MR - Society of Corporate Compliance and Ethics
MR - Society of Corporate Compliance and Ethics
MR - Society of Corporate Compliance and Ethics
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Volume Five<br />
Number Three<br />
June 2008<br />
Bimonthly<br />
Earn CEU Credit<br />
see page 33<br />
Meet<br />
Robert T. Morgan <strong>and</strong><br />
Carol A. Morgan<br />
Two highly successful corporate<br />
pr<strong>of</strong>essionals share insights on their jobs<br />
<strong>and</strong> their roles as husb<strong>and</strong> <strong>and</strong> wife.<br />
page 22<br />
Also:<br />
What are Boards to do<br />
when Investors Call?<br />
page 40<br />
Global <strong>Compliance</strong>:<br />
China<br />
page 44<br />
So, What’s Your<br />
<strong>Compliance</strong> Strategy?<br />
page 6
INSIDE<br />
Advisory Board<br />
Publisher:<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong>,<br />
+1 952 933 4977, or 888 277 4977<br />
Editor-in-Chief:<br />
Rory Jaffe, MD, MBA, CHC<br />
rsjaffe@gmail.com<br />
Executive Editor:<br />
Roy Snell, CCEP, CHC, CEO, SCCE<br />
roy.snell@corporatecompliance.org<br />
Advisory Board:<br />
Charles Elson, JD<br />
Edgar S. Woolard, Jr. Chair in <strong>Corporate</strong> Governance, Director <strong>of</strong> the John<br />
L. Weinberg Center for <strong>Corporate</strong> Governance at University <strong>of</strong> Delaware.<br />
Jay Cohen<br />
Global <strong>Compliance</strong> Leader, Dun & Bradstreet<br />
John Dienhart, PhD<br />
The Frank Shrontz Chair for Business <strong>Ethics</strong>, Seattle University;<br />
Director, Northwest <strong>Ethics</strong> Network; Director, Albers Business <strong>Ethics</strong><br />
Initiative; Fellow, <strong>Ethics</strong> Resource Center<br />
Odell Guyton, JD<br />
Senior <strong>Corporate</strong> Attorney, Director <strong>of</strong> <strong>Compliance</strong>,<br />
U.S. Legal–Finance & Operations, Micros<strong>of</strong>t Corporation<br />
Rebecca Walker, JD<br />
Partner, Kaplan & Walker LLP<br />
Rick Kulevich, JD<br />
Senior Director, <strong>Ethics</strong> <strong>and</strong> <strong>Compliance</strong>, CDW Corporation<br />
Steve LeFar<br />
General manager, Mediregs, Wolters Kluwer Law <strong>and</strong> Business<br />
Stephen A. Morreale, DPA, CHC, CCEP<br />
Principal, <strong>Compliance</strong> <strong>and</strong> Risk Dynamics<br />
Marcia Narine, JD<br />
Vice President Global <strong>Compliance</strong> <strong>and</strong> Business St<strong>and</strong>ards,<br />
Deputy General Counsel, Ryder System, Inc.<br />
Ann L. Straw, CCEP, Vice President <strong>and</strong> Chief <strong>Compliance</strong> Officer,<br />
Laidlaw International, Inc.<br />
José A. Tabuena, JD, CFE, CHC<br />
VP Integrity <strong>and</strong> <strong>Compliance</strong>/<strong>Corporate</strong> Secretary<br />
MedicalEdge Healthcare Group, Inc.<br />
Greg Triguba, JD, CCEP<br />
ERM, <strong>Ethics</strong> <strong>and</strong> <strong>Compliance</strong> Officer, Intuit<br />
Story Editor/Advertising:<br />
Marlene Robinson, SCCE, +1 952 933 4977, or 888 277 4977<br />
marlene.robinson@corporatecompliance.org<br />
Copy Editor:<br />
Patricia Mees, CCEP, CHC, SCCE,<br />
+1 952 933 4977, or 888 277 4977<br />
patricia.mees@corporatecompliance.org<br />
Layout:<br />
Gary DeVaan, SCCE, +1 952 933 4977, or 888 277 4977<br />
gary.devaan@corporatecompliance.org<br />
<strong>Compliance</strong> & <strong>Ethics</strong> (C&E) (ISSN 1523-8466) is published by the <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong><br />
<strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> (SCCE), 6500 Barrie Road, Suite 250, Minneapolis, MN 55435.<br />
Subscription rate is $195 a year for non-members. Periodicals postage-paid at Minneapolis, MN<br />
55436. Postmaster: Send address changes to <strong>Compliance</strong> & <strong>Ethics</strong>, 6500 Barrie Road, Suite 250,<br />
Minneapolis, MN 55435. Copyright © 2008 the <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong>.<br />
All rights reserved. Printed in the USA. Except where specifically encouraged, no part <strong>of</strong> this<br />
publication may be reproduced, in any form or by any means without prior written consent <strong>of</strong><br />
the SCCE. For subscription information <strong>and</strong> advertising rates, call SCCE at +1 952 933 4977, or<br />
888 277 4977. Send press releases to SCCE C&E Press Releases Department, 6500 Barrie Road,<br />
Suite 250, Minneapolis, MN 55435. Opinions expressed are those <strong>of</strong> the writers <strong>and</strong> not <strong>of</strong> this<br />
publication or SCCE. Mention <strong>of</strong> products <strong>and</strong> services does not constitute endorsement. Neither<br />
SCCE nor C&E is engaged in rendering legal or other pr<strong>of</strong>essional services. If such assistance is<br />
needed, readers should consult pr<strong>of</strong>essional counsel or other pr<strong>of</strong>essional advisors for specific legal<br />
or ethical questions.<br />
4 Letter from the Leadership — By Rory<br />
Jaffe<br />
SCCE starts LinkedIn group<br />
5 The Business <strong>of</strong> <strong>Ethics</strong>— By Deborah E.<br />
Wallace<br />
Surveys show that the way US corporations plan <strong>and</strong><br />
conduct business needs reframing to encourage ethical<br />
st<strong>and</strong>ards.<br />
6 CEU Article: So, What’s Your <strong>Compliance</strong><br />
Strategy? — By Henry Klehm III, David<br />
Schweiger, <strong>and</strong> Andrew Schweiger<br />
A look inside the strategic planning process used at<br />
