacks into your compliance program is not just a regulatory requirement but a practical step towards fostering a culture of integrity and responsibility.

 Three key takeaways:

1. The DOJ now mandates clawbacks in a compliance program.

2. The SEC has passed a clawback rule apart from the Monaco Memo.

3. Your clawback program should be well-documented.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 8-Executives and Compliance Compensation Incentives

The lack of personal consequences for senior executives responsible for corporate malfeasance is explored in this podcast episode. Executives are incentivized to take excessive risks, knowing they won’t have to pay any fines, while shareholders bear the brunt of penalties. Proposed solutions include the concept of “skin in the game,” where executives contribute a portion of their compensation to a pool of money that can be used to pay penalties. Another suggestion involves forfeiting the performance bond of senior management in the case of large fines. A third approach suggests creating a contract that would enforce a reduction in pay for failures of corporate governance. These proposals aim to hold senior executives personally accountable for compliance failures and align executive compensation with compliance objectives. HR professionals play a crucial role in designing and implementing positive incentives to foster a culture of compliance and ethical conduct within organizations.

When it comes to compliance failures, the penalties are usually paid by shareholders, leaving senior executives largely untouched. This lack of personal accountability creates a disconnect between executive actions and the consequences of those actions. It’s high time we bridge this gap and ensure that senior executives are held personally responsible for compliance failures. What are some proposed solutions:

1. “Skin in the Game”. One proposed solution, advocated by William Dudley, former president of the Federal Reserve Bank of New York, suggests that senior management and material risk takers should forfeit their performance bond in the case of large fines. This approach would discipline individual behavior and decision-making, incentivizing individuals to flag issues when problems arise.

2. Automatic Pay Reductions. Another approach, proposed in an article titled “Ties That Bind Codes of Conduct,” suggests automatic reduction of pay for officers, directors, and advisors for failures of corporate governance. Executives would agree to pay back a portion of their gross compensation for a specified period before the beginning of any improprieties, regardless of their knowledge of misdeeds within the company.

Benefits of Accountability for Senior Executives:

1. Aligning Incentives. Corporate leaders cannot afford to turn a blind eye to compliance failures anymore. Holding senior executives accountable ensures that their compensation is directly tied to compliance objectives, aligning incentives and promoting ethical business practices.

2. Addressing Perverse Incentives. Perverse incentives in corporate pay, such as additional compensation based on company performance, can lead to unethical behavior and non-compliance. By implementing accountability measures, we can address these perverse incentives and create a culture of ethical behavior within organizations.

3. Driving Positive Change. Creating positive incentives within organizations is crucial to driving ethical behavior and compliance. HR professionals play a pivotal role in designing and implementing these incentives, ensuring that they are effective in promoting a culture of compliance.

Three key takeaways:

1. Perverse incentives are named that for a reason; they really are bad.

2. How can you create positive incentives in your organization?

3. There is a business response to this legal issue. Employ it.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 7 – Designing Compensation to Operationalize Compliance

In this podcast episode, Tom Fox highlights the importance of incorporating compensation systems into a company’s compliance program. He discusses how the DOJ and SEC view monetary structures as a way to reinforce compliance and reward employees who adhere to compliance programs. Fox advises compliance practitioners to revise incentive systems to align with the goals of the compliance program, ensuring simplicity, alignment with company values, and immediate behavior change. He also emphasizes the need to align compensation programs with compliance goals and shares examples of how this can be done effectively. These episodes provide valuable insights into the role of compensation in promoting compliance and integrating compliance into HR practices, emphasizing the importance of transparency and immediate action in implementing effective compensation structures for compliance.

When it comes to compliance programs, many companies focus primarily on policies, procedures, and training. However, designing a compensation system that reinforces compliance is equally crucial. According to the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), rewarding employees who conduct business in compliance with their employers’ programs is an effective way to promote compliance.

  1. Incorporating Compliance Incentives:

To align your compensation system with your compliance program, consider revising your incentive structure. Fox advises compliance practitioners to ask themselves three key questions: Is it simple? Is it aligned with company values? Does it affect behavior immediately?

Keeping the compensation plan simple is essential to prevent employees from reverting to old, non-compliant behaviors. By aligning the goals of compliance practitioners with the entity’s compliance goals, you can ensure that the compensation program effectively drives desired behaviors.

