Angry RedbirdAt a Press Conference today, Satan officially announced that Hell has frozen over. He made this stunning announcement after the New York Times (NYT) reported that the baseball team with the most World Series wins in the history of the National League (NL), the St. Louis Cardinals, had hacked those paragons of virtue, enormity and the very symbol of baseball greatness, the Houston Astros, to view confidential information. The Cardinals have managed to win 5 World Series in the past 50 years; how many World Series have the Astros won? That would be a big fat nada, ZERO, none, zilch. The NL team with the most World Series wins in the past 50 years was caught hacking into the inner most secrets of one of the worst teams in that same time period. Where are Tom Brady’s deflated balls when you need them?

As reported by Michael Schmidt, in a piece entitled “Cardinals Face F.B.I. Inquiry in Hacking of Astros’ Network, Major League Baseball (MLB) asked the FBI and Department of Justice (DOJ) to investigate the hacking of the Astros “Last year, some of the information was posted anonymously online, according to an article on Deadspin. Among the details that were exposed were trade discussions that the Astros had with other teams. No doubt expecting that nefarious rogue agents of the Chinese government (or worse-the Chinese military) were seeking to wreck havoc on the game once known as ‘America’s pastime’ or “Believing that the Astros’ network had been compromised by a rogue hacker, Major League Baseball notified the F.B.I., and the authorities in Houston opened an investigation. Agents soon found that the Astros’ network had been entered from a computer at a home that some Cardinals officials had lived in. The agents then turned their attention to the team’s front office.” Oops, those darn Chinese; they are never around to blame when you need them.

So move aside New England Patriots, with your petty attempts to manipulate footballs in a championship game. Stop allowing your quarterback to dictate how he uses the tools of his trade, footballs. Do not cheat and call it getting an edge; all of this makes you look like rank amateurs next to the St. Louis Cardinals. Act like a real team and enlist your front office executives to steal information from the worst team in football. For long term pathetic-ness, you might try the Oakland Raiders or just go with the current joke of a team, the Tampa Bay Buccaneers whose No. One draft pick, and now face of the franchise, was one of the most ‘ethically challenged’ college players in recent years. If you really want great information about poor football, steal it from the Jacksonville Jaguars. Bill Belichek, you are only limited by your imagination!

As to the Cardinals, what on earth could the Astros have that they could possibly want? Take the Astros record over the past five years; it’s the worst in baseball. You want a piece of that? How about secret information on the leadership savoir fare of the Astros owner ‘Mr. I am smarter than everyone in the room because I made a $100mm in business’ Jim Crane. Why be one of the best-run sports franchises, when you can mimic the Astros? First you can tell everyone how stupid they are because they do not understand how it is in your interest to try and lose; next why you should cut off over 70% of your fan base from even watching games on television so they will not see your joke of a team play and, finally, how to sue the prior owner who sold you the team for mis-representing the quality of the assets.

But do not stop with the owner. The apparent ire of St. Louis (never under-estimate a pissed off Redbird) was directed at a former Cardinal employee who left to become the General Manager of the Astros, Jeff Luhnow. Apparently the Cardinals were upset that the baseball knowledge in Luhnow’s head was now being used by the Astros. (Did I mention the Astros had baseball’s worst record for the past 5 years?) Of course, perhaps the Cardinals could learn how make an offer to the top draft pick in the annual amateur draft and then withdraw the offer so they could make a lower one, thereby losing two top draft picks. That certainly was a brilliant move by the Astros that you would want to use going forward.

The Cardinals action brings up one of the greatest areas of corporate angst; when a business gets its feelings hurt. Heaven forbid. No doubt having recently seen a recent late night showing of the movie Animal House the Cardinals decided not to get mad; they decided to get even. So with this newfound information gleaned from the Astros, it now clear how the Cardinals have been so successful. Not simply being content to cheat, they broke the law to hack into the confidential information of another baseball team to learn that other team’s secret. Now I know why the Astros have been so bad over the years; they had all their confidential information sucked out of their organization by the evil Cardinals. So that giant sucking sound you hear from south Texas is not American jobs going to Mexico because of NAFTA but all the confidential information being sucked out of the Houston Astros.

