There are numerous reasons to put some serious work into your compliance policies and procedures. They are certainly a first line of defense when the government comes knocking. The 2012 FCPA Guidance made clear that “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures will also be considered by DOJ and SEC.” And by using the word “considered”, it is clear that this means the regulators will take a strong view against a company that does not have well thought out and articulated set of policies and procedures; all of which are systematically reviewed and updated. Moreover, having policies written out and signed by employees provides what some consider the most vital layer of communication and acts as an internal control. Together with a signed acknowledgement, these documents can serve as evidentiary support if a future issue arises. In other words, the ‘Document, Document and Document’ mantra applies just as strongly to this area of anti-corruption compliance.
The specific written policies and procedures required for a best practices compliance program are well known and long established. The 2012 FCPA Guidance stated, “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 for conduct in your company. Procedures are the documents that implement these standards of conduct.
The role of compliance policies is to protect companies, their stakeholders, including employees, third-parties and others, despite an occasional lapse. A company’s compliance policies provide a basic set of guidelines for employees and others to follow. Compliance policies should give general prescriptions and should be supplemented by more specific procedures. By establishing what is and what is not acceptable ethical and compliant behavior, a company helps mitigate the risks posed by employees who might not always make the right ethical choices.
The Evaluation of Corporate Compliance Programs builds up on the requirements articulated in the 2012 FCPA Guidance. Under Prong 4, Policies and Procedures, there are two parts: Design and Accessibility and Operational Integration. This Part A has the following components.
Designing Compliance Policies and Procedures – What has been the company’s process for designing and implementing new policies and procedures? Who has been involved in the design of policies and procedures? Have business units/divisions been consulted prior to rolling them out?
Applicable Policies and Procedures – Has the company had policies and procedures that prohibited the misconduct? How has the company assessed whether these policies and procedures have been effectively implemented? How have the functions that had ownership of these policies and procedures been held accountable for supervisory oversight? The Evaluation then goes on to ask about both accessibility and effectiveness of the compliance policies and procedures by stating, Accessibility – How has the company communicated the policies and procedures relevant to the misconduct to relevant employees and third parties? How has the company evaluated the usefulness of these policies and procedures?
Compliance policies do not guarantee employees will always make the right decision. However, the effective implementation and enforcement of compliance policies demonstrate to the government that a company is operating professionally and ethically for the benefit of its stakeholders, its employees and the community it serves.
There are five general elements to a compliance policy. It should stake out the following:
- identify who the compliance policy applies to;
- set out what is the objective of the compliance policy;
- describe why the compliance policy is required;
- outline examples of both acceptable and unacceptable behavior under the compliance policy; and
- lay out the specific consequences for failure to comply with the compliance policy.
The Evaluation mandates there must be communication of your compliance policies and procedures throughout the workforce and relevant stakeholders such as third-parties and business venture partners. Under Part B of Prong 4 is the Operational Integration section with the following components.
Responsibility for Integration – Who has been responsible for integrating policies and procedures? With whom have they consulted (e.g., officers, business segments)? How have they been rolled out (e.g., do compliance personnel assess whether employees understand the policies)?
There are also two specific area that policies and procedures need to focus on. They are around payments and third parties. They have the following components.
Payment Systems – How was the misconduct in question funded (e.g., purchase orders, employee reimbursements, discounts, petty cash)? What processes could have prevented or detected improper access to these funds? Have those processes been improved?
Vendor Management – If vendors had been involved in the misconduct, what was the process for vendor selection and did the vendor in question go through that process?
This means that it more than simply having appropriate policies and procedures. It is operationalizing them into your compliance program, down to the business unit level. How can you do so? Compliance training is only one type of communication. This is a key element for compliance practitioners because if you have a 30,000+ worldwide work force, simply the logistics of training can appear daunting. Small groups, where detailed questions about policies can be raised and discussed, can be a powerful teaching tool. Another technique can be the posting FAQ’s in common areas and virtually. Also, having written compliance policies signed by employees provides what some consider the most vital layer of communication. A signed acknowledgement can serve as evidentiary support if a future issue arises. Finally, never forget the example of the Morgan Stanley declination where the recalcitrant employee annually signed such certifications. These signed certifications help Morgan Stanley walk away with a full declination.
The 2012 FCPA Guidance 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.” It is important that compliance policies and procedure are applied fairly and consistently across the organization. The Fair Process Doctrine demonstrates that if compliance policies and procedures are not applied consistently, 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.
Three Key Takeaways
- The Code of Conduct, together with written compliance policies and procedures form the backbone of your compliance program.
- The DOJ and SEC expect a well-thought out and articulated set of compliance policies and procedures.
- The Fair Process Doctrine holds for the application of policies and procedures.
Policies and procedures form the cornerstone of your best practices compliance program.Click to tweet
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