2. The Impact of Sales Compensation:

Salespeople often generate the majority of a company’s revenue, making their alignment with compliance goals crucial. Immediate implementation of incentive structures is important, but it should also incentivize employees to support compliance initiatives. Transparent communication with employees or third-party sales bases is necessary for effective implementation.

3. Transparency and Accountability:

Transparency plays a vital role in gaining acceptance for compliance initiatives. While designing the incentive system may not be a democratic process, openness is essential. Employees should appreciate the transparency in the compensation structure, leading to accountability and their acceptance of compliance goals.

4. Integrating Compliance Incentives:

The podcast suggests incorporating compliance incentives into the compensation program. Even a small percentage of a discretionary bonus can be significant to employees. For example, a discretionary bonus program based on overall sales can be a starting point for incorporating compliance incentives. Fox recommends allocating 5-10-20% of the discretionary bonus program towards compliance incentives.

5. The Role of HR in a Fully Operationalized Compliance Program:

To fully operationalize compliance, it is essential to integrate compliance into HR practices. HR can play a crucial role in ensuring transparency, simplicity, and alignment of the compensation structure with company values. By making compliance part of the incentive structure, employees will understand and support the evolving business model and strategy of the organization.

As compliance practitioners, it is our responsibility to prioritize integrity, ethics, and compliance within our organizations. Incorporating compensation systems into our compliance programs is a powerful tool in driving desired behaviors. By aligning our incentive structures with compliance goals, keeping them simple, and fostering transparency, we can create a culture of accountability and acceptance.

Three key takeaways:

  1. The DOJ and SEC have long advocated compensation to motivate employees into ethical and compliant behaviors.
  2. Keep the compliance aspects of your compensation structure simple and easy for your employees to understand.
  3. Have full transparency in the frame of your compensation structure.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.

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Compliance Into the Weeds

Compliance into the Weeds: Responses to PCAOB Proposal On Audits

The award-winning, Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, literally going into the weeds to explore a subject. Looking for some hard-hitting insights on sanctions compliance? Look no further than Compliance into the Weeds! In this episode, Tom and Matt consider the PCAOB proposal for fraud and compliance audits.
In this episode, we dive into the heated debate surrounding the proposed rule on auditors and fraud risk audits in this episode of Compliance into the Weeds. Compliance professionals and the audit community have contrasting perspectives on the PCAOB proposal to require audit firms to look more aggressively for compliance and legal violations at their client companies and then report any such violations more promptly to the company’s board of directors.
Discover the stipulations compliance professionals want to include, such as meeting with the chief ethics and compliance officer and reviewing the state of the compliance program. On the other hand, hear why the audit community, represented by the PCAOB, opposes the rule, arguing that auditors lack the necessary expertise and that fees would skyrocket without significant benefits. Gain insights into the complexities and challenges of asking auditors to take on compliance responsibilities. Tune in to understand the potential implications of the proposed rule on audit firms, compliance professionals, and investors.

 Key Highlights

·       The PCAOB proposal implications for auditors, with a focus on effects on fraud risk audits.

·       The difference in how compliance professionals and auditors perceive the impending rule.

·       The practical difficulties auditors face when tasked with compliance roles.

·       What are the potential cost and liability hikes for auditors, heralded by the enforcement of the rule?

·       The uncertainties enveloping the approval and implementation process for the proposed rule.

 Resources

Matt 

LinkedIn

Blog Post in Radical Compliance

Tom 

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Facebook

YouTube

Twitter

LinkedIn

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program: Day 6-Six Core Principles for Compliance Incentives

In these podcast episodes, Tom Fox discusses the importance of incorporating incentives and support systems into a company’s compliance program. He presents six core principles for effective compliance incentives, emphasizing the need for simplicity, visibility, and institutional mechanisms to ensure their longevity. Fox also highlights the role of human resources in implementing compliance programs and the positive impact it can have on organizations. By understanding and implementing these principles, companies can create a culture of compliance, reduce the risk of unethical behavior, and enhance their credibility.

I have developed six core principles for incentives, adapted from a MIT Sloan Management Review article, entitled “Combining Purpose with Profits”, and formulated them for the compliance function in an anti-corruption compliance program.