What are the lessons for a Chief Compliance Officer (CCO) or compliance practitioner? One lesson is it points to the myriad of reasons that companies and individuals engage in bribery and corruption. It is laughable to think that the St. Louis Cardinals, one of the best-run franchises’ in all of sports (or so we thought); could learn anything from the idiots who run the Astros. Yet here we are; out of spite, vindictiveness or just plain old malevolence, front office executives of the Cardinals engaged in conduct that has drawn the scrutiny of the FBI and DOJ. This points to other motivations than fidelity to monetary gain as a reason for bribery and corruption.

Also, cybersecurity is a compliance concern. What protocols to you have in place to protect your data? How will you respond to a breach? What happens if another member of the cartel your business is in engages in criminal activity against you? Will you demand that they are kicked out of the cartel?

I think it also points up how actually Doing Compliance differs from having a paper compliance program in place. Whether you use the McNulty’s Maxims formulations (What did you do to prevent? What did you do to detect it? What did you do after you found out about it?) or the FCPA Guidance formulation that a best practices compliance program should prevent, detect and remedy violations. I am relatively certain the St. Louis Cardinals had a policy against breaking the law by hacking into the database of another baseball team. With equal certainty, I am sure the Cardinals had no program to prevent or detect such illegal conduct for if they did, it would certainly appear they conveniently looked the other way.

Finally, American businesses need to wise up. Stop all the whining, moaning and complaining about data breaches from Chinese/Russian/Bulgarian/the Galactic Empire/the Borg/(name your Evil Empire); you are most at risk from other US companies. For if the best team in the history of the NL will break the law to steal the trade secrets and confidential information of one of the worst teams, is anyone safe? Further, what are the chances that the Cardinals have been trying to steal trade secrets from winning teams? That would be a number way too high for me to even imagine. Quit crying to Congress that it is unfair for you to be required to protect your own data or that it would cost you money or jobs; secure your data now.

Now for a free tip from my consulting company, Advanced Compliance Solutions-if you have super-secret confidential information, make sure it password protected. But more than simply password protected, change you password every 90 days. That is a good first step in case the St. Louis Cardinals come hacking your company.

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, 2015

Lee as DraculaSir Christopher Lee died yesterday. For several generations of horror movie fans, he was simply Dracula, having starred in the role for Hammer Films in the 1950s through the 1980s. Yet for another couple of generations of movie aficionados, he was known for his work in the later Star Wars series as Count Dooku in both Star Wars: Episode II — Attack of the Clones and in Star Wars: Episode III — Revenge of the Sith. He was also the wizard Saruman in Peter Jackson’s Lord of the Rings films.

His characterization of Dracula may have been closer to what Dracula’s creator, Bram Stoker, had envisioned. According to his obituary in The Telegraph, Lee “imbued the character with a dynamic, feral quality that had been lacking in earlier portrayals.” The first Hammer Dracula film was the most successful. The Telegraph stated, “With Cushing cast this time as the vampire hunter, Dracula (retitled Horror of Dracula in America) was a box-office success for Hammer and horror aficionados at the time labelled it “the greatest horror movie ever made”. Lee also regarded it as the best of the series of Dracula films that he made with Hammer. “It’s the only one I’ve done that’s any good,” he recalled. “It’s the only one that remotely resembles the book.””

Lee’s creativeness and greatness in the roles he has played lead-in to my topic today. I am extremely pleased to announce that my latest book CCO 2.0 | Internal Marketer and Soft Skills Required has been published and is now available from Compliance Week. CCO 2.0 provides the Chief Compliance Officer (CCO) and compliance practitioner with some of the most current ideas on the types of skills that a compliance officer might need and how to market the compliance function within the corporate environment.

In the Internal Marketer section, I take on such topics as The Five Golden Rules of Internal Marketing Compliance; Internal Marketing of a Compliance Program; Getting Employees to Care about a Compliance Program; Getting Your Employees to Internally Market Your Compliance Program; Internal Advertising of Your Compliance Program and Funding Your Compliance Program.

In the sections of soft skills I discuss skills the CCO or compliance practitioner can use to move forward the compliance agenda in a company. I discuss such topics as the use of influence by a CCO; Four Keys to Compliance Leadership; the CCO as Chief Persuasion Officer; the CCO as Chief Collaboration Officer; Communications tips for the compliance professional; putting compliance at the center of strategy and why compliance is different than legal function.

The book is available in paperback and eBook formats and you can find both by clicking here.

