7K0A0075I continue my review of the Johnson Controls, Inc. (JCI) Foreign Corrupt Practices Act (FCPA) enforcement action today by focusing on the Department of Justice’s (DOJ’s) Declination to Prosecute. Yesterday, I considered the underlying facts reported to review what lessons could be applied by a compliance practitioner to a corporate anti-corruption compliance program. Today, I want to consider the information available on the actions by JCI, beginning with the self-disclosure, which led to the DOJ to grant a Declination.

The commentary on the DOJ Declination has ranged from the FCPA Professor, who argued there was no viable cause of action against JCI for the illegal conduct of its subsidiary, China Marine, and hence the Declination was without substance; to Mike Volkov who called the declination a ‘head scratcher’ and noted “there appears to be plenty of justification to stretch here in this case when you basically have a recidivist continuing to violate the law”, in arguing there were potential criminal charges to pursue. I want to consider the matter from the angle of the new DOJ Pilot Program and see what, if anything, might be gleaned from that perspective.

One of the difficulties in evaluating any Declination is the paucity of facts available to the compliance practitioner to evaluate. In the JCI case we have the Securities and Exchange Commission (SEC) resolution via a Cease and Desist Order (Order) that lays out the facts relevant to that enforcement action. However, this Order is the product of negotiations between the SEC and JCI. This means the company can seek to keep out facts, which would point to criminal liability, reputational damage, embarrassing senior executives or a plethora of other issues the company does not want in the public domain. There is no way to know if the facts laid out in the Order are all the facts in the case that were known to the DOJ or even disclosed to the DOJ so to base an argument on this underlying premise puts you on wobbly ground. The foregoing is one of the reasons I have argued for my information to be made public around Declinations so that compliance practitioners might understand the full underlying facts.

Yet, even if one took the facts presented in the Order as only facts of this matter, there is information that could lead one to reasonably conclude that criminal charges could be considered under the FCPA. The Accounting Provisions, both Books and Records and Internal Controls, are generally thought to be civil side requirements only. However the statute does make violations of the Accounting Provisions under the following:

(4) No criminal liability shall be imposed for failing to comply with the requirements of paragraph (2) of this subsection except as pro­vided in paragraph (5) of this subsection.

(5) No person shall knowingly circumvent or knowingly fail to imple­ment a system of internal accounting controls or knowingly falsify any book, record, or account described in paragraph (2).

Paragraph 2 refers to the Internal Controls requirements of the FCPA. This means someone must knowingly falsify such records or fail to implement a system of internal controls. The facts laid out in the Order would appear to provide at least an argument that this threshold was met. JCI’s internal controls were so poor that the company “did not understand some of the highly customized transactions at China Marine or the projects involving the sham vendors.” Additionally someone at the corporate office had to certify the financial statements were true and correct and who ever did could also have violated the FCPA. Volkov noted the DOJ could “stretch” to bring criminal charges but either through the argument of conscious avoidance or simply on the facts laid out in the Order, I find an argument for criminal liability plausible. Of course, these arguments do not convict JCI of criminal violation of the FCPA, only a trier of fact can do so, yet they make clear that there are credible arguments which could be pursued which makes a Declination an appropriate mechanism for the DOJ to use, in its discretion.

What led the DOJ to exercise its discretion in issuing the Declination? We can find some guidance from the four requirements under the Pilot Program. First, that there be self-disclosure, which was present in this matter. The Order stated that the company self-disclosed within one month after receiving a second anonymous whistleblower compliance. Second is cooperation during the investigation. The Order stated JCI provided “thorough, complete and timely cooperation” which consisted of the following:

  • JCI promptly and routinely provided the staff with the results of its investigation as it progressed, and provided all supporting documentation requested.
  • JCI provided factual chronologies, hot document binders, and interview summaries, as well as English translations of numerous documents and emails.
  • JCI made employees available for interviews.
  • JCI provided “real time” downloads of employee interviews and made other foreign employees available for interview.
  • When the company caught a Chinese employee shredding documents, it quickly secured the office to preserve evidence.
  • JCI’s cooperation assisted the staff’s investigation.
  • JCI’s timely self-report as well as the thorough productions allowed the staff to initiate and complete its investigation quickly.