Deutsche Bank to foster cultural change <strong>and</strong> ensure a<br />
successful implementation <strong>of</strong> their global compliance<br />
initiative.<br />
18 SCCE Advisory Board<br />
19 Letter from the CEO — By Roy Snell<br />
Why are we where we are?<br />
22 Meet Robert T. Morgan <strong>and</strong> Carol A.<br />
Morgan — an Interview by By Marlene<br />
Robinson<br />
Two highly successful corporate pr<strong>of</strong>essionals share insights<br />
on their jobs <strong>and</strong> their roles as husb<strong>and</strong> <strong>and</strong> wife.<br />
32 Federal Agency <strong>Compliance</strong>: Applying<br />
corporate lessons in government<br />
settings — By Emil Moschella<br />
Federal agencies, such as the FBI, are adopting a<br />
corporate compliance paradigm to identify potential<br />
weaknesses in their internal controls <strong>and</strong> to detect<br />
non-compliant behavior.<br />
37 Upcoming Audio/Web Conferences from<br />
SCCE<br />
40 CEU Article: What are Boards to do when<br />
Investors Call? — By Lou Thompson<br />
Shareholders are becoming more like activists in<br />
dem<strong>and</strong>ing that boards hear their concerns <strong>and</strong> act<br />
upon them.<br />
43 SCCE <strong>Compliance</strong> Academies<br />
44 CEU Article: Global <strong>Compliance</strong>: China —<br />
By Scott Lane <strong>and</strong> Robert Leffel<br />
Five compliance <strong>and</strong> ethics issues to consider as you<br />
navigate the obstacles <strong>of</strong> doing business in China.<br />
47 Congratulations to New CCEPs<br />
50 Statute Gone Wild?— By Guy Aulabaugh<br />
Under a Deferred Prosecution Agreement, Mantra<br />
Films is serious about compliance.<br />
51 SCCE <strong>Corporate</strong> Members<br />
52 New SCCE Members<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
3<br />
June 2008
SCCE starts<br />
LinkedIn group<br />
By Rory Jaffe, MD, MBA, CHC<br />
SCCE President<br />
Editor’s note: Rory Jaffe is the new president <strong>of</strong> the<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> & <strong>Ethics</strong> <strong>and</strong> Editorin-Chief<br />
<strong>of</strong> <strong>Compliance</strong> & <strong>Ethics</strong> Magazine. He was the<br />
Executive Director <strong>of</strong> Medical Services for the University <strong>of</strong> California, a position<br />
that, as part <strong>of</strong> a major reorganization <strong>of</strong> the University, has been eliminated.<br />
I joined LinkedIn, a social network for pr<strong>of</strong>essionals, about two years ago,<br />
when UC Davis business school announced to its alumni that there was<br />
now an alumni group on the LinkedIn site. I filled out the pr<strong>of</strong>ile form,<br />
linked up to a few people I knew, then sat back <strong>and</strong> pretty much ignored<br />
the whole thing. I just could not figure out any use for the site, other than<br />
to collect connections—it felt like baseball card collecting.<br />
Time passed, <strong>and</strong> then I found myself looking for a new job. I quickly learned<br />
that looking for job listings is almost a hopeless task. It would take a full-time<br />
effort just to scan the thous<strong>and</strong>s <strong>of</strong> web sites <strong>and</strong> hundreds <strong>of</strong> thous<strong>and</strong>s <strong>of</strong> job<br />
listings. And then, I’d have no way <strong>of</strong> really knowing what the job was like,<br />
<strong>and</strong> my prospective employer would have to guess about what Rory was like.<br />
It was only then that I understood the virtues <strong>of</strong> networking. I had<br />
only two good sources <strong>of</strong> job information—friends <strong>and</strong> headhunters.<br />
And I usually found out about the good headhunters from friends.<br />
Social networking suddenly made more sense. It is a wonderful way to<br />
get reliable <strong>and</strong> useful information about jobs <strong>and</strong> about prospective<br />
employees. And when you add<br />
not only your friends, but also<br />
friends <strong>of</strong> your friends to your<br />
social network, the multiplier<br />
effect greatly extends<br />
your ability to obtain reliable<br />
information. I have 52 direct connections<br />
on LinkedIn so far. But when you add in<br />
their connections—that is, friends <strong>of</strong> friends—the number soars to<br />
over 2700. That’s over 2700 people who may know about jobs <strong>and</strong> can<br />
provide prospective employers with reliable information about me.<br />
But one <strong>of</strong> the weaknesses <strong>of</strong> LinkedIn is the same problem I had<br />
when originally looking for job listings. There are over 20 million<br />
people on LinkedIn. How do I sort through all that to find the people<br />
I know? LinkedIn groups help. LinkedIn groups allow people with<br />
similar interests or backgrounds to readily find each other.<br />
We started the SCCE LinkedIn group for that reason. Current members<br />
<strong>of</strong> SCCE can join the group <strong>and</strong> then easily find other SCCE<br />
members to connect with, <strong>and</strong> network for jobs, advice, or simply to<br />
commiserate. And compliance <strong>of</strong>ficers tend to have lots <strong>of</strong> reasons to<br />
commiserate with each other. I encourage you to explore the benefits<br />
<strong>of</strong> networking with other SCCE members through our LinkedIn<br />
group. Just make sure you record the same email address with LinkedIn<br />
as you do with SCCE—that’s how we verify membership.<br />