1.     Compliance incentives don’t have to be elaborate or novel.

2.     Compliance incentives need supporting systems if they are to stick.

3.     Support systems are needed to reinforce compliance incentives.

4.     Compliance incentives need a “counterweight” to endure.

5.     Compliance incentive alignment works in an oblique, not linear, way.

6.     Compliance incentive initiatives can be implemented at all levels.

Obviously, this list is not exhaustive. Yet it is now more important than ever that you demonstrate tangible incentives for your employees to gain benefits, both financial and hierarchical, through doing business ethically, in compliance with your own Code of Conduct and most certainly in compliance with relevant anti-bribery laws. It is also a requirement that such actions be documented so they can be demonstrated to the regulators, if they come knocking.

Three key takeaways:

  1. Compliance incentives do not have to be elaborate or novel.
  2. You must create support systems for your compliance incentives.
  3. Compliance incentives should be implemented at all levels.
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The Ethics Experts

Episode 153 – Ilse De Vocht & Germaine Huka

In this episode of The Ethics Experts, Nick welcomes Ilse De Vocht (Director of Compliance) & Germaine Huka (Global Ethics and Compliance Business Partner (Director)) of Galapagos. Ilse has over 25 years of experience in pharma industry in Compliance and Finance. She joined Galapagos in 2023 to set up a compliance framework for the commercialization across Europe of its first medicine. Prior to that, she worked at Takeda and AstraZeneca, driving all elements of a compliance program across mainly Europe. Germaine started her career as a litigation lawyer, and moved into Compliance & Ethics after a few years and has never looked back. She has worked across different industries including Defence & Aerospace, Medical Devices and Pharmaceuticals & Biotech.
https://www.linkedin.com/company/glpg/
https://www.linkedin.com/in/ilsedevocht/
https://www.linkedin.com/in/germaine-huka-3253751a3/

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FCPA Compliance Report

FCPA Compliance Report – Fighting Forced Labor with Supplier Due Diligence

Welcome to the award-winning FCPA Compliance Report, the longest-running podcast in compliance. In this episode, Tom welcomes Ragini Bhalla, head of content and PR for Creditsafe, focusing on the North American region, and Steve Carpenter, Country Manager for Creditsafe in Canada. Their discussion centers around a new Canadian law designed to combat human trafficking forced labor, and child labor within supply chains. Throughout the conversation, they shed light on the practices of various multinational corporations, emphasizing the need for cohesive anti-slavery reporting and measures across different jurisdictions. It becomes evident that addressing these critical issues requires collaboration and comprehensive efforts from all parties involved.

A key to compliance with ethical sourcing and compliance with this new Canadian law is through a company’s Supply Chain. Companies must ensure their supply chains are free from forced labor and child labor, and Credit Safe provides services to help. The Canadian Forced Labor Law and the UK’s Modern Slavery Act are steps toward making companies accountable for their actions, but governments must also work with countries like India, Bangladesh, and China to create real change. Non-compliance can lead to fines, customer trust loss, and potential stock dips, and due diligence checks and audits are necessary for companies to protect the integrity of their supply chains. Ethical sourcing is a complex issue requiring collaboration between governments, companies, and experts.

 

Creditsafe is in a unique position to assist companies comply with laws making illegal human trafficking, forced labor, and child labor. In this podcast, you will learn how to investigate your suppliers in a way that enhances your business operations. Once again, this demonstrates that effective compliance leads to more effective business processes, leading to greater profitability.

 Key Highlights

·      Fighting Forced Labor

·      ESG Supply Chain Auditing

·      Canadian Compliance Law

·      Reputational Risk of Non-Compliance

·      Ethical Sourcing

Resources

Ragini Bhalla on LinkedIn

Steve Carpenter on LinkedIn

Creditsafe

Tom Fox

Instagram

Facebook

YouTube

Twitter

LinkedIn

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31 Days to More Effective Compliance Programs

One Month to More Effective HR in Compliance: Day 5 – Role of HR in Incentivizing Compliance

Welcome to the August edition of One Month to a More Effective Compliance Program. In the month of August, 2023 we will consider the role of Human Resources in a best practices compliance program.