The next requirement under the Pilot Program is for extensive remediation during the pendency of the investigation. Here the Order laid out some of the steps taken by JCI, including:

  • JCI terminated or separated sixteen employees implicated in or associated with the illegal scheme and placed all suspect vendors on a do-not-use/do-not-pay list.
  • JCI has closed down its China Marine offices and moved all remaining China Marine employees, none of whom perform a sales or procurement function, into existing offices.
  • JCI enhanced its integrity testing and internal audits to reevaluate vendor onboarding for all JCI business worldwide.
  • JCI implemented random site audits to ensure the delivery of goods on purchase orders.

The final requirement under the Pilot Program is that the company disgorges profits it received from its ill-gotten gain. The Order said, “From 2007 to 2013, JCI obtained a benefit of $11.8 million as a result of over $4.9 million in improper payments made to or through approximately eleven problematic vendors for the purpose of foreign and commercial bribery, and embezzlement.” This corresponds to the amount paid as disgorgement.

For any Chief Compliance Officer (CCO) or compliance practitioner reviewing the JCI enforcement action, it does not matter whether you believe JCI committed criminal acts or not. The reality is that the DOJ is once again laying out conduct it will consider to award the lowest sanction possible, a Declination. There have now been three given since the announcement of the Pilot Program in April. You should study each of these and if you find yourself in a FCPA investigation, use each Declination as a roadmap for your actions during the pendency of the investigation.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Questions 2I continue my exploration of recent enforcement matters and issues by turning to the Johnson Controls, Inc. (JCI) Foreign Corrupt Practices Act (FCPA) enforcement action, which was announced last week. Mike Volkov has called the enforcement action a “head scratcher”. Whether you agree with Volkov’s analysis or not, the case has several significant points for the Chief Compliance Officer (CCO) or compliance practitioner, which I will review today.

The matter was settled via a Cease and Desist Order (Order) from the Securities and Exchange Commission (SEC) and a Declination issued by the Department of Justice (DOJ). For its penalty, JCI accepted over $11.8 million in profits as a result of approximately $4.9 million in improper payments made by China Marine. JCI agreed to disgorge these profits, pay pre-judgment interest of $1,382,561 and a civil penalty of $1,180,000 for a total amount of $14,362,561.

The underlying facts are about as sordid as they can be for a corporate enforcement action. JCI obtained the Chinese unit, China Marine, through its purchase of York International (York) in 2005. In 2007, York paid $22 million to the DOJ and SEC to resolve FCPA offenses in China and other countries that occurred between 2001 and 2006.  York agreed to a three-year independent compliance monitor. JCI, for its part, terminated those involved in China Marine’s illegal conduct after it acquired York.

JCI installed its own Managing Director and limited China Marine’s use of third party sales agents. However, as stated in the Order, “From 2007 to 2013, the managing director of China Marine, with the aid of approximately eighteen China Marine employees in three China Marine offices, continued the bribery and theft that began under his predecessor by using vendors instead of agents to facilitate the improper payments. The improper payments were made to employees of government-owned shipyards as well as ship-owners and unknown persons”.

The bribery scheme was quite sophisticated. It involved, “a multi-stepped arrangement that required the complicity of nearly the entire China Marine office from the managing director, to the sales managers, the procurement managers and finally to the finance manager. The managing director aided or at times approved requests for the addition of certain vendors to the vendor master file without disclosing that certain sales managers had ownership or beneficial interest in the vendors. After the managing director’s approval, sales managers added bogus costs for parts and services to sales reports, which inflated the overall cost of the project, and generated purchase orders for the bogus parts and services. The procurement manager knowingly approved the purchase orders.” The scheme even included the vendors themselves who “created fake order confirmations for the unnecessary parts and services and submitted invoices for payments.” To complete the circle, the China Marine finance manager would authorize the fraudulent payments.