To join SCCE LinkedIn group:<br />
http://www.linkedin.com/e/gis/61769/3D294E6025B3<br />
By the time you read this, I hope to have found a job, but in case not,<br />
consider this a shameless example <strong>of</strong> networking—contact me if you<br />
know <strong>of</strong> some interesting opportunities! n<br />
Relationships Matter<br />
Your pr<strong>of</strong>essional relationships are key to your pr<strong>of</strong>essional success.<br />
June 2008<br />
4<br />
Want more networking opportunities? SCCE has set up a LinkedIn group for our members. LinkedIn is the “Facebook” for pr<strong>of</strong>essionals. You<br />
can join for free <strong>and</strong> set up your pr<strong>of</strong>essional pr<strong>of</strong>ile online, then network with colleagues <strong>and</strong> classmates. You can join the group by visiting this<br />
link: http://www.linkedin.com/e/gis/61769/3D294E6025B3. How can LinkedIn help me? LinkedIn is a place to find <strong>and</strong> leverage<br />
pr<strong>of</strong>essional opportunities, now <strong>and</strong> throughout your career. LinkedIn enables you to:<br />
n Present yourself <strong>and</strong> your pr<strong>of</strong>essional capabilities<br />
n Find <strong>and</strong> reconnect with colleagues <strong>and</strong> classmates<br />
n Leverage powerful tools to find <strong>and</strong> reach the people you need<br />
n Build a powerful network <strong>of</strong> trusted pr<strong>of</strong>essionals<br />
n Discover pr<strong>of</strong>essional relationships <strong>and</strong> opportunities<br />
n Tap into inside connections <strong>and</strong> information<br />
n Get the edge that gives you competitive advantage<br />
There are already 20 million pr<strong>of</strong>essionals in the LinkedIn Network <strong>and</strong> that number is growing fast. Whether you seek a job, a hire, a reference,<br />
a sales lead, an expert, or an inside connection at one <strong>of</strong> 50,000 companies, LinkedIn is an irreplaceable resource for building your pr<strong>of</strong>essional<br />
relationships <strong>and</strong> achieving your goals.<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
The Business <strong>of</strong> <strong>Ethics</strong><br />
The costs <strong>of</strong> misconduct compromise an<br />
organization’s business performance as well<br />
as its reputation. A 2002 American Family<br />
Voices study, entitled “The Cost <strong>of</strong> <strong>Corporate</strong><br />
Recklessness,” released by the No More<br />
Enrons Coalition, 2 estimated the total costs<br />
<strong>of</strong> corporate sc<strong>and</strong>als to be in excess <strong>of</strong> $200<br />
billion dollars. The figure is based on the<br />
accounting “failures” at Enron, Arthur Ander-<br />
By Deborah E. Wallace, EdD<br />
Editor’s Note: Deborah Wallace, Principal sen, WorldCom, Adelphia Communications,<br />
Owner <strong>of</strong> Boston-based Brinkpoint Consulting,<br />
has more than 20 years <strong>of</strong> experience in investment savings, pension, <strong>and</strong> <strong>of</strong> course,<br />
Tyco, <strong>and</strong> others <strong>and</strong> includes the loss <strong>of</strong> jobs,<br />
the areas <strong>of</strong> board effectiveness <strong>and</strong> leadership tax revenue.<br />
development. She may be contacted by phone at<br />
781/259-0550 or by e-mail at<br />
In addition, research conducted in 2007<br />
dwallace@brinkpointconsulting.com.<br />
demonstrated that stock price, earnings as a<br />
percent <strong>of</strong> assets, <strong>and</strong> volatility all respond<br />
Results from the 2007 <strong>Ethics</strong> negatively to allegations <strong>and</strong> announcements<br />
<strong>of</strong> misconduct. 3 Specifically, the report<br />
Resource Center’s “National<br />
Business <strong>Ethics</strong> Survey” 1 reveal a showed that, on average, businesses lose<br />
discouraging statistic: only 9% <strong>of</strong> US companies<br />
surveyed believe that they have strong misconduct is revealed.<br />
41% <strong>of</strong> their market value when news <strong>of</strong> the<br />
ethical cultures. Further, despite a modest<br />
decrease in misconduct following the Enron<br />
debacle in 2000 <strong>and</strong> the enactment <strong>of</strong> the<br />
Sarbanes-Oxley Act in 2002, instances <strong>of</strong><br />
misconduct have slowly crept back to pre-<br />
Enron levels. In addition, activities associated<br />
with misconduct are increasingly creative.<br />
By way <strong>of</strong> clarifying the issue, it is important<br />
to distinguish compliance from ethical<br />
behavior. <strong>Compliance</strong>, more specifically<br />
regulatory compliance, is the adherence to<br />
laws, agency regulations, <strong>and</strong> recognized<br />
(industry) st<strong>and</strong>ards. <strong>Compliance</strong> programs<br />
<strong>and</strong> newly respected compliance <strong>of</strong>ficers have<br />
flooded US corporations in the last 5 years in<br />
an effort to stem the tide <strong>of</strong> public mistrust.<br />
Ethical behavior, while central to organizational<br />
compliance, is also central to organizational<br />
values.<br />
On average,<br />
businesses lose<br />
41% <strong>of</strong> their market<br />
value when news <strong>of</strong><br />
the misconduct is<br />
revealed.<br />
We also know that there is a correlation<br />
between market-imposed penalties following<br />
misconduct <strong>and</strong> a company’s reputation. Reputational<br />
penalties can include loss <strong>of</strong> sales<br />
