To read more, check out my blog post series on Hallmark 6.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

Roman Numbers 1-10.2The FCPA Guidance states, “In addition to evaluating the design and implementa­tion of a compliance program throughout an organization, enforcement of that program is fundamental to its effec­tiveness. A compliance program should apply from the board room to the supply room—no one should be beyond its reach. DOJ and SEC will thus consider whether, when enforcing a compliance program, a company has appropri­ate and clear disciplinary procedures, whether those proce­dures are applied reliably and promptly, and whether they are commensurate with the violation. Many companies have found that publicizing disciplinary actions internally, where appropriate under local law, can have an important deterrent effect, demonstrating that unethical and unlawful actions have swift and sure consequences.”

This means you need to have recognized incentives for doing business under your Code of Conduct and in fulfillment of your compliance policy and procedures. Incentives can be immediate such as cash bonuses or other awards or more long term, such as promotion within an organization. Conversely, if someone violates your Code of Conduct, there needs to be consequences for such violation.

A key concept to recognize at this juncture is that procedural fairness is one of the things that will bring credibility to your compliance program. It is called the Fair Process Doctrine and this Doctrine generally recognizes that there are fair procedures, not arbitrary ones, in processes involving rights. Considerable research has shown that people are more willing to accept negative, unfavorable, and non-preferred outcomes when they are arrived at by processes and procedures that are perceived as fair. Adhering to the Doctrine in the areas of incentives, promotion and discipline for any compliance function is key to have credibility with the rest of the workforce.

Incentives

Compliance incentives do not have to be extravagant or groundbreaking. Even rather plain vanilla incentives can work if you deliver it consistently, if you make the rewards visible, as the FCPA Guidance states, “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.” Lastly, make certain that your compliance incentives can be implemented on all levels within your organization.

For those struggling with some metrics around 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.

Promotions 

Another important part is around promotion of employees up to senior management. Human Resources (HR) could help you in compliance to lead the effort to promote only employees who demonstrate a commitment to doing business in compliance. Once again the Fair Process Doctrine is critical here as a part of ongoing employee evaluations and promotions. If your company is seen to advance and only reward employees who achieve their numbers by whatever means necessary, other employees will certainly take note and it will be understood what management evaluates, and rewards, employees upon. I have often heard the tale about some Far East Region Manager which goes along the following lines “If I violated the Code of Conduct I may or may not get caught. If I get caught I may or may not be disciplined. If I miss my numbers for two quarters, I will be fired”. If this is what other employees believe about how they are evaluated and the basis for promotion, you have lost the compliance battle.

Discipline

The types of discipline within a company are fairly standard. Most generally it is any negative consequence, up to and including termination. However, I believe that the key to discipline is procedural fairness and this will help to bring credibility to your compliance program.

Discipline must not only be administered fairly but it must be administered uniformly across the company for the violation of any compliance policy. Simply put if you are going to fire employees in South America for lying on their expense reports, you have to fire them in North America for the same offense. It cannot matter that the North American employee is a friend of yours or worse yet a ‘high producer’. Failure to administer discipline uniformly will destroy any vestige of credibility that you may have developed.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

For a video podcast on this Hallmark 6, click here.

 

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

To read more, check out my blog post series on Hallmark 4.

For more information on this Hallmark, check out my book Doing Compliance: Design, Create and Implement an Effective Anti-Corruption Compliance Program, which is available through Compliance Week by clicking here.

 

 

 

This Week in FCPA-Episode 19, the International Edition

Show Notes for Week ending August 26, 2016

  1. John Kerry: Corruption is ‘root cause’ of terrorism, on FCPA Blog.
  2. Eric Ben-Artzi Op-Ed piece on why he turn down his whistleblower award, as featured in the Financial Times.
  3. Lessons from History-the Tudors on compliance, from the FCPA Compliance Report.
  4. FedEx trial debacle for the DOJ, and Paul Pelletier’s recommendation to fix recent spate of ill-fated and advised DOJ prosecutions, as featured in the FCPA Blog.
  5. Hallmarks 1-5 of the Ten Hallmarks of an Effective Compliance Program, as featured in the FCPA Compliance Report.