In what can only be called a complete, total and utter failure of JCI’s internal controls, company auditors could not understand the China Marine transactions. Further, and with even more evidence of the lack of effective internal controls, many of China Marine’s transactions were deemed non-material so they were at a level below that which would trigger a review of corporate oversight from JCI’s Denmark office, which oversaw the China Marine business unit. The Order noted that the average vendor payment in the bribery scheme “was approximately $3,400” but the total amount of bribes paid was $4.9MM. One might reasonably wonder if JCI understood there was no materiality threshold under the FCPA. One might also ask if there was conscious indifference by the JCI corporate office.

For the CCO or compliance practitioner there are several important lessons to be garnered from this enforcement action. First is the absolute requirement for effective internal controls to be put in place. If your company does not understand the transactions that any subsidiary engages in, you have put your company at serious risk. For if a company’s internal auditors cannot understand a series of transactions, they you certainly cannot explain them to an auditor. Further, under Sarbanes-Oxley (SOX) §404, a company must not only acknowledge its responsibility for establishing and maintaining a system of internal controls and procedures for financial reporting and an assessment, but also report on the effectiveness of the company’s internal controls.

Karen Cascini and Alan DelFavero, in an article entitled “An Assessment of the Impact of the Sarbanes-Oxley Act on the Investigation Violations of the Foreign Corrupt Practices Act”, said, “Section 404 “requires management to annually disclose its assessment of the firm’s internal control structure and procedures for financial reporting and include the corresponding opinions by the firm’s auditor”. More particularly, “while the FCPA required public companies to institute effective internal controls to stop the bribes and make executives accountable, SOX 404 goes further, but has similar goals.”

All of this might reasonably lead one to ask, who at the corporate headquarters certified the effectiveness of both the JCI and China Marine’s internal controls? Moreover, the Accounting Provisions of the FCPA also includes a section requiring accurate books and records. Clearly JCI was not too interested in verifying the accuracy of the books and records of its China Marine subsidiary.

More than this lack of compliance with both prongs of the FCPA Accounting Provisions, the lack of seeming awareness of enhanced risks is a confounding aspect of this case. China Marine was clearly identified as a high-risk business unit of both York and later JCI. Simply putting your self-appointed Managing Director in place is not enough. Any competent risk management system requires oversight, or as my wife would say ‘a second set of eyes’. This is why an effective compliance program requires ongoing monitoring. It is even truer when an entire business unit is high-risk.

Tomorrow I will continue my exploration of the JCI enforcement action by looking at the DOJ’s Declination, in conjunction with the Pilot Program.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

QuestionsWe had an interesting week of anti-corruption enforcement actions last week, both in the US and the UK. We have now had four Foreign Corrupt Practices Act (FCPA) enforcement actions since the announcement of the Depart Of Justice (DOJ) Pilot Program in April. I thought this would be a good time to review some of the recent enforcement actions, to see what lessons they may impart to the compliance practitioner. So this week will be dedicated to blog post dealing with enforcement. I will begin with a troubling report issued by a committee of the US House of Representative over the Department of Justice’s handling of the money laundering enforcement action against the UK bank, HSBC back in 2012.

Of all the things that US Congress criticized former Attorney General (AG) Eric Holder over, one might think his protections of financial institutions might not have been one of them. Yet last week there was a scathing report issued, entitled “Too Big To Jail, by the GOP staff of the House of Representatives Financial Services Committee, which was discussed by Gretchen Morgenson in her New York Times (NYT) Fair Game column entitled “Kid Gloves For a Bank With Clout. The report deals with the DOJ investigation into the UK financial institution HSBC and subsequent resolution of allegations that the bank “laundered nearly $900 million for drug traffickers” and sanctioned countries.

While the report does not deal with the DOJ’s lack of prosecution of individuals from the 2008 financial crisis, it certainly provides insight into how Holder conducted such resolutions with large financial institutions and may well explain how it occurred that there were no individual prosecutions. The piece begins that even with a nearly $2bn fine, it was not “a body blow” to HSBC. Of course, there was the ubiquitous Deferred Prosecution Agreement (DPA) put in place, where the DOJ would “delay or forgo prosecution of a company if promises to change its behavior.”

