Tag: compliance

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Great Structures Week V – The Tacoma Narrows Bridge Failure and Preventing Failure in Your Compliance Program

I conclude my Great Structures Week with a focus on structural engineering failures: suspension bridges and the challenges of wind in their construction and maintenance. I am drawing these posts from The Great Courses offering, entitled “Understanding the World’s Greatest Structures: Science and Innovation from Antiquity to Modernity”, taught by Professor Stephen Ressler. In his chapter on suspension bridges he notes that the “Tacoma Narrows Bridge was the third longest span in the world when it opened to the world, this month of July in 1940.” Yet it collapsed only four months later, in one of the most famous visual images of a bridge’s collapsing. This is due to the “inherent flexibility of cable as a structural form”. A bridge can move in longitudinal vibration, that is up and down and in torsion, where it twists from side-to-side.

Most people recognize unstiffened suspension bridges as old as man and engineering itself. It was not until the 1820s that serious study was brought to bear on the issue of wind-related collapse of suspension bridges. The initial solution was to simply use more weight to reinforce the span. However, while that solution did bring some stability, it reinforced damage as the structure became a textbook example of Newton’s Second Law of Motion, which states that the acceleration of an object is dependent upon two variables – the net force acting upon the object and the mass of the object; meaning that once a heavy weight is in motion, it is more resistant to deceleration.

Yet it was scientific methodology that led to the disaster with the Tacoma Narrows Bridge. An engineer named Leon Moisseiff had developed a theory that long spanned suspension bridges were heavy enough that they did not require stiffening trusses because “their mass stabilized them against wind-induced vibrations.” However, this theory failed to take into account how air flows around a bridge and the “dynamic response of the structural system.” Ressler concludes this section by stating, “this case has become a classic symbol of the dangers of arrogance born of overconfidence in science-based design methods, and belt-and-suspenders engineering has made a bit of a comeback.”

I thought about the catastrophic failure of the Tacoma Narrows Bridge in the context of one of the greatest risks in Foreign Corrupt Practices Act (FCPA) compliance; that being third parties. Many non-compliance corporate employees assume that if a third party passes due diligence muster; they are in the clear. After all, you cannot stop a third party from making a bribe or other corrupt payment. Fortunately, the Department of Justice (DOJ) does not take such a myopic view as many business types. Under the FCPA, a company is responsible for the actions of its third-party representatives.

The real work around your third-party compliance program begins after the contract is signed and it is in the management of the third-party relationship. While the FCPA Guidance itself only provides that “companies should undertake some form of ongoing monitoring of third-party relationships”. Diana Lutz, in “Global anti-corruption and anti-bribery program best practices”, said, “As an additional means of prevention and detection of wrongdoing, an experienced compliance and audit team must be actively engaged in home office and field activities to ensure that financial controls and policy provisions are routinely complied with and that remedial measures for violations or gaps are tracked, implemented and rechecked.”

Carol Switzer, writing in the Compliance Week magazine, set out a five-step process for managing corruption risks, which I have adapted for third parties.

  1. Screen – Monitor third party records against trusted data sources for red flags.
  2. Identify – Establish helplines and other open channels for reporting of issues and asking compliance related questions by third parties.
  3. Investigate – Use appropriately qualified investigative teams to obtain and assess information about suspected violations.
  4. Analyze – Evaluate data to determine “concerns and potential problems” by using data analytics, tools and reporting.
  5. Audit – Finally, your company should have regular internal audit reviews and inspections of the third party’s anti-corruption program; including testing and assessment of internal controls to determine if enhancement or modification is necessary.

Additionally, there several different functions in a company that play a role in the ongoing monitoring of the third party. While there is overlap, I believe that each role fulfills a critical function in any best practices compliance program.

Relationship Manager

There should be a Relationship Manager for every third party which your company does business. The Relationship Manager should be a business unit employee who is responsible for monitoring, maintaining and continuously evaluating the relationship between your company and the third party.

Compliance Professional

Just as a company needs a subject matter expert (SME) in anti-bribery compliance to be able to work with the business folks and answer the usual questions that come up in the day-to-day routine of doing business internationally, third parties also need such access. A third party may not be large enough to have its own compliance staff so I advocate a company providing such a dedicated resource to third parties. This role can also include anti-corruption training for the third party, either through onsite or remote mechanisms. The compliance practitioner should work closely with the relationship manager to provide advice, training and communications to the third party.