While you are on the Compliance Week site, I would also suggest that you take at look at my seminal work on creation, implementation and enhancement of an anti-corruption compliance program, Doing Compliance. If there is one book in your library on how to do compliance, this book is it. In this book I discuss the requirements to build, and execute, a modern compliance program. With a focus on anti-bribery and anti-corruption issues, the book first reviews the basic building blocks a compliance officer needs (code of conduct, policies and procedures, internal controls), moves on to address the proper role and autonomy of a CCO, delves into the most important CCO duties (risk assessment, training, investigations), and always offers practical examples and advice for how a compliance program should work.

Best of all, the paperback and eBook both have newly reduced pricing which should make it a ‘must have’ for every member of your compliance team. The book is available by clicking here.

Finally, if you have not yet checked out my podcasts, after you check out my latest two books, published by Compliance Week, you should head over to the FCPA Compliance and Ethics Report or iTunes to check out the latest editions. Some of the highlights are:

Episodes 163 and 166 deal with the FIFA indictments.

Episode 164 – MissionLogPodcast.com co-host John Champion returns to discuss Star Trek – The Next Generation (TNG) and the leadership lessons from Season One of TNG.

Episode 165 – I discuss the BHP FCPA enforcement action and its implications for the compliance practitioner as a strict liability standard because there was no evidence of bribery presented by the Securities and Exchange Commission (SEC).

Episode 167 – Mara Senn returns to share her top ten practices for cross-border investigations. Senn has some important and useful tips to help the CCO or compliance practitioner think through an approach for an international FCPA investigation.

Episode 168 – Noted criminal defense attorney Dan Cogdell discusses criminal procedure and funding your defense costs, in the defense of an individual Foreign Corrupt Practices Act (FCPA) enforcement action. With all the talk coming about the Department of Justice (DOJ) and FCPA commentariat about the need for individual prosecutions, this episode is timely.

Lastly, after you have purchased my two latest books and checked out my podcasts, I would urge you to head on over to Netflix and settle in with Sir Christopher Lee and his great Hammer films. They are the top of 1950s horror movies.

A happy weekend to all.

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, 2015

Edmund HillaryToday we celebrate the conquest of what the Tibetans call “Mother Goddess of the Land” and what the rest of us call Mount Everest. For on this date in 1953, Sir Edmund Hillary of New Zealand and Tenzing Norgay, a Nepalese Sherpa, became the first explorers to reach the summit of the highest point on earth. News of the success was rushed by runner from the expedition’s base camp to the radio post at Namche Bazar, and then sent by coded message to London, where Queen Elizabeth II learned of the achievement on June 1, the eve of her coronation. The next day, the news broke around the world. Later that year, Hillary and Norgay were both honored by the queen for their momentous achievement.

One of the things that made Hillary and Norgay’s ascent to the summit of Everest was the overall integration and teamwork of the entire group. The British team was led by Colonel John Hunt who set up a series of camps, allowing the expedition to push its way up the mountain in April and May. A new passage was forged through several previously un-surmounted obstacles to bring the team to about 26,000 feet. The first assault to the summit was launched on May 26 by Charles Evans and Tom Bourdillon, however they had to abandon their assent 300 feet from the top due to malfunctioning oxygen sets. Three days later, Hillary and Norgay were successful. In other words, teamwork and process were key to their success.

The accomplishment achieved by Hillary and Norgay drives the conclusion of my series on the steps you can take to improve your Foreign Corrupt Practices Act (FCPA) anti-corruption compliance program and overall compliance function during a period of economic downturn. So when faced with reduced monetary resources and lessened head count you might want to consider the teamwork of compliance. To that end you might use a strategy of developing compliance talent and relationships for the compliance function. You could initiate a compliance talent development group where you rotate high potential individuals in your company through the compliance function in some manner.

My suggestion would be to work with senior management and your Human Resources (HR) function to identify some of the key talent within your company. They can come from any other area of the company; such as accounting, finance, internal audit, HR itself, sales or any other discipline. From there you can task them to lead a working group on a compliance related project. The project itself can be any project you would like to try and implement when funding becomes more available.

One company I worked at had such an organization called the President’s Team which was an annual group that developed projects for the company Chief Executive Officer (CEO). The concept is the same but the goal is having the high talent employees learn more about compliance. Equally important for you as the compliance practitioner is to develop relationships with such up and comers so you can access to them if they continue to progress up the corporate chain. Remember it is important to have relationships with those in power and those who will be in power.