While I am most generally supportive of the practice of using corporate DPAs to help enhance compliance programs, Morgenson’s article does bring up some troubling questions about how and why HSBC was able to get off with not only an agreement not to prosecute any individuals at the bank going forward, but even have individual incentives removed from the final DPA. The House report found that DOJ leadership, in the form of AG Holder, “overruled an internal recommendation to prosecute HSBC” because of concerns that prosecution of HSBC “could result in a global financial disaster.”

That final line is one we have (unfortunately) heard before. However, the NYT article also reports on how HSBC was able to “soften the deal”. The original agreement with HSBC had language which “provide no protection from prosecution for employees who ‘knowingly and willfully” processed financial transactions with countries under American sanctions”. University of Pennsylvania Law School Professor David A. Skeel, who was quoted in the piece, said, “This is one case where it looks like the government might have been able to prosecute misbehaving executives during the crisis period, yet waived its right to do so.” Not failed to do so, but waived its right to do so.

Even more inextricably, the DPA waived future penalties for bank executives who failed to comply with the DPA. Originally there were sanctions against bank executives who did not meet the compliance obligations set forth in the DPA. These sanctions were financial penalties in the form of loss of bonuses. However, in the final version this language was removed and the House report noted the DPA, “apparently leaves open the possibility for executives to get their bonuses, despite failing to meet compliance standards.”

Another troubling aspect unearthed by the House report was ‘how much influence officials at the Financial Services Authority – Britain’s top financial regulator at the time – had on the Justice Department’s process in the HSBC matter”. Morgenson quoted a Washburn University School of Law professor, Mary Kreiner Ramirez for the following, “It would seem that in making the decision with respect to HSBC, (AG) Holder gave more attention to the concerns expressed by the F.S.A than he did with respect to our own agencies.” Moreover, the FSA got the documents on apparently something close to a real-time basis as “at the time events were unfolding.”

There has been both legal and academic criticism of DPAs. However the article brings up another criticism of the settlement vehicles, which is less discussed, the internal process by which a settlement is reached. Edward J. Kane, a professor of finance at Boston College, noted, “The fact that so many of these cases are settled rather than going to court means we don’t get an airing of facts and challenges of fact.”

The Yates Memo would seem to be one response to pre-emptively address some of the concerns raised by the lack of individual prosecution. For if the DOJ now requires prosecutors to go after culpable individuals in white collar crime cases such as the HSBC money laundering prosecution or cases under the FCPA for that matter, any settlement via a DPA would not exempt out future prosecutions against culpable individuals. Further, it would also seem that the DOJ would strengthen up the compliance program components of any DPA to have appropriate financial disincentives for the lack of compliance program adherence. When you put on top of this the Yates Memo requirement that companies must dig up facts on culpable individuals and turn those facts over to the DOJ, it would seem that individuals would be more in the sights of DOJ for prosecution.

The other factor not fully explored by commentators is that DPAs, Non-prosecution agreements (NPAs) and other settlement mechanisms are the product of negotiations by the parties, i.e. the government and the company involved. In the context of FCPA resolutions with the Securities and Exchange Commission (SEC), no company is going to put facts supporting a criminal indictment or even claim of criminal conduct in a civil based Cease and Desist Order or other form of civil based resolution. To do so would open up the company to a very high degree of liability, which is not required if the DOJ declines to prosecute a company for criminal violations of the FCPA. That explains why there is never evidence of criminal liability in a resolution document if there is no criminal charge.

Yet the House report does point up some troubling questions about not only how the HSBC settlement was reached but also the lack of prosecutions against any financial institutions after the 2008 financial crisis.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Innovation 5I have been exploring innovation in the compliance function this week. For my final piece I want to consider the innovation process itself. In an article in the MIT Sloan Management Review, entitled “Finding a Lower-Risk Path to High-Impact Innovations”, authors Joseph V. Sinfield and Freddy Solis came up with a different method to view the innovation process. They posited something called the ‘Lily Pad’ approach, which they believe can be a lower risk stratagem to innovation. I found that this approach had some interesting applications for the compliance discipline.