3rd Party Oversight Committee

A company can have a Third-Party Oversight Committee review documents relating to the full panoply of a third party’s relationship with the company. It can be a formal structure or some other type of group, but the key is to have the senior management put a ‘second set of eyes’ on any third parties who might represent a company in the sales side. In addition to the basic concept of process validation of your management of third parties, as third parties are recognized as the highest risk in FCPA or Bribery Act compliance, this is a manner to deliver additional management of that risk.

After the commercial relationship has begun the Third-Party Oversight Committee should monitor the third-party relationship on no less than an annual basis. This annual audit should include a review of remedial due diligence investigations and evaluation of any new or supplement risk associated with any negative information discovered from a review of financial audit reports on the third party. The Third-Party  Oversight Committee should review any reports of any material breach of contract including any breach of the requirements of the Company Code of Ethics and Compliance. In addition to the above remedial review, the Third-Party Oversight Committee should review all payments requested by the third party to assure such payment is within the company guidelines and is warranted by the contractual relationship with the third party. Lastly, the Third-Party Oversight Committee should review any request to provide the third party any type of non-monetary compensation and, as appropriate, approve such requests.

 Audit

A key tool in managing the relationship with a third-party post-contract is auditing the relationship. I hope that you will have secured audit rights, as that is an important clause in any compliance terms and conditions. Your audit should be a systematic, independent and documented process for obtaining evidence and evaluating it objectively to determine the extent to which your compliance terms and conditions are followed.

Perhaps now you will understand why I say that managing the relationship of your third party’s is where the real work of your FCPA compliance program comes to the fore. It also demonstrates a key difference in having a paper compliance program and doing compliance. Having a paper compliance program is simple but doing compliance is not always easy; you have to work at it to maintain an effective program.

I hope that you have enjoyed this week’s offering based around some of the world’s greatest structures, their engineering concepts and innovations and how they all related to a best practices compliance program. I am a huge fan of The Great Courses offerings and if you are interested in learning in a great many areas it is one of the best resources available to you.

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Great Structures Week IV –  Gothic Cathedral and Compliance Incentives

I continue my Great Structures Week with focus on great structural engineering and its innovations in the medieval world – that being the Gothic Cathedral. I am drawing these posts from The Great Course offering, entitled “Understanding the World’s Greatest Structures: Science and Innovation from Antiquity to Modernity”, taught by Professor Stephen Ressler. When it comes to Gothic Cathedrals, Ressler notes that they are a rich case study in the development of “architecture and the limits of empirical design, literally written into the walls of the buildings.”

The innovation of the Gothic Cathedral was to use elements of the Roman basilica but to add “height and light, featuring ever taller naves, pierced by ever-larger clerestory windows, and delineated by ever-more-slender engaged columns”. The first innovation came with the pointed arch followed by ribbing on the columns to help stiffen and strength them more effectively. However, the truly dynamic innovation was the creation of flying buttresses, which were huge additional columns outside the structure yet were designed to become load-bearing members so the highest point inside the cathedrals could be filled by light through ornately stained glass windows. Two of the finest examples of these Gothic Cathedrals are both found in France. They are the Cathedral of Our Lady at Chartres and Cathedral of St. Stephens at Bourges.

Just as the medieval world built up the structural engineering techniques from their forebears, as your compliance regime matures you can implement more sophisticated strategies to make your Foreign Corrupt Practices Act (FCPA) compliance program a part of the way your company does business. Using an article from the MIT Sloan Management Review, “Combining Purpose with Profits”, as a basis, I have developed six core principles for incentives, for the compliance function in a best practices compliance program.