<strong>and</strong> market share by companies convicted <strong>of</strong><br />
consumer fraud or by companies who have<br />
been victims <strong>of</strong> product tampering. Or, when<br />
a firm is dishonest in its dealings with its<br />
vendors <strong>and</strong> suppliers, reputational penalties<br />
can range anywhere from the imposition <strong>of</strong><br />
prohibitive costs to the permanent loss <strong>of</strong><br />
services.<br />
With only 9% <strong>of</strong> US companies believing<br />
that they have strong ethical cultures,<br />
building <strong>and</strong> re-establishing our reputation<br />
for conducting business ethically <strong>and</strong> with<br />
integrity will have to be a systemic effort.<br />
Although changes by individual corporate<br />
citizens are essential to repairing our reputation,<br />
this alone will not lead to sustainable<br />
change. What can lead to sustainable change<br />
is a fundamental reframing <strong>of</strong> how US corporations<br />
plan <strong>and</strong> conduct business.<br />
In 1988, R. Edward Freeman <strong>and</strong> Daniel<br />
Gilbert published <strong>Corporate</strong> Strategy <strong>and</strong><br />
the Search for <strong>Ethics</strong>. 4 In it, they argued that<br />
our business culture needs to become one in<br />
which corporate strategy is built on the basis<br />
<strong>of</strong> ethical reasoning. We can be more vigilant<br />
in tracking <strong>and</strong> punishing individual misconduct<br />
<strong>and</strong> we can require top-down ethics<br />
“training,” but separating ethics from strategy,<br />
as the vast majority <strong>of</strong> US corporations apparently<br />
do, is not the way out <strong>and</strong> up.<br />
Systemic change – change that becomes<br />
institutionalized <strong>and</strong> habitual – is the<br />
responsibility <strong>of</strong> our boards <strong>and</strong> CEOs who<br />
must intuitively underst<strong>and</strong> that, no matter<br />
how huge the potential financial gain may be<br />
if ethics are ignored or compromised, there<br />
will always be an even bigger cost down the<br />
line. n<br />
1 ERC’s National Business <strong>Ethics</strong> Survey available at http://www.ethics.<br />
org/research/nbes<strong>of</strong>fers.asp. Accessed May 5, 2008.<br />
2 American Family Voices study, The Cost <strong>of</strong> <strong>Corporate</strong> Recklessness<br />
released by The “No More Enrons” Coalition October 18, 2002<br />
3 Murphy, Deborah L, Shrieves Ronald E, Tibbs Samuel L: Underst<strong>and</strong>ing<br />
the Penalties Associated with <strong>Corporate</strong> Misconduct: An Empirical<br />
Examination <strong>of</strong> Earnings <strong>and</strong> Risk. University <strong>of</strong> Tennessee, revised<br />
May 2006. This is an unpublished research paper available in full online<br />
through the Social Science Research Network at http://papers.ssrn.com/<br />
sol3/papers.cfm?abstract_id=993479 Its publication is forthcoming in<br />
The Journal <strong>of</strong> Financial <strong>and</strong> Quantitative Analysis but access to articles<br />
requires membership.<br />
4 Freeman, R. Edward; Gilbert, Daniel R. Jr: <strong>Corporate</strong> Strategy <strong>and</strong> the<br />
Search for <strong>Ethics</strong>. Prentice Hall, Englewood Cliffs, New Jersey, 1988<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
5<br />
June 2008
So, What’s Your<br />
<strong>Compliance</strong> Strategy?<br />
By Henry Klehm III, JD; David Schweiger, PhD; <strong>and</strong> Andrew Schweiger<br />
Editor’s note: Henry Klehm is a partner at Jones department’s improvement <strong>and</strong> remediation<br />
Day Law Firm in New York City <strong>and</strong> former <strong>of</strong> the regulatory crisis that had threatened<br />
Global Head <strong>of</strong> <strong>Compliance</strong>, Deutsche Bank, the firm. She whispers that a senior regulator,<br />
AG. He may be contacted by e-mail at<br />
whom she recently ran into in Washington,<br />
hklehm@jonesday.com.<br />
told her that the firm had done the best<br />
among its industry peers in clearing up the<br />
David Schweiger is President <strong>and</strong> Andrew Schweiger<br />
is a Senior Consultant with Schweiger & cookie for desert as a reward!<br />
problems. Ah, a good day so far. Maybe a<br />
Associates in Columbia, SC, a consulting firm<br />
specializing in strategy development <strong>and</strong> execution.<br />
Dr. Schweiger can be reached at<br />
curmudgeon) in the next breath, she wonders<br />
But, (<strong>and</strong> there is always a “but” with this<br />
David@scaas.com.<br />
how the department will h<strong>and</strong>le the increased<br />
regulatory risks associated with the new,<br />
In the wake <strong>of</strong> an enforcement action major acquisition in a third-world country<br />
by one <strong>of</strong> your primary regulators two that is being considered in the board session<br />
years ago, the board <strong>of</strong> directors instituted<br />
numerous governance reforms. You, strategic initiatives suggest entry into new,<br />
that afternoon. Moreover, she notes that other<br />
the CEO, <strong>and</strong> the General Counsel quickly highly regulated businesses in the quest for<br />
hired a great chief compliance <strong>of</strong>ficer (CCO). improved distribution <strong>and</strong> increased vertical<br />
The CCO, who is also a lawyer by training, integration to capture margins previously<br />
immediately set to work on the remediation paid to retail distributors across developed<br />