The authors begin with the premise, which is found in the traditional risk-reward theory, when they noted, “Innovation initiatives and the funding programs that support them are generally viewed as “investments,” with an expectation that taking higher risks should be rewarded with higher returns. At the low-risk, low-return end of the spectrum, we tend to see investments that drive incremental innovation or development of innovations that are already proven. At the opposite extreme are corporate “skunk works” that seek to drive innovation in technology and business models to develop whole new product or service categories.” Compliance initiatives can fall anywhere along this spectrum for the reason that if they fail, it can create the conditions for a more systemic failure, which could bring the catastrophic consequences of a Foreign Corrupt Practices Act (FCPA) or other legal violation.

The authors believe that an incremental approach, which they designate as the ‘Lily Pad’ approach, “are developed and introduced opportunistically in application spaces that are ready for adoption. Progress in one lily pad garners resources/cash flow earlier in the development process and can create a pathway for subsequent lily pads in other application spaces.” This allows innovations to break out from their initial breakthrough at an organization, through the period where “decisions about which capabilities to develop and which application contexts to pursue” are made by the development team. All this leads to a progressive cascade of innovation moving forward, as visualized by the authors, as leaping from one lily pad to the next.

The authors list some characteristics of innovations, which they believe leaders should consider for investment. I have adapted them for the compliance function. Does the innovation “offer multiple pathways from first principles to impact” and how relevant is the innovation to multiple business lines or units? Will the innovation change the perspective of employees and even move towards reconfiguring the compliance ecosystem? Finally, is there potential for both growth and improvement in the innovation going forward?

After you have gone through and answered these questions, you should be ready to move forward with what the authors called ‘enabling actions’ and implement one or more of the innovations. By using their approach, the authors write that “Lily pad applications for an enabling innovation provide opportunities to match capability, purpose, and context in a manner that advances select performance dimensions of the innovation, aligns elements of ecosystems, and/or begins to shift” employee views across your organization. But more than simply the singular innovation, the lily pad approach allows your company to reduce the time and cost to jump to the next iteration of development.

Finally, the authors believe that you must “understand and proactively shape the ecosystem”, which for the Chief Compliance Officer (CCO) or compliance practitioner, means working with the business teams so that they understand how and why the innovation will help them achieve their corporate goals. Simply put employees can get stuck in the same rut of doing the same thing the same way. Yet it is a maxim that your compliance program must evolve to meet new risks and new demands. The authors’ lily pad approach allows for an incremental growth of change in ways that can demonstrate effectiveness and allow not only feedback but also acceptance from the employee base.

An example of such an approach could be around the use of data driven analysis from the compliance perspective of all dramatic growth in sales. Recall that there is no materiality level under the FCPA, so the business unit that experiences a dramatic growth in sales, even if non-material within the entire organization, could be the basis of a FCPA enforcement action. By focusing your innovation on one business unit that has experienced a dramatic growth, even if it is in a province of one country or a relatively small country in one larger geographic region, you can use this approach to demonstrate the usefulness of such data monitoring.

The lily pad approach would inform the presentation going forward as every business would want to know and understand how a dramatic growth occurred. Was it product driven? Was it personnel driven? Was a new sales campaign employed? Did a new or different product come to market? Of course, if the sales spike was due to nefarious activity such as bribery, corruption, financial fraud, accounting fraud or other egregious behavior then it can be reviewed and remediated as appropriate. For corporate management the initial results obtained by such a review could be the start of an entire innovation process around any portion of the sales cycle that might have been impacted by such stunning sales growth. It could certainly lead to better and more robust business forecasting going forward.