  1. Compliance incentives don’t have to be elaborate or novel. The first point is that there are only a limited number of compliance incentives that a company can meaningfully target. Evidence suggests the successful companies are the ones that were able to translate pedestrian-sounding compliance incentive goals into consistent and committed action.
  2. Compliance incentives need supporting systems if they are to stick. People take cues from those around them, but people are fickle and easily confused, and gain and hedonic goals can quickly drive out compliance incentives. This means that you will need to construct a compliance function that provides a support system to help them operationalize their pro-incentives at different levels, and thereby make them stick. The specific systems which support incentives can be created specifically to your company but the key point is that they are delivered consistently because it signals that management is sincere.
  3. Support systems are needed to reinforce compliance incentives. One important form of a supporting system for compliance incentives “Is to incorporate tangible manifestations of the company’s pro-social goals into the day-to-day work of employees.” Make the rewards visible. As stated in the FCPA Resource Guide 2nd edition, “Beyond financial incentives, some companies have highlighted compliance within their organizations by recognizing compliance professionals and internal audit staff. Others have made working in the company’s compliance organization a way to advance an employee’s career.”
  4. Compliance incentives need a “counterweight” to endure. Goal-framing theory shows how easy it is for compliance incentives to be driven out by gain or hedonic goals, so even with the types of supporting systems it is quite common to see executives bowing to short-term financial pressures. Thus, a key factor in creating enduring compliance incentives is a “counterweight”; that is, any institutional mechanism that exists to enforce a continued focus on a nonfinancial goal. This means that in any financial downturn compliance incentives are not the first thing that gets thrown out the window and if my oft-cited hypothetical foreign Regional Manager misses his number for two quarters, he does not get fired. The key is that the counterweight has real influence; it must hold the leader to account.
  5. Compliance incentive alignment works in an oblique, not linear, way. The authors state, “In most companies, there is an implicit belief that all activities should be aligned in a linear and logical way, from a clear end point back to the starting point. The language used — from cascading goals to key performance indicators — is designed to reinforce this notion of alignment. But goal-framing theory suggests that the most successful companies are balancing multiple objectives (pro-social goals, gain goals, hedonic goals) that are not entirely compatible with one another, which makes a simple linear approach very hard to sustain.” What does this mean in practical terms for your compliance program? If you want your employees to align around compliance incentives, your company will have to “eschew narrow, linear thinking, and instead provide more scope for them to choose their own oblique pathway.” This means emphasizing compliance as part of your company’s DNA on a consistent basis — “the intention being that by encouraging individuals to do “good,” their collective effort leads, seemingly as a side-effect, to better financial results. The logic of “[compliance first], profitability second” needs to find its way deeply into the collective psyche of the company.”
  6. Compliance incentive initiatives can be implemented at all levels. Who at your company is responsible for pursuing compliance incentives? If you head up a division or business unit, it is clearly your job to define what your pro-social goals are and to put in place the supporting structures and systems described here. But what if you are lower in the corporate hierarchy? It is tempting to think this is “someone else’s problem,” but there is no reason why you cannot follow your own version of the same process.

Looking for some specific compliance obligations to measure against? You could start with the following examples of compliance obligations that are measured and evaluated.

 For Senior Management

  • Lead by example in your own conduct and in the decisions you take, to the resources and time you commit to compliance.
  • Facilitate and proactively practice in day-to-day activities the key compliance competencies, both internally and externally.
  • Support specific initiatives from the Chief Executive Officer (CEO), legal and compliance functions. 

 For Middle Management

  • Demonstrate, facilitate and proactively practice in day-to-day activities the key compliance competencies, both internally and externally.
  • Support specific initiatives from the legal and compliance functions.
  • Ensure that all employees, agents and contractors directly or indirectly reporting to you fully complete all required training and communications in a timely manner.
  • Provide full cooperation with investigations conducted by the compliance or legal functions of any alleged violation of compliance policies.
  • Include the Chief Compliance Officer (CCO) or another legal or compliance function representative in your management meetings at least twice per year, per geography.
  • Identify instances of non-compliance and support compliance monitoring and reporting systems. Partner with compliance in resolving compliance issues.

 For Business Development or Company Sales Representatives

  • Certify that all employees, agents and contractors directly or indirectly reporting to you have fully reported all sales and marketing interactions with all government officials in a timely manner.
  • Certify that all employees, agents and contractors directly or indirectly reporting to you have fully, promptly and accurately reported all expenses with third party sales representatives have occurred.

The Gothic Cathedral is one of the greatest structural engineering feats mankind has ever created. It combined a dimension of height not surpassed for nearly 1000 years with an ingress of light not previous seen in structures. This use of light facilitated the development of the artistry of stained-glass windows and directly led to the continued beauty and relevance of these magnificent structures.