In addition to the talent development group, you should also revisit your interactions with your Board or Audit Committee. You need to re-emphasize to them their responsibility for compliance going forward and that it will not diminish simply because the price of oil has gone south or any other reason why you may be in an economic downturn. If there are emergency projects or others which you believe should take priority this would be a good time to inform and educate the Board on them so that you can continue to maintain as much funding as is possible. This could come into play if you have a number of whistleblower complaints to triage and review in short order due to employee layoffs. But if you did not establish those relationships ‘yesterday’, you probably cannot call on them ‘tomorrow’ so you need to make sure they are in place now.

Another idea that you can try is something along the lines of a client advisory committee or peer group review. You can put together a peer group to help advise your compliance function. After all, one of your constituent groups is your employee base. So why not turn to that group to find out what is working and perhaps their views on what is not, in their eyes, from the compliance function. If they can provide feedback to you on how to streamline a compliance process you might well be able to incorporate such suggestions going forward. They will be aware of the resource constraints the company is under so it could be an avenue which you have not previously used. Further, as with the talent development group concept, you would have the opportunity to develop relationships with other leaders in your organization. Finally, the group would have greater investment in the compliance function going forward.

Next is one of your highest risks, that of third parties, which most compliance practitioners recognize as their highest risk in any FCPA anti-corruption compliance program. This risk does not lessen simply because of a downturn. My suggestion is that you test and review all of the indicia around the lifecycle of your third party risk management program. This is not a forensic audit or even standards that an auditor might use. But you can test and you can test the documentation around your program at little to no cost.

The lifecycle of a third party is the following: (1) Business justification, (2) Questionnaire, (3) Due Diligence and Evaluation, (4) Contract negotiation, and (5) Managing the relationship thereafter. You can perform testing on all of these steps by reviewing the documentation in your third party database. For each third party you should confirm that there is documentation in each file, which supports each of the five prongs. In addition to the document, document, document aspect of this exercise, you can also use it as a cross-check on your internal control mapping for each validated prong so this can also be considered an internal compliance control.

I hope that you have found some of these ideas for improving your compliance function in an economic downturn useful. Perhaps they have stimulated ideas or discussions within your organizations going forward. If you have any other ideas which you would be willing to share, I hope that you will pass them along to me. We are all in this compliance ride together anything we all can do to move things forward is progress in my mind.

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, 2015

Golden Gate BridgeToday, we celebrate one of the greatest engineering achievements of the century. On this date in 1937, the Golden Gate Bridge opened. At 4200 feet long, it was at the time the world’s longest suspension bridge. But not only was it an engineering and architectural milestone, its aesthetic form was instantly recognized as classical and to this day is one of the most iconic structures in the US if not the world. With just a few years until its 80th birthday, it demonstrates that a lasting structure is more than simply form following function but contains many elements that inform its use and beauty.

I use the Golden Gate Bridge as an entrée to my continued discussion on the series on steps that you can use in your compliance program if you find yourself, your company or your industry in an economic downturn. Whether you are a Chief Compliance Officer (CCO) or compliance practitioner, these steps are designed to be achieved when you face reduced economic resources or lessened personnel resources going forward due to a downturn your economic sector. Yesterday, I discussed mapping your current and existing internal controls to the Ten Hallmarks of an Effective Compliance Program so that you can demonstrate your compliance with the Foreign Corrupt Practices Act’s (FCPA) internal control prong to the accounting procedures. Today I want to discuss the issues surrounding the inevitable layoffs your company will have to endure in a downturn.

In Houston, we have experienced energy companies laying off upwards of 30% of their workforce, both in the US and abroad. Employment separations can be one of the trickiest maneuvers to manage in the spectrum of the employment relationship. Even when an employee is aware layoffs are coming it can still be quite a shock when Human Resources (HR) shows up at their door and says, “Come with me.” However, layoffs, massive or otherwise, can present some unique challenges for the FCPA compliance practitioner. Employees can use layoffs to claim that they were retaliated against for a wide variety of complaints, including those for concerns that impact the compliance practitioner. Yet there are several actions you can take to protect your company as much as possible.