The authors end their article with four key questions, which I found to be an appropriate manner to end this series on innovation in compliance. First, do you understand the role of innovation in your compliance strategy? Second can you spot the innovations as this may well require you to think differently, particularly if you come from the legal department or have legal training, which certainly does not favor or foster innovation. Next, do you have the ability to adapt to innovations in your compliance function to the company as a whole? Put another way, can you demonstrate how an innovation in compliance will help the company do business more efficiently and in compliance with applicable laws. Of course it all begins with the willingness to engage in innovation and that starts with the top of your organization.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Innovation 4What is the intersection of innovation in your compliance program and the requirements of an effective compliance program? I find the answer to be found in Hallmark 10 of the Ten Hallmarks of an Effective Compliance Program set forth in the 2012 joint Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance. Hallmark 10 states, “Finally, 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. In addition, compliance programs that do not just exist on paper but are followed in practice will inevitably uncover compliance weaknesses and require enhancements. Consequently, DOJ and SEC evaluate whether companies regularly review and improve their compliance programs and not allow them to become stale.”

This ties directly into the articulations of DOJ Compliance Counsel, Hui Chen, when she discussed the operationalization of your compliance program. This means putting compliance into the fabric of your organization. Today, I want to discuss some techniques to innovate in your compliance function which fit directly into this Hallmark.

There are many ways to bring innovation to your compliance program. One of the more cost effective ways to do so is through the continuous improvement technique of internal inspection. Ben Locwin, a well-known Healthcare Industry Thought Leader, Author, Director at Biogen and compliance expert, discussed this method of innovation and other topics in a recent podcast the on the FCPA Compliance and Ethics Report, Episode 266.

Locwin cited to James Womack, founder of the Lean Institute, for the maxim, “Different isn’t always better, but better is always different.” He went onto to explain how innovation can come from a number of ways, some of which could be to reflect on your approach and then refine your process from that starting point. Another way Locwin expressed it was “We have a problem. Let’s not run away from it. Let’s embrace it.”

What you are really doing is looking at your program from the inside out. Locwin advocates beginning with such questions as “What can we do better? What can we do next?” He went on to explain “you’re looking for examination from an external and not an internal prospective. Internal perspectives tend to follow along the quotas. If you always do what you always did, then you’ll always get what you always got.” He went on to say “continuous improvement approaches benefit most from” its “frequent exposures to radical change.”

It is the willingness of the entity to look at itself that is the key to continuous improvement. Locwin said that while “typically these things come from external pressures and not from internal, incremental changes. It really takes a step back, and maybe several steps back to say, what are we actually trying to do, and are we reaping the value that we’re intending to get out of what we have. If we’re not, then we should look for this really systemic overhaul of things, and not just try to tweak a little thing here and a little thing there.”

Locwin provided the example of a root cause analysis, which is typically used after an incident to determine what happened to assess blame, can actually be used to strengthen the prevention prong of your best practices compliance program. He said that a company must “allow themselves that freedom to appraise things that have gone wrong and then address them rather than just saying, “Well, you know we had someone who made a mistake, let’s fix the person or get rid of the person. But really it’s about, let’s understand what’s actually happening here because, for the most part, people are not willfully ignorant and they try to do the right things, so it could just be that there was some clarity issues with how they understood their role or their work for otherwise.”

Locwin explained that a root cause analysis should not be used just simply to determine fault but, “It really should be a way to learn more about the process and what’s going wrong so that the systems and process itself can be changed because there is a thinking in the field which basically centers around the theme of, unless you have changed the process, then you’re going to keep getting similar or the same results.”

As Locwin further explained, “Until you change the process and the systems, you can basically expect that you’re going to have some sort of output that is going to repeat itself over and over again. That’s where finding blame doesn’t necessarily help and really you want to get deeper into those root causes. That’s, frankly, why it’s caused root cause analysis, so that you can drill down below the superficial pieces of the framework to fix, and into the things that are actually driving the outcomes and the behaviors.”

In the healthcare arena, the practice is called Corrective Action and Preventive Action (CAPA). Locwin noted, “when a root cause analysis is done, it really principally is there in order to develop preventive actions. A preventive action is something which by its name is to prevent recurrence of the problem. You can correct with a correction action, but ultimately what you’d like to do is to engineer out or somehow or other fix the system and processes where you don’t have the opportunity for that flaw to occur again. That’s really the preventive action approach.”

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016