This week, in a podcast series sponsored by Affiliated Monitors, Inc. (AMI), I am visiting with Eric Feldman, Senior Vice President of AMI. We look at the Department of Justice (DOJ) Evaluation of Corporate Compliance Programs, (the “2019 Guidance”), which was released in April 2019. Over this series we are exploring the 2019 Guidance changes from the Evaluation of Corporate Compliance Program (2017 Guidance), 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?”
Feldman began by stating, “I like what they say up front here that prosecutors are instructed to prove specifically whether compliance program is a paper program or one implemented, reviewed and revised as appropriate in an effective manner.” In other words, is your compliance program “really just a fig leaf. And here DOJ takes it on directly. Even using that term paper program, I think that sends a very strong message to companies, don’t show us all the elements of what you think need to be in a program. Don’t throw a bunch of paper at us.” The DOJ is making clear that it wants to see evidence that your compliance “program actually has impacted the culture of the company and that behavior of the employees in the company. That takes a whole different level of attention and implementation and assessment of whether or not a program is effective.”
Commitment by Senior and Middle Level Management
One of the key areas in this section is more than simply conduct or tone at the top but commitment by management at all levels. This means more than simply senior executives within a company, but also the Board. The Board is often left out of these conversations when it comes to driving the culture of an organization. Feldman related, “I’ve always thought that if the Board doesn’t ask the right questions, to the senior executives and to the Chief Compliance Officer, namely what are the impediments to our culture and strengthening our culture.” He added, “this guidance says right up front that ethical standards need to be articulated by the Board, by senior leadership and then demonstrated by example. There is another area of this the section that talks about the reinforcement of standards by senior leaders and middle management by their behavior.” Finally, there was a section on the alignment of financial incentives with the ethics and compliance incentives.
Autonomy and Resources
Under this prong, the adequacy of resources and the autonomy and organizational structure of your compliance program is dependent on the size, structure and risk profile of your company. The 2019 Guidance recognizes that larger companies should devote more formal operations and greater resources to their compliance program and smaller organizations can be less formal and have fewer resources but still be effective. The key is to build a compliance program that works for your organization based upon the circumstance of your company and your assessed risks. On this point, Feldman noted, “I’ve seen programs that were started with nothing more than one internal person. In another organization, I remember it was a quality assurance person within that company became the ethics officer. I would tell you that given the size of that company, which was relatively small, but the credibility and stature of this individual, that was one of the more effective programs I’ve ever seen with a staff of one. In other companies, with large programs with multiple staff members where effectiveness is not even really a consideration.” The mistake made is to focus solely on “outputs, how many investigations, how many cases, how many trainings that I do instead of how effective those things were.” Feldman concluded, “I think they do a very good job of identifying the most important criteria.”
Incentives and Disciplinary Measures
In this area, many of the widely publicized ethical failures in organizations, such as Wells Fargo, United Airlines, Uber, where the financial incentives are not properly aligned and balanced with ethics and compliance incentives. Feldman related this is the “first time I see a in DOJ guidance an emphasis on the implication of the entire incentive system on compliance and ethical behavior. It discusses incentive such as promotions, rewards and bonuses for demonstrating at the Board leadership level. Yet there is also clear import to the stick side, which is clear, consistent discipline that’s commensurate with the violation.” Finally, this section ties into the prior area of communications and training by asking if “you use these instances of disciplinary actions as an opportunity for training?”
Join us tomorrow when begin a deep dive into the 2019 Guidance in considering the third question, “Does your compliance program work in practice?”
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