Before you begin your actual layoffs, the compliance practitioner should work with your legal department and HR function to make certain your employment separation documents are in compliance with the recent SEC v. KBR Cease and Desist Order regarding Confidentiality Agreement (CA) language which purports to prevent employees from bringing potential violations to appropriate law or regulatory enforcement officials. If your company requires employees to be presented with some type of CA to receive company approved employment severance package, it must not have language preventing an employee taking such action. But this means more than having appropriate or even approved language in your CA, as you must counsel those who will be talking to the employee being laid off, not to even hint at retaliation if they go to authorities with a good faith belief of illegal conduct. You might even suggest, adding the SEC/KBR language to your script so the person leading the conversation at the layoff can get it right and you have a documented record of what was communicated to the employee being separated.

When it comes to interacting with employees first thing any company needs to do, is to treat employees with as much respect and dignity as is possible in the situation. While every company says they care (usually the same companies which say they are very ethical), the reality is that many simply want terminated employees out the door and off the premises as quickly as possibly. At times this will include an ‘escort’ off the premises and the clear message is that not only do we not trust you but do not let the door hit you on the way out. This attitude can go a long way to starting an employee down the road of filing a claim for retaliation or, in the case of FCPA enforcement, becoming a whistleblower to the Securities and Exchange Commission (SEC), identifying bribery and corruption.

Treating employees with respect means listening to them and not showing them the door as quickly as possible with an escort. From the FCPA compliance perspective this could also mean some type of conversation to ask the soon-to-be parting employee if they are aware of any FCPA violations, violations of your Code of Conduct or any other conduct which might raise ethical or conflict of interest concerns. You might even get them to sign some type of document that attests they are not aware of any such conduct. I recognize that this may not protect your company in all instances but at least it is some evidence that you can use later if the SEC (or Department of Justice (DOJ)) comes calling after that ex-employee has blown the whistle on your organization.

I would suggest that you work with your HR department to have an understanding of any high-risk employees who might be subject to layoffs. While you could consider having HR conduct this portion of the exit interview, it might be better if a compliance practitioner was involved. Obviously a compliance practitioner would be better able to ask detailed questions if some issue arose but it would also emphasize just how important the issue of FCPA compliance, Code of Conduct compliance or simply ethical conduct compliance was and remains to your business.

Finally are issues around hotlines, whistleblower and retaliation claims. The starting point for layoffs should be whatever your company plan is going forward. The retaliation cases turn on whether actions taken by the company were in retaliation for the hotline or whistleblower report. This means you will need to mine your hotline more closely for those employees who are scheduled or in line to be laid off. If there are such persons who have reported a FCPA, Code of Conduct or other ethical violation, you should move to triage and investigate, if appropriate, the allegation sooner rather than later. This may mean you move up research of an allegation to come to a faster resolution ahead of other claims. It may also mean you put some additional short-term resources on your hotline triage and investigations if you know layoffs are coming.

The reason for these actions are to allow you to demonstrate that any laid off employee was not separated because of a hotline or whistleblower allegation but due to your overall layoff scheme. However it could be that you may need this person to provide your compliance department additional information, to be a resource to you going forward, or even a witness that you can reasonably anticipate the government may want to interview. If any of these situations exist, if you do not plan for their eventuality before you layoff the employee, said (now) ex-employee may not be inclined to cooperate with you going forward. Also if you do demonstrate that you are sincerely interested in a meritorious hotline complaint, it may keep this person from becoming a SEC whistleblower.

Just as the Golden Gate Bridge provides more to the human condition than simply a structure to get from San Francisco to Marin County, layoffs in an economic downturn provide many opportunities to companies. If they treat the situation appropriately, it can be one where you manage your FCPA compliance risk going forward.

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, 2015

 

 

 

Mort D'ArthurOne thing for which King Arthur is remembered are his chivalric knights. He helped create this legend, in large part, by establishing a Code of Conduct for the Knights of the Round Table. The King required each one of them to swear an oath, called the Pentecostal Oath, which was Arthur’s ideal for a chivalric knight. The Oath stated, “The king established all his knights, and gave them that were of lands not rich, he gave them lands, and charged them never to do outrageousity nor murder, and always to flee treason; also, by no mean to be cruel, but to give mercy unto him that asketh mercy, upon pain of forfeiture of their worship and lordship of King Arthur for evermore; and always to do ladies, damosels, and gentlewomen succor upon pain of death. Also, that no man take no battles in a wrongful quarrel for no law, ne for no world’s goods. Unto this were all the knights sworn of the Table Round, both old and young. And every year were they sworn at the high feast of Pentecost.” (Le Morte d’Arthur, pp 115-116)

Interestingly, the Oath first appeared in Sir Thomas Malory’s Le Morte d’Arthur and in none of the prior incarnations of the legend. In Malory’s telling, after the Knights swore the Oath, they were provided titles and lands by the King. The Oath specifies both positive and negative conduct; that is, what a Knight might do but also what conduct he should not engage in. The Pentecostal Oath formed the basis for the Knight’s conduct at Camelot and beyond. It was clearly a forerunner of today’s corporate Code of Conduct.