<strong>of</strong> the crisis, while re-building the department<br />
to enhance the quality <strong>of</strong> compliance will they find people experienced in our busi-<br />
markets. Without a pause, she asks, “Where<br />
staff, exp<strong>and</strong> compliance coverage to previously<br />
uncovered areas <strong>of</strong> the firm, <strong>and</strong> imple-<br />
part <strong>of</strong> the world? How is the department<br />
ness <strong>and</strong> familiar with the regulators in that<br />
ment new systems <strong>and</strong> workflow tools to going to cope with the expected substantial<br />
detect <strong>and</strong> investigate potential wrongdoing. information technology (IT) burden to conduct<br />
surveillance <strong>of</strong> the retail business?”<br />
Now, the firm’s credibility with its regulators<br />
is re-built, the auditors find little wrong with<br />
the activities <strong>of</strong> the <strong>Compliance</strong> department, Your sinking feeling is exacerbated through<br />
<strong>and</strong> the remediation required as part <strong>of</strong> the the connection those questions make to your<br />
regulatory settlement is essentially done. memory <strong>of</strong> the budget session with the senior<br />
team last week, in which every business line<br />
Most importantly, during the break following<br />
the executive session at the close <strong>of</strong> the improved cost management. In your minds<br />
<strong>and</strong> department, except <strong>Compliance</strong>, reported<br />
committee meeting before the general board eye, you recall in precise detail the budget<br />
session, the frequently irascible chair <strong>of</strong> the book <strong>Compliance</strong> page which reflected a 70%<br />
board’s Audit Committee sits down next increase in costs over the last two years, <strong>and</strong><br />
to you for the informal lunch. Right away, the “Not Available” under the columns for expected<br />
changes for the next three fiscal years.<br />
she tells you how impressed she <strong>and</strong> the rest<br />
<strong>of</strong> the committee are with the speed <strong>of</strong> the<br />
“Those are very important questions that<br />
we have been considering since our board<br />
strategic planning session six months ago.<br />
<strong>Compliance</strong> will report on that in two<br />
months at the next committee meeting, if<br />
that’s okay with you,” is the best response<br />
you can muster. After she notes that the<br />
agenda is filled for that meeting with the<br />
independent auditor retention review, you<br />
agree that <strong>Compliance</strong> will report at the following<br />
meeting in four months. With your<br />
desire for the cookie gone <strong>and</strong> apologies, you<br />
excuse yourself to make a quick call before<br />
the meeting starts in 15 minutes. It’s time to<br />
get some help <strong>and</strong> figure out how to move<br />
beyond simply having turned around the<br />
compliance organization. As you make your<br />
call, you cannot help but think about all the<br />
compliance challenges facing your organization<br />
<strong>and</strong> all the others out there. You need a<br />
department that addresses these issues with a<br />
forward-looking strategic approach.<br />
The Context for <strong>Compliance</strong> Strategy<br />
The questions, posed by our hypothetical<br />
audit chair, boil down to one: “What’s your<br />
<strong>Compliance</strong> strategy?” Before answering that<br />
though, we should ask why now is the right<br />
time to devote the time <strong>and</strong> human resources<br />
to the development <strong>of</strong> a compliance strategy.<br />
The answer is multi-faceted. As a corporate<br />
governance matter, the directors are obligated<br />
by corporate law to use a good faith effort<br />
“to assure themselves that information <strong>and</strong><br />
reporting systems exist . . . that are reasonably<br />
designed to provide senior management <strong>and</strong><br />
the board itself timely, accurate information<br />
sufficient … to reach informed judgments<br />
concerning both the corporation’s compliance<br />
with law <strong>and</strong> business performance.” 1 The US<br />
Federal Sentencing Guidelines <strong>and</strong> the policies<br />
<strong>of</strong> the US Department <strong>of</strong> Justice regarding<br />
prosecution <strong>of</strong> corporate entities drive home<br />
the importance <strong>of</strong> ensuring effective compli-<br />
June 2008<br />
6<br />
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ance programs for all corporate entities. A<br />
department that is not forward-looking <strong>and</strong><br />
strategic cannot be effective at informing directors<br />
about future compliance risks.<br />
More broadly, the corporate sc<strong>and</strong>als in the<br />
early part <strong>of</strong> this decade had direct impact<br />
on <strong>Compliance</strong> departments <strong>of</strong> corporations,<br />
in general, <strong>and</strong> financial institutions<br />
in particular. Among other things, increased<br />
scrutiny <strong>and</strong> penalties for missteps drove<br />
substantial increases in the allocation <strong>of</strong><br />
resources to preventing <strong>and</strong> detecting<br />
violations <strong>of</strong> law <strong>and</strong> firm policy.<br />
Costs have skyrocketed as firms have<br />
been forced by regulatory, peer, or<br />
non-governmental organization<br />
(NGO) pressure to improve the<br />