Join us tomorrow as we conclude our series by looking at the Tacoma Narrows Bridge Failure and preventing failure in your compliance program.

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Great Women in Compliance

GWIC x The Ethics Experts-Lisa’s Episode

Welcome to the Great Women in Compliance Podcast, co-hosted by Lisa Fine and Mary Shirley.

As Lisa and Mary prepare for the end of 2022 with their fall hiatus, they thought they would mix it up by posting their Ethics Experts episodes.  We’ve heard from Mary, and now it’s Lisa’s turn.  In 2021, Lisa finally met Nick Gallo in person at the SCCE conference, and they talk about how they became “conference BFFs.”  In the episode, they talk about the importance of ethical decision-making and how to empower employees to do that.  In particular, they also discuss how to grow and stretch yourself by doing things that scare you, and that’s where Lisa committed to her annual solo episode.

The release date is also the last day of the 2022 SCCE CEI, and Mary and Lisa will be back next week with their joint episode which will include some event highlights.

The Great Women in Compliance podcast is excited to look at topics like this one, and we are always open to suggestions for guests.

The Great Women in Compliance Podcast is on the Compliance Podcast Network with a selection of other Compliance related offerings.  If you are enjoying this episode, please rate it on your preferred podcast player to help other likeminded Ethics and Compliance professionals find it.  If you have a moment to leave a review at the same time, Mary and Lisa would be so grateful.

You can also find the GWIC podcast on Corporate Compliance Insights where Lisa and Mary have a landing page with additional information about them and the story of the podcast.  Corporate Compliance Insights is a much-appreciated sponsor and supporter of GWIC, including affiliate organization CCI Press publishing the related book; “Sending the Elevator Back Down, What We’ve Learned from Great Women in Compliance” (CCI Press, 2020). If you enjoyed the book, the GWIC team would be very grateful if you would consider rating it on Goodreads and Amazon and leaving a short review.

You can subscribe to the Great Women in Compliance podcast on any podcast player by searching for it and we welcome new subscribers to our podcast.

Join the Great Women in Compliance community on LinkedIn here.

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Compliance Into the Weeds

External Auditors, Fraud Risks and Compliance

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. In this episode, we consider the recent statement by Paul Munter, the SEC’s acting chief accountant, who urged auditors to assess fraud risk among their clients better. Highlights include:

  • Why did the SEC raise these points in the first place? What are they trying to tell auditors that they’re doing wrong?
  • Are auditors equipped to be more aggressive in fraud risk assessment and investigation?
  • What should compliance officers think about vis-a-vis the SEC’s statement?
  • What is the role of compliance in anti-fraud?
  • How will this impact compliance audits by external auditors and fraud examiners?

 Resources

Matt in Radical Compliance

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Great Structures Week III – The Roman Arch and Resourcing Your Compliance Program

I continue my Great Structures Week with focus on structural engineering innovations from ancient Rome. I am drawing these posts from The Teaching Company course, “Understanding the World’s Greatest Structures: Science and Innovation from Antiquity to Modernity”, taught by Professor Stephen Ressler who said “When I think of Rome, the first image that comes to mind is an arch.” It is present in aqueducts, in the triumphal arches that adorn the city of Rome, in the city gates and even in the Coliseum.

The arch was a major engineering advancement because the prior method for traversing horizontal distance was the beam, which was limited in its use. Ressler notes “because the arch carries its load entirely in compression, its span isn’t limited by the tensile strength of the material, the size of its stones, and it can span greater distances which might be conceived of with stone beams”. The arch itself has two essential characteristics. First it carries an entire load in compression, that is it counter-balances against itself, which allows for construction using the most basic building materials known in the ancient world: stone, brick and concrete.

Yet the second characteristic of the arch is equally significant. An arch requires “both vertical and horizontal reactions to carry a load. The downward load of the arch is balanced by an upward reaction from the base”. Both the Arch of Titus and Pont du Gard aqueduct are still standing and can be seen today as magnificent examples of this Roman innovation.

I wanted to use the dual load system whereby an arch supports not only great weight but also esthetic engineering designs to discuss how a Chief Compliance Officer (CCO) or compliance practitioner might develop resources to implement a best practice anti-corruption compliance program under the Foreign Corrupt Practices Act (FCPA), UK Bribery Act or other anti-bribery law. Funding of a compliance program is always one of the biggest challenges. Short of being in the middle of a worldwide FCPA, UK Bribery Act or other anti-corruption investigation, you are never going to receive all the funding you want or even think that you are going to need.