The foundational document of any Foreign Corrupt Practices Act (FCPA) compliance program is its Code of Conduct. This requirement has long been memorialized in the US Sentencing Guidelines, which contain seven basic compliance elements that can be tailored to fit the needs and financial realities of any given organization. From these seven compliance elements the Department of Justice (DOJ) has crafted its minimum best practices compliance program, which is now attached to every Deferred Prosecution Agreement (DPA) and Non-Prosecution Agreement (NPA). These requirements were incorporated into the 2012 FCPA Guidance. The US Sentencing Guidelines assume that every effective compliance and ethics program begins with a written standard of conduct; i.e. a Code of Conduct. What should be in this “written standard of conduct”.

Element 1

Standards of Conduct, Policies and Procedures (a Code of Conduct)

An organization should have an established set of compliance standards and procedures. These standards should not be a “paper only” document, but a living document that promotes organizational culture that encourages “ethical conduct” and a commitment to compliance with applicable regulations and laws.

In the FCPA Guidance, the DOJ and Securities and Exchange Commission (SEC) state, “A company’s code of conduct is often the foundation upon which an effective compliance program is built. As DOJ has repeatedly noted in its charging documents, the most effective codes are clear, concise, and accessible to all employees and to those conducting business on the company’s behalf.” Indeed, it would be difficult to effectively implement a compliance program if it was not available in the local language so that employees in foreign subsidiaries can access and understand it. When assessing a compliance program the DOJ and SEC will review whether the company chapter has taken steps to make certain that the code of conduct remains current and effective and whether a company has periodically reviewed and updated its code.

In each DPA and NPA over the past 36 months the DOJ has stated the following as item No. 1 for a minimum best practices compliance program.

  1. Code of Conduct. A Company should develop and promulgate a clearly articulated and visible corporate policy against violations of the FCPA, including its anti-bribery, books and records, and internal controls provisions, and other applicable foreign law counterparts (collectively, the “anti-corruption laws”), which policy shall be memorialized in a written compliance code.

In an article in the Society for Corporate Compliance and Ethics (SCCE) Complete Compliance and Ethics Manual, 2nd Ed., entitled “Essential Elements of an Effective Ethics and Compliance Program”, authors Debbie Troklus, Greg Warner and Emma Wollschlager Schwartz, state that your 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.

As I often say, the three most important things about your FCPA compliance program are ‘Document, Document and Document’. The same is true of communicating your company’s Code of Conduct. You need to do more than simply put it on your website and tell folks it is there, available and that they should read it. You need to document that all employees, or anyone else that your Code of Conduct is applicable to, has received, read, and understands the Code. For employees, it is important that a representative of the Compliance Department, or other qualified trainer, explains the standards set forth in your Code of Conduct and answers any questions that an employee may have. Your company’s employees need to attest in writing that they have received, read, and understood the Code of Conduct and this attestation must be retained and updated as appropriate.

The DOJ expects each company to begin its compliance program with a very public and very robust Code of Conduct. If your company does not have one, you need to implement one forthwith. If your company has not reviewed or assessed their Code of Conduct for five years, I would suggest that you do in short order as much has changed in the compliance world.

What is the value of having a Code of Conduct? I have heard many business folks ask that question over the years. In its early days, a Code of Conduct tended to be lawyer-written and lawyer-driven to “wave in a defense situation” by claiming that “see we have one”. But is such a legalistic code effective? Is a Code of Conduct more than simply, your company’s law? What is it that makes a Code of Conduct effective? What should be the goal in the creation of your company’s Code of Conduct?

Just as the Pentecostal Oath was required to be sworn out each year, you should have your employees recertify their adherence to your Code of Conduct. Moreover, just as King Arthur set his expectations for behavior your company should do so as well.

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© Thomas R. Fox, 2015