quality <strong>of</strong> the pr<strong>of</strong>essionals engaged<br />
in compliance activities, <strong>and</strong> to<br />
substantially enhance the technology<br />
devoted to the task. Full-time staff<br />
devoted to the function is no longer<br />
a small fraction <strong>of</strong> a percentage<br />
point <strong>of</strong> the total employee base. As<br />
others have noted, compliance is no<br />
longer a back <strong>of</strong>fice, low cost, faceless<br />
function.<br />
Another consequence <strong>of</strong> the sc<strong>and</strong>als was an<br />
explosion in the pace <strong>of</strong> regulatory change,<br />
not just in the United States. Attractive new<br />
markets, such as the People’s Republic <strong>of</strong><br />
China <strong>and</strong> India, moved with lightning speed<br />
to tightly regulate business activity <strong>and</strong> ensure<br />
that sc<strong>and</strong>als do not erupt in their backyards.<br />
Moreover, regulation by policy statement<br />
from senior regulators has become a source<br />
<strong>of</strong> frustration for CCOs, who must decipher<br />
broad <strong>and</strong> vague pronouncements into real<br />
policies, processes, <strong>and</strong> systems that will<br />
meet the ever-skeptical eye <strong>of</strong> examiners <strong>and</strong><br />
investigators.<br />
Finally, the broader economy has a definite<br />
impact on <strong>Compliance</strong> departments. Since<br />
the burst <strong>of</strong> the technology bubble <strong>and</strong> the<br />
economic shocks following 9/11, the general<br />
business climate rebounded <strong>and</strong> the Dow<br />
reached new all time highs. Merger <strong>and</strong> acquisition<br />
activity also reached all time highs.<br />
Established businesses began seeking expansion<br />
into new growing markets around the<br />
world <strong>and</strong> new distribution options. With the<br />
expansion also comes new compliance risks<br />
that must be managed to avoid slip-ups that<br />
can be oh-so-costly to new ventures.<br />
Costs have skyrocketed as<br />
firms have been forced by<br />
regulatory, peer, or nongovernmental<br />
organization<br />
(NGO) pressure to improve<br />
the quality <strong>of</strong> the pr<strong>of</strong>essionals<br />
engaged in compliance<br />
activities, <strong>and</strong> to substantially<br />
enhance the technology<br />
devoted to the task.<br />
More recently, the mortgage bubble burst,<br />
with the full consequences as yet unknown.<br />
And, the colossal control failure at the French<br />
bank, Societé Generale, puts a price tag well<br />
into the billions on the failures <strong>of</strong> control<br />
systems. How many financial institutions will<br />
see their senior executives testifying before<br />
Congress about the adequacy <strong>of</strong> borrower due<br />
diligence in “no doc” loans or rogue trader<br />
controls?<br />
Taken together, all these factors demonstrate<br />
that, like never before, assessing the compliance<br />
risks associated with business plans has<br />
become more challenging <strong>and</strong> critical to<br />
protecting major investments.<br />
Our experience suggests that few major<br />
<strong>Compliance</strong> departments consider the issues<br />
in comprehensive terms. Many focus on the<br />
effectiveness <strong>of</strong> their programs vis-à-vis the<br />
expectations <strong>of</strong> their critical external constituency,<br />
their regulators, or their critical internal<br />
business clients. More CCOs should think<br />
in comprehensive strategic terms. Business<br />
people, on the other h<strong>and</strong>, absent crisis,<br />
tend to evaluate compliance in terms <strong>of</strong> cost,<br />
because it is very tough to measure return on<br />
investment (ROI) or internal rate <strong>of</strong> return<br />
(IRR) for compliance activities. Can<br />
more effective compliance be achieved<br />
at lower cost?<br />
Yes. Reconciling these apparently<br />
conflicting priorities requires the<br />
development <strong>of</strong> a forward-looking<br />
strategic plan. The plan must be fact<br />
driven <strong>and</strong> based on a detailed assessment<br />
<strong>of</strong> existing <strong>and</strong> emerging compliance<br />
risks, business strategic plans,<br />
<strong>and</strong> existing compliance capabilities.<br />
Executed with the right process, the<br />
outcome answers the compliance<br />
strategy question before it is asked,<br />
improves transparency to all constituents,<br />
<strong>and</strong> builds expertise <strong>and</strong> ownership<br />
<strong>of</strong> compliance management decisions.<br />
In the end, the planning process develops<br />
sound strategies, initiatives, <strong>and</strong> action plans<br />
that enable <strong>Compliance</strong> departments to more<br />
effectively achieve their present <strong>and</strong> future<br />
missions.<br />
In this article, we start with a description <strong>of</strong><br />
the Global <strong>Compliance</strong> department, <strong>and</strong> the<br />
challenges it faces. As we search for a solution<br />
to those challenges, we summarize the problems<br />
that strategic planning poses for virtually<br />
any organization. We then review how we<br />
designed <strong>and</strong> executed a strategic planning<br />
process at Deutsche Bank that addressed the<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
Continued on page 9<br />
7<br />
June 2008
SCCE Introduces<br />
2008 Regional Conferences!<br />
The Regional conferences are one-day programs designed to provide the hot<br />