However, this corporate reality is not going to save you if the government comes knocking. The FCPA Resource Guide 2nd edition, provides the following, “Moreover, the amount of resources devoted to compliance will depend on the company’s size, complexity, industry, geographical reach, and risks associated with the business. In assessing whether a company has reasonable internal controls, DOJ and SEC typically consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”

Stephen Martin, CCO at  Skillsoft, often says that an inquiry a prosecutor might make is along the lines of the following. First what the company’s annual compliance budget was for the past year. If the answer started with something like, “We did all we could with what we had ($100K, $200K, name the figure), the next inquiry would be, “How much was the corporate budget for Post-It Notes last year?” The answer was always in the 7-figure range. Then the KO punch question would be, “Which is more business critical for your company; complying with the FCPA or Post-It Notes?” Unfortunately, most companies spent far more on Post-It Notes than they were willing to invest into their compliance program.

However this corporate reality will allow you to look to other areas to assist the compliance function. An obvious starting place is Human Resources (HR). There are several areas in which HR can bring expertise and, in my experience, enthusiasm to the compliance function. Some of the reasons include the fact that HR is physically located at or touches every site in the company, globally. HR is generally seen as more approachable than many other departments in a company, unfortunately including compliance. A person’s first touch point with a company is often HR in the interview process. If not in the interview process, it is certainly true after a hire is made. Use this approachability.

HR has several key areas of expertise, such as in discrimination and harassment. But beyond this expertise, HR also has direct accountability for these areas. It does not take a very long or large step to expand this expertise into assistance for compliance. HR often is on the front line for hotline intake and responses. These initial responses may include triage of the compliant and investigations. With some additional training, you can create a supplemental investigation team for the compliance department.

Clearly HR puts on training. By ‘training the trainers’ on compliance you may well create an additional training force for your compliance department. HR can also give compliance advice on the style and tone of training. This is where the things that might work and even be legally mandated in Texas may not work in other areas of the globe; advice can be of great assistance. But more than just putting on the training, HR often maintains employee records of training certifications, certifications to your company’s Code of Conduct and compliance requirements. This can be the document repository for the Document, Document, and Document portion of your compliance program.

Internal Audit is another function that you may want to look at for assistance. Obviously, Internal Audit should have access to your company’s accounting systems. This can enable them to pull data for ongoing monitoring. This may allow you to move towards continuous controls monitoring, on an internal basis. Similarly, one of the areas of core competency of Internal Audit should also be internal controls. You can have Internal Audit assist in a gap analysis to understand what internal controls your company might be missing.

Just as this corporate function’s name implies, Internal Audit routinely performs internal audits of a company. You can use this routine job duty to assist compliance. There will be an existing audit schedule and you can provide some standard compliance issues to be on each audit. Further, compliance risks can also be evaluated in this process. Similar to the audit function are investigations. With some additional training, Internal Audit should be able to assist the compliance function to carry out or participate in internal compliance investigations. Lastly, Internal Audit should be able to assist the compliance function to improve controls following investigations.

A corporate IT department has several functions that can assist compliance. First and foremost, IT controls IT equipment and access to data. This can help you to facilitate investigations by giving you (1) access to email and (2) access to databases within the company. Similar to the above functions, IT will be a policy owner as the subject matter expert (SME) so you can turn to them for any of your compliance program requirements, which may need a policy that touches on these areas. The final consideration for IT assistance is in the area of internal corporate communication. IT enables communications within a company. You can use IT to aid in your internal company intranet, online training, newsletters or the often mentioned ‘compliance reminders’ discussed in the Morgan Stanley Declination.

Finally, do not forget your business teams. You can embed a compliance champion in all divisions and functions around the company. You can take this a step further by placing a Facility Compliance Officer at every site or location where you might have a large facility or corporate presence. Such local assets can provide feedback for new policies to let you know if they do not they make sense. In some new environments, a policy may not work. If your company uses SAP and you make an acquisition of an entity which does not use this ERP system, your internal policy may need to be modified or amended. A business unit asset can also help to provide a push for training and communications to others similarly situated. One thing that local compliance champions can assist with is helping to set up and coordinate personnel for interviews of employees. This is an often over-looked function but it facilitates local coordination, which is always easier than from the corporate office.