In this episode, Tom Fox explores the role of HR in implementing effective compliance programs within companies. The episode focuses on the importance of incentivizing compliance and ethical behavior through both financial and non-financial incentives. The Department of Justice’s guidance emphasizes the need for positive incentives, such as personal evaluations, promotions, and rewards for ethics and compliance leadership. The podcast discusses various avenues for implementing incentives, including cash bonuses and non-compensation rewards like t-shirts or ethical awards. It emphasizes the role of HR in driving the right behavior through incentive structures and warns against solely promoting based on financial targets. Overall, the podcast highlights the significance of HR in creating a fully operationalized compliance program that fosters an ethical work environment.

 Three key takeaways:

  1. The DOJ 2023 ECCP specifically calls out incentives for doing business ethically and in compliance.
  2. HR can lead the efforts around incentives.
  3. Incentives go beyond financial rewards.

For more information, check out The Compliance Handbook, 4th edition, available on LexisNexis.com.

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Adventures in Compliance

Adventures in Compliance – Compliance Lessons from The Man with the Twisted Lip

Welcome to a review of all the Sherlock Holmes stories which are collected in the work, “The Adventures of Sherlock Holmes.” The appeared in the Strand Magazine from July 1891 to June 1892. Over 12 episodes, I will be reviewing each story and mine them for leadership, compliance and ethical lessons. In this episode, we consider “The Man with the Twisted Lip” which was originally published by the Strand Magazine in December 1891.  

Summary

The story begins when Watson, called out by a friend Mrs. St. Clair, finds himself in an opium den in the East End of London. While attempting to extract his friend, he encounters Sherlock Holmes in disguise. Holmes is there on a different case involving Neville St. Clair, Mrs. St. Clair’s husband, who was reported missing under mysterious circumstances.

Mrs. St. Clair had seen her husband at a second story window of the opium den, distressed and quickly pulled away from the window. When she rushed to find him, the only people in the room were the landlord and a dirty, disfigured beggar known as Hugh Boone. Despite Boone’s rough exterior, he is known for his eloquence and wit.

Despite no evidence of foul play or indication of St. Clair being there, Mrs. St. Clair insists her husband was in the room. Holmes takes up the case and starts investigating, finding St. Clair’s clothes in the room, but no sign of the man himself.

Boone is arrested and put in a cell, where Holmes observes him closely. Eventually, Holmes discovers that Boone and Neville St. Clair are the same person. St. Clair, a respectable man with a previously high-paying job, had been leading a double life as the beggar Boone. He discovered that he could earn more money begging while disguised as the disfigured Boone, so he maintained this deception to support his family’s comfortable lifestyle.

St. Clair is extremely relieved to be found out, as he was tired of the lie but didn’t know how to get out of it without damaging his family’s reputation. In the end, it is decided that Boone’s ‘disappearance’ would be maintained to protect the family, and St. Clair vows to abandon his alter ego for good.

Compliance Lessons

1.     Honesty and Transparency: The character Neville St. Clair disguises himself and leads a dual life, which eventually leads to misunderstandings and a temporary downfall. In leadership, being open, transparent, and honest is crucial. Leaders who hide important facts or issues from their teams can create mistrust and a lack of confidence.

2.     Understand Different Perspectives: As a beggar, Neville St. Clair was able to understand a different section of society that he normally would not interact with. A good leader must strive to understand the different perspectives within their team, the broader organization, and the external market. This enhances decision-making and ensures that everyone feels heard and valued.

3.     Adaptability: Despite his odd choice, St. Clair displayed a high degree of adaptability by successfully leading a double life. In leadership, circumstances often change rapidly, and the ability to adapt quickly and effectively is vital. Good leaders can handle uncertainty, make necessary adjustments, and guide their teams through changes.

4.     The Importance of Brand: St. Clair manipulated his appearance to fit into different roles. While this is not advisable ethically, it does underscore the impact of a leader’s image on their followers. Leaders need to be mindful of how their behavior, attitude, and professionalism influence others.

5.     Resilience: Despite the hardships he encountered in his double life, St. Clair demonstrated resilience. Leaders often face challenges and obstacles. The ability to bounce back, remain positive, and continue moving forward is a key leadership trait.

6.     Integrity: The absence of integrity in St. Clair’s actions highlights the importance of this trait in leadership. Leaders must maintain high ethical standards and act in a way that is consistent with their words.

Resource

The New Annotated Sherlock Holmes