topics <strong>and</strong> practical information that compliance pr<strong>of</strong>essionals need to create<br />
<strong>and</strong> maintain compliance programs in a variety <strong>of</strong> industries. We will also <strong>of</strong>fer<br />
the CCEP exam on Saturday, following each <strong>of</strong> the local programs.<br />
October 17, 2008 | Minneapolis, MN<br />
CCEP Exam October 18, 2008<br />
November 14, 2008 | Atlanta, GA<br />
CCEP Exam November 15, 2008<br />
Purpose SCCE Regional conferences provide a forum to interact with local<br />
compliance pr<strong>of</strong>essionals, share information about our compliance successes <strong>and</strong><br />
challenges, <strong>and</strong> create educational opportunities for compliance pr<strong>of</strong>essionals to<br />
strengthen the industry.<br />
Who should attend? <strong>Compliance</strong> <strong>of</strong>ficers, in-house <strong>and</strong> outside general<br />
counsels, privacy <strong>and</strong> security <strong>of</strong>ficers, regulatory affairs VPs <strong>and</strong> directors,<br />
billing, coding pr<strong>of</strong>essionals, government agency staff.<br />
Learning objective Attendees learn about current regulatory requirements,<br />
governement enforcement initiatives, <strong>and</strong> the management <strong>of</strong> effective<br />
compliance programs <strong>and</strong> meet <strong>and</strong> network with other compliance<br />
pr<strong>of</strong>essionals locally.<br />
Become a Certified <strong>Compliance</strong> & <strong>Ethics</strong> Pr<strong>of</strong>essional (CCEP)<br />
Becoming CCEP certified demonstrates sufficient knowledge <strong>of</strong> government regulations<br />
<strong>and</strong> compliance processes to underst<strong>and</strong> <strong>and</strong> address legal obligations <strong>and</strong> promote<br />
organizational integrity through the operation <strong>of</strong> effective compliance programs.<br />
June 2008<br />
8<br />
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Questions? Call +1 952 933 4977 or 888 277 4977
So, What’s Your <strong>Compliance</strong> Strategy? ...continued from page 7<br />
unique challenges <strong>of</strong> compliance departments<br />
today, as well as those inherent in any<br />
planning process. Finally, we summarize the<br />
results <strong>of</strong> the process.<br />
Strategic Planning<br />
As we began to ponder a comprehensive<br />
solution to the multi-variate equation, we<br />
also recognized that scale <strong>and</strong> nature <strong>of</strong> the<br />
Global <strong>Compliance</strong> department (GCD) at<br />
Deutsche Bank, AG (DB) would also be an<br />
important factor. The GCD serviced a truly<br />
global bank with operations in more than 35<br />
countries <strong>and</strong> more than 68,000 employees<br />
around the world. The GCD itself had grown<br />
significantly in the previous four years, <strong>and</strong><br />
included staff “on the ground” in over 23<br />
different countries who had a broad variety <strong>of</strong><br />
educational backgrounds, pr<strong>of</strong>essional qualifications,<br />
<strong>and</strong> substantive work experiences. IT<br />
costs had increased substantially also, as regulators<br />
around the world pushed for higher<br />
levels <strong>of</strong> information technology. Human<br />
resource cost also grew as staff levels increased<br />
<strong>and</strong> the market for experienced compliance<br />
pr<strong>of</strong>essionals became highly competitive. Like<br />
many other staff in similar control functions,<br />
the overwhelming majority <strong>of</strong> the employees<br />
in the GCD had never participated in the<br />
development <strong>of</strong> business strategy. Given<br />
the wide dispersion in geographic, cultural,<br />
<strong>and</strong> management experience within the<br />
GCD, successful strategic planning requires<br />
complete senior management agreement on<br />
the need for the effort <strong>and</strong> the underlying<br />
process.<br />
Senior management had a fairly clear picture<br />
<strong>of</strong> these challenges, but we needed to know<br />
what the rest <strong>of</strong> the GCD’s management was<br />
thinking. We conducted an anonymous survey<br />
to assess whether our views were shared.<br />
The results can be summarized as follows:<br />
n Strategy. There was consensus that the<br />
department could do a better job in developing<br />
<strong>and</strong> communicating its strategy to<br />
the organization.<br />
n Organizational structure. People<br />
believed the organizational structure was<br />
solving local <strong>and</strong> business line problems,<br />
but there was a belief that global initiatives<br />
were being less effectively executed.<br />
n Systems. These were thought to be very<br />
localized <strong>and</strong> needed more global alignment.<br />
n Processes. There was general agreement<br />
that processes were generally strong, but<br />
would need incremental upgrades in<br />
certain key areas.<br />
n Resourcing. Human <strong>and</strong> financial<br />
resources were thought to be adequate but<br />
the development <strong>and</strong> retention <strong>of</strong> talent<br />
needed enhancement.<br />
These results suggested that achieving “buy<br />
in” would not be the major challenge. We<br />
then considered what the process for creating<br />
the strategy would entail. We found a<br />
number <strong>of</strong> complex models <strong>and</strong> approaches<br />
