Day 13 of 31 Days to More Effective Compliance Program

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In the Department of Justice’s Evaluation of Corporate Compliance Programs, Prong 8 Incentive and Disciplinary Measures it states: Incentive System – Consistent Application – Have the disciplinary actions and incentives been fairly and consistently applied across the organization? In the FCPA Corporate Enforcement Policy it states, “Appropriate discipline of employees, including those identified by the company as responsible for the misconduct, either through direct participation or failure in oversight, as well as those with supervisory authority over the area in which the criminal conduct occurred”.

Under Hallmark Six of the Ten Hallmarks of an Effective Compliance Program it 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.

However, I believe that the 2012 FCPA Guidance’s best practices are more active than the ‘stick’ of employee discipline to make a compliance program effective and I believe that it also requires a ‘carrot’. This requirement is codified in the US Sentencing Guidelines with the following language, “The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.”

One of the areas which Human Resources can operationalize your compliance program is to ensure that discipline is handed out fairly across an organization and to those employees who integrate such ethical and compliant behavior into their individual work practices going forward. This is more than financial incentives for ethical behavior but institutional objectivity for your employees.

Institutional objectivity comes from procedural fairness. This is one of the things that will bring credibility to your compliance program. Today 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 Fair Process Doctrine in two areas of your Compliance Program is critical for you, as a compliance specialist or for your Compliance Department, to have credibility with the rest of the workforce. Finally, it is yet another way to more fully operationalize your compliance program.

Administration of Discipline

One area where the Fair Process Doctrine is paramount is in the administration of discipline after any compliance related incident. 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.

Similarly and as was re-emphasized in the FCPA Corporate Enforcement Policy, there must be real consequences to employee who violate your compliance program. If the regulators come knocking and you have not disciplined any company employees for Code of Conduct or compliance program violations in multiple years, the DOJ and SEC will conclude pretty quickly you are not serious about compliance. Fair process means that you must discipline those who engage in compliance violations no matter what their position is with the organization.

Employee Promotions

In addition to the area of discipline which may be administered after the completion of any compliance investigation, you must also place compliance firmly 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 (anecdotal) 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.

Internal Investigations

The third area the Fair Process Doctrine is critical in, is around internal company investigations. If your employees do not believe that the investigation is fair and impartial, then it is not fair and impartial. Further, those involved must have confidence that any internal investigation is treated seriously and objectively. One of the key reasons that employees will go outside of a company’s internal hotline process is because they do not believe that the investigation process will be fair.

This fairness has several components. One would be the use of outside counsel, rather than in-house counsel to handle the investigation. Moreover, if company uses a regular firm, it may be that other outside counsel should be brought in, particularly if regular outside counsel has created or implemented key components which are being investigated. Further, if the company’s regular outside counsel has a large amount of business with the company, then that law firm may have a very vested interest in maintaining the status quo. Lastly, the investigation may require a level of specialization which in-house or regular outside counsel does not possess.

An often-overlooked role of any CCO or compliance professional is to help provide employees procedural fairness. If your compliance function is seen to be fair in the way it treats employees, in areas as varied as financial incentives, to promotions, to uniform discipline meted out across the globe; employees are more likely to inform the compliance department when something goes array. If employees believe they will be treated fairly, it will go a long way to more fully operationalizing your compliance program.

Three Key Takeaways

  1. The DOJ and SEC have long called for consistent application in both incentives and discipline.
  2. The Fair Process Doctrine ensures employees will accept results they may not like.
  3. Inconsistent application of discipline will destroy your compliance program credibility.

This month’s podcast sponsor is Convercent. Convercent provides your teams with a centralized platform and automated processes that connect your business goals with your ethics and values. The result? A highly strategic program that drives ethics and values to the center of your business. For more information go to Convercent.com.

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