All of these other corporate functions can greatly assist you in the actual doing of compliance. Moreover, in a resource-constrained environment, these other corporate disciplines can be used to strengthen your compliance program, in a manner similar to vertical and transverse integration of structural integrity presented in an arch. Finally, just as the arch utilized some of the most basic construction elements in existence, by using the other corporate disciplines, engaging in precisely their corporate functions, you can create a strong foundation in your compliance program going forward.

Join us tomorrow where we look at the intersection of Gothic Cathedrals and compliance incentives.

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The Compliance Life

Bridget Abraham-Bridget Abraham-Into the CCO Chair

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 skills does a CCO need to navigate the compliance waters in any company successfully? 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 Bridget Abraham, CCO at Remitly, who had a decidedly non-traditional path to the CCO Chair.

From Western Union, Bridget moved to the CCO Chair at Remitly, a remittance payment company. She discussed the mission-driven approach of Remitly to do the right thing. She talked about some of her early challenges and how she could leverage her economics background into a full compliance program. Some of her challenges included scaling up the compliance program and moving into new markets.

Resources

Bridget Abraham LinkedIn Profile

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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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Great Structures Week I: Vitruvius, the Brooklyn Bridge and Compliance

In “Understanding the World’s Greatest Structures: Science and Innovation from Antiquity to Modernity”, by Professor Stephen Ressler, he explores some of the world’s greatest structures and the development of structural engineering throughout history. Many structural engineering concepts are apt descriptors for an anti-corruption compliance program. So today, I will begin the ‘Great Structures Week’ as an entrée into an appropriate topic for an anti-corruption compliance program. Each day I will discuss a structural engineering concept together with one my favorite examples from Professor Ressler’s course.

To open the series I will consider what makes a structure great. Marcus Vitruvius Pollio (Vitruvius) was a Roman author, architect, and civil engineer during the 1st century BC, known for his work entitled De Architectura. Vitruvius is famous for proclaiming that a structure must exhibit the three qualities of firmitas, utilitas and venustas, meaning that it must be solid, useful and beautiful. These are sometimes termed the Vitruvian Triad and today these are loosely translated that great constructions must have form, function or structure. Form is the arrangement of space and harmony. Function is the measure of usefulness. Structure contains innovative techniques in its creation.

My favorite example of a structure that incorporates all three of these concepts is the Brooklyn Bridge. The beauty of the form follows the functions of the scientific principles that underlie the bridge’s structure. As Ressler noted “Each element of the form of the Brooklyn Bridge serves a structural purpose based on mathematical principles.” First the form itself is one of great beauty. The function remains the same, even if the modes of transport have evolved; the Bridge was designed to carry people from Brooklyn to Manhattan. Yet as Ressler notes, “beyond the aesthetic, these features are a direct reflection of the scientific principles underlying the bridge’s design. They are, in a word, structure – a system of load carrying elements that cause the bridge to stand up.” We have a graceful and elegant design, which operates to safely conduct people over the Hudson River, through an engineering design that allows the structure to act as intended.

This convergence of Vitruvius’ tripartite view of what makes a great structure is an appropriate analogy for a best practices anti-corruption compliance program to facilitate compliance with the FCPA, UK Bribery Act or similar regime. Over the years both the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) have made clear that each company should have a compliance program that fits its needs. Indeed, in the FCPA Guidance, it could not have been made clearer when it stated, “Individual companies may have different compliance needs depending on their size and the particular risks associated with their businesses, among other factors. When it comes to compliance, there is no one-size-fits-all program.” The Guidance goes on to state the obvious when it notes, “companies may consider a variety of factors when making their own determination of what is appropriate for their specific business needs. Indeed, small- and medium-size enterprises likely will have different compliance programs from large multi-national corporations”.

The Guidance goes on to note, “Compliance programs that employ a “check-the-box” approach may be inefficient and, more importantly, ineffective. Because each compliance program should be tailored to an organization’s specific needs, risks, and challenges, the information provided below should not be considered a substitute for a company’s own assessment of the corporate compliance program most appropriate for that particular business organization. In the end, if designed carefully, implemented earnestly, and enforced fairly, a company’s compliance program—no matter how large or small the organization—will allow the company generally to prevent violations, detect those that do occur, and remediate them promptly and appropriately.”

