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The Ingredients of an Effective Compliance Program
Mr. Michael N. Davies, Q.C.
Chairman, Working Committee on Transparency
Pacific Basin Economic Council (PBEC)
Combating Corruption in the Asia Pacific
Seoul, Korea
Tuesday, December 12, 2000
THE NEED FOR A COMPLIANCE PROGRAM
Having decided on:
- what a Company's moral and ethical standards should be, and
- the wording to be used to express those standards in a written Code of Conduct
Next question - how to effectively implement and enforce those standards
Some companies have Codes of Conduct that sit on the shelf with no established process for implementation:
- little or no effort to train
- don't monitor compliance
- don't consistently punish violations
If you want a Code of Conduct to be:
- a true expression of the ethical culture of the organization and
- an effective tool in governing employee conduct
UNIVERSAL COMMITMENT TO THE POLICY
Need: to demonstrate commitment to the Policy at every level
Management - must "walk-the talk"
- Essential to have clearly enunciated unequivocal CEO and senior management commitment.
- Leaders must create a culture of compliance - a priority issue
Employee Acknowledgement - a personal commitment to integrity
- signed by all employees: have reviewed and understand the policy; "will comply and will report concerns"
- on hiring and periodically thereafter
- kept in employee files
Sales Representatives
- also acknowledge and agree to comply
EDUCATION AND TRAINING
Need: education and training programs that will enable employees to understand basic policy requirements
Basic Policy Characteristics
- result of work out sessions, focus groups, employee involvement
- simple easy-to-understand language - vs. intimidating legalese
- translated into local language
- country supplements
Initial roll-out to all employees
- inter-active sessions - small groups, Q&A, case studies
- management actively involved.
On hiring: distributed to every employee
- discussed with manager
- interactive video
Periodic refreshers
SALES REPRESENTATIVES
Need: procedures for monitoring relationships with sales representatives and other third parties
Selection process
- demonstrated need - commercial or legal
- qualifications - resources, reputation, locations
- detailed written application
- references
- policy review and written acknowledgement and commitment
- written recommendation from sales manager
- senior management approval
- written agreement - prohibition re improper payments,
Compensation
- specific criteria ("reasonable" for services provided)
- rate schedules
- method and place of payment
RED FLAGS
Advance warnings of potential illegal activities.
If a proposed sales rep:
- does not reside 'in same country as customer or project
- does not have any significant business presence within the country
- represents other companies with a questionable reputation
- requests commission be paid in a third country or numbered bank acct. or third person
- requires payment of the commission (or significant portion) immediately upon award by customer of the contract to the company
- arrives on scene just before contract is about to be awarded
Other signs of questionable activity:
- a customer who suggest that a bid be made through a specific sales agent
- a commission that seems unusually large in relation to the services provided
WHAT TO DO IF YOU HAVE A CONCERN
Need: a clear road-map of what an employee does when they have a concern.
To encourage employees to report promptly in a manner with which they feel comfortable, and to protect from retribution.
Having defined a concern (who/what/when/where):
- obligation to raise the concern
- in the business unit - business/HR/finance manager, counsel, or
- outside the business unit - company ombudsman
If situation recurring or not satisfactorily resolved or addressed
- obligation to raise the concern again (to someone else)
May report anonymously
Every reasonable effort made to respect employee desire for confidentiality
Retribution prohibited against anyone who reports a policy concern in good faith
PROCESS FOR DEALING WITH A CONCERN
Need: a clearly defined process for dealing with a concern
Review and classify the concern
- Assign appropriate people - legal, audit, etc.
- Investigate the matter
- Determine corrective actions - education/training, improving processes
- Disciplinary action re violations - appropriate to the breach, consistent
- Feedback system to reporting employee
MONITORING COMPLIANCE
Need: Ongoing periodic monitoring activities through management actions and audit programs
Responsibility of each business leader to set up and maintain effective compliance program to prevent and detect policy violations
- System of internal controls and record keeping to ensure company books accurately reflect its transactions
- Annual compliance process - manager reviews policy compliance with direct reports and reports to business leaders
- Business leaders periodically report to senior management and to board
- Annual audits should include policy compliance + periodic compliance audits
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