Henry VIIII am on assignment in Oxford on a two-week study course, focusing on the Tudors. For the first week we focused on Richard III to the end of Henry VIII’s reign. Although Richard III was not a Tudor, we began with him to study the ‘bad rap’ of negative publicity he received from the Tudor court, specifically Sir Thomas Moore and most particularly Shakespeare’s play, Richard III.

In the career of Henry VIII, we discussed the role of Thomas Cromwell and the series of steps leading up to the split from Rome to obtain his divorce from Catherine of Aragon and his dissolution of the Catholic Church in England to create the Church of England. One of the questions initially posed by our tutor, Janet Dickinson, was whether there was an overarching plan to take these steps or if they were made more on an ad hoc basis in response to events on the ground.

The consensus of our group was the steps taken were in response to the changing and evolving circumstances not only in England but also on the Continent, both in Rome and in the wider sphere of European politics. Initially it appeared the Pope was inclined to grant Henry his annulment but that solution was foreclosed when greater European politics intervened. This intervention was the invasion of Italy by the Spanish King Charles V, who was the nephew of Catherine of Aragon. Charles was disinclined to allow the Pope to grant Henry an annulment of the marriage of his aunt to Henry.

Making Henry the head of the Church of England was only one part of the break from Rome. The second part was the dissolution of the Catholic monasteries and passing of Catholic Church land to the English crown, as head of the Church of England. We may never know who initially came up with these ideas, whether it was Cromwell, another advisor or even if Henry himself came up with some or all of the plans. It does seem relatively clear that Cromwell developed the legal arguments supporting the legal claim for Henry to head up the church in England.

Yet, even at this point there was no clear plan to dissolve the Catholic Church’s property in England to the English crown. This move appears to have come in response to an attempt to clarify religious doctrine after the break with Rome. These widespread popular and clerical uprisings found support among the gentry and even the nobility; all culminating in the Pilgrimage of Grace.

If you are a loyal reader of this blog, you know that I am in the midst of a two-week series on the Ten Hallmarks of an Effective Compliance Program, as it was first laid out in the 2012 FCPA Guidance. I find the series of events I outlined above, from our first week of study of the Tudor period of English history, illustrate a key theme of compliance programs. It is that compliance programs must be flexible and have the ability to evolve. Simply put, it is not in the business interest of US companies (or others subject to the Foreign Corrupt Practices Act (FCPA)) to have a static compliance program. Compliance programs must have the flexibility to respond to a wide variety of factors, including changing market conditions both inside a corporation and on the ground.

Moreover, companies need to have the flexibility to design, create and implement a compliance program that manages the risks they face. As companies mature in their compliance function, they can begin to manage more, additional and further sophisticated risks. For instance, audits of third parties should not begin when your compliance program is made operational. It should wait an appropriate period of time so that you have enough information to review and study.

Additionally chronological developments drive more and greater compliance. Transaction monitoring is one clear area that has achieved significant growth in the past few years alone. If a static approach to compliance had been advocated by the Department of Justice (DOJ) this development might have never occurred.

Finally, the times of Henry VIII informs us that companies need to be ready to respond to events on the ground. Not only must companies have a compliance response to new products or service and entry into new markets; they must respond to new and more sophisticated ways to fund bribery and corruption. The sad fact is that the funding of bribery and corruption occurs from internal funds from a company; whether it is mis-labeling marketing expenses or charitable donations, burying commission payments in unauthorized discounts or making subsidiary financial statements so complicated that home office auditors cannot read them; businesses need to respond to the ever changing landscape. The monies to fund bribes come from the company itself, thus there is always a fraud upon the company by its own employees.

The goal of any best practices compliance program is to prevent, detect and remediate. To achieve this the DOJ and Securities and Exchange Commission (SEC) give companies a wide latitude to achieve these goals. The FCPA Guidance says “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.”

I have long been drawn to the lessons of history and what they teach us in the present day in the field of compliance. The reason the events of the 1520s and 1530s can and do resonate today are that they are based on the actions of people. I find these lessons build into how companies should think about compliance in the 21st century.

 

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