Yet when viewed through Vitruvius’ prism, it is clear that an anti-corruption compliance program is much more holistic, with form, function and structure. A good compliance program is really about good financial controls. I think this is one outlook of FCPA compliance which is not discussed enough. Stanley Sporkin, in many ways the progenitor of the law, recognized that if a company was going to engage in corruption it would have to hide such activity through falsified books and records. Hence, he articulated the basis for having the accounting provisions included when Act was originally written and enacted into law. These provisions include both the books and records provision and the internal controls provision. The Guidance says, “the accounting provisions ensure that all public companies account for all of their assets and liabilities accurately and in reasonable detail”. So the form of a compliance program should be largely in financial controls that are baked into a company.

The formula of a compliance program can follow several forms. It can be based on the Hallmarks of an Effective Compliance Program from the FCPA Guidance, the Six Principles of Adequate Procedures as contemplated by the UK Bribery Act; the OECD 13 Good Practices or other formulations. The form of any of these articulations meets the Vitruvius definition.

Next is the function. Here I think it is appropriate to consider what the FCPA Resource Guide 2nd edition says regarding internal controls, that being “Internal controls over financial reporting are the processes used by compa­nies to provide reasonable assurances regarding the reliabil­ity of financial reporting and the preparation of financial statements. They include various components, such as: a control environment that covers the tone set by the organi­zation regarding integrity and ethics; risk assessments; con­trol activities that cover policies and procedures designed to ensure that management directives are carried out (e.g., approvals, authorizations, reconciliations, and segregation of duties); information and communication; and monitor­ing.” Moreover, “the design of a company’s internal controls must take into account the operational realities and risks attendant to the company’s business, such as: the nature of its products or services; how the products or services get to market; the nature of its work force; the degree of regulation; the extent of its government interaction; and the degree to which it has operations in countries with a high risk of corruption.” This language points to function of any best practices compliance program, to make the company a better-run company.

Finally, in the area of structure it is incumbent to recall that any best practices anti-corruption compliance program continues to evolve. It evolves with technological innovations such as transaction or continuous controls monitoring. But a compliance program must evolve as your company evolves. Changing commercial realities and conditions can create new or increased FCPA compliance risks. Your compliance program needs to be able to detect, assess and manage new risk as your business creates new products; moves into new territories or develops new sales channels. The FCPA Resource Guide 2nd edition states, “They are dynamic and evolve as the business and the markets change.” To do so, “a good compliance program should constantly evolve. A company’s business changes over time, as do the environments in which it operates, the nature of its custom­ers, the laws that govern its actions, and the standards of its industry.”

Categories
FCPA Compliance Report

Erica Salmon Byrne on Ethisphere Partnership with Alpine Investors

In this episode, I visit with Erica Salmon Byrne, now CEO at Ethisphere. We review the firm’s recent acquisition by Alpine Investors, a B-Corp. Key areas we discuss on this podcast are:

  • What does this new partnership mean for Ethisphere?
  • Who is Alpine Investors, and what is a B Corp.
  • What is People Focused Private Equity, and why was this a good fit for Ethisphere?
  • What will be Erica’s role going forward?
  • How this move will refocus Ethisphere’s efforts in ESG.

 Resources

Ethisphere Press Release

Ethisphere

Alpine Investors

Categories
Popcorn and Compliance

Leadership Lessons from The Wolfman

I have always loved the classic Universal monster movies from the 1930s. I am exploring one movie each week to mine it for leadership and compliance lessons this month. For this first entry in this short series on Popcorn and Compliance, I look at the original 1941 version of The Wolfman, which starred Lon Chaney Jr as the Wolfman. Chaney embued the Monster with great pathos, and in this podcast, I explore some of the dichotomies found in the movie, which I believe move beyond simply good v. evil. Some of the supporting roles of Claude Rains as Laurency Talbot’s father, Bela Lugosi as the werewolf who attacks Chaney, and Maria Ouspenskaya as Maleva, the mother of the original werewolf, who is an empathic and wise character that provides guidance, comprehension, and comfort to the others. The movie is very atmospheric and has a ton of fun.