to planning, but we did not find any that<br />
had been used comprehensively for a large<br />
<strong>Compliance</strong> department. Further, while the<br />
models varied significantly in effectiveness<br />
<strong>and</strong> approach to the completion <strong>of</strong> the actual<br />
process (more about that later), the models<br />
<strong>and</strong> processes typically involved the following<br />
steps in some form:<br />
n The development <strong>of</strong> a series <strong>of</strong> organizational<br />
goals or targets (revenue growth,<br />
margin increase, entry into new markets,<br />
etc.);<br />
n An analysis <strong>of</strong> the external environment<br />
(e.g., markets/industries in which the organization<br />
plays);<br />
n An assessment <strong>of</strong> the organization’s internal<br />
capabilities <strong>and</strong> competencies (i.e.,<br />
strengths <strong>and</strong> weaknesses);<br />
n An analysis to uncover the gaps between<br />
the organization’s capabilities <strong>and</strong> the<br />
market/industry it wishes to serve;<br />
n The development <strong>of</strong> strategic initiatives to<br />
close these gaps (e.g., acquisitions, local<br />
start–ups/greenfield operations, capital<br />
investments, organic growth); <strong>and</strong><br />
n The development <strong>of</strong> three-to-five-year action<br />
plans.<br />
On the surface, strategic planning appeared<br />
fairly straightforward <strong>and</strong> logical – if we<br />
could underst<strong>and</strong> our external environment<br />
<strong>and</strong> its direction, along with our own set <strong>of</strong><br />
capabilities, then we could effectively make<br />
<strong>and</strong> execute strategic decisions, right? Maybe,<br />
maybe not. The analytical models help us ask<br />
the right questions <strong>and</strong> collect <strong>and</strong> analyze<br />
the right information, but the success <strong>of</strong> any<br />
strategic planning effort ultimately depends<br />
on an organization’s ability to execute the<br />
initiatives outlined in its plan. Without the<br />
commitment, cooperation, <strong>and</strong> subsequent<br />
buy–in <strong>of</strong> all pertinent parties at all levels <strong>of</strong><br />
the organization, a strategic plan is only as<br />
good as the 8-1/2 x 11 inch sheet <strong>of</strong> paper<br />
on which it is printed. Depending upon the<br />
approach we chose, one <strong>of</strong> two outcomes<br />
seemed likely to result: (1) Strategic planning<br />
– the corporate cliché; or (2) Strategic<br />
development <strong>and</strong> execution – the catharsis.<br />
Strategic planning – the cliché<br />
Although highly important <strong>and</strong> vital to the<br />
growth <strong>and</strong> development <strong>of</strong> any business<br />
or organization, strategic planning efforts,<br />
unfortunately, have become a bit <strong>of</strong> a cliché.<br />
Oftentimes in these endeavors, senior-level<br />
executives either go <strong>of</strong>fsite <strong>and</strong> develop a plan<br />
in a small cabal, or bring in a consulting firm<br />
to do it for them. In the first case, the plan<br />
<strong>of</strong>ten lacks the depth <strong>of</strong> information that is<br />
needed to be fact based.<br />
In the latter, the buzz begins. Strategic<br />
management consultants are brought in.<br />
“Cross-functional teams” are formed within<br />
the organization. Research is cultivated.<br />
Continued on page 10<br />
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9<br />
June 2008
So, What’s Your <strong>Compliance</strong> Strategy? ...continued from page 9<br />
Meeting upon meeting upon meeting is<br />
held over a lengthy time period. The result?<br />
A thick PowerPoint deck chock full <strong>of</strong> data,<br />
market facts <strong>and</strong> figures, customer satisfaction<br />
surveys, etc. Internal data is generated. The<br />
resulting strategic initiatives will be executed.<br />
The dog-<strong>and</strong>-pony show presentation <strong>of</strong> the<br />
findings is made to the leadership team that<br />
optimistically approves some <strong>of</strong> the initiatives.<br />
H<strong>and</strong>s are shaken <strong>and</strong> the “strategically<br />
focused” organization is <strong>of</strong>f <strong>and</strong> running.<br />
Fast forward one year. The last remaining<br />
copy <strong>of</strong> the “Plan” is sitting on the shelf <strong>of</strong><br />
an executive, collecting dust or becoming<br />
the proverbial doorstop. Occasionally, it is<br />
referred to for specific points <strong>of</strong> organizational<br />
scripture. By <strong>and</strong> large, the strategy is<br />
ab<strong>and</strong>oned in favor <strong>of</strong> the organization’s longtime<br />
status quo – normalcy <strong>and</strong> resistance to<br />
change.<br />
The failure <strong>of</strong> strategic planning efforts can<br />
be blamed on numerous people <strong>and</strong> a host<br />
<strong>of</strong> factors: Perhaps the executive team wasn’t<br />
fully committed to driving change or did not<br />
do a very good job at communicating it to<br />
the organization. Perhaps middle management,<br />
the notoriously most difficult point <strong>of</strong><br />
an organization to change, was either resistant<br />
to the Plan or did not underst<strong>and</strong> how they<br />
could effectively contribute to it. Or maybe,<br />
despite all the data <strong>and</strong> hard work, the initiatives<br />
were unrealistic, bureaucratic, or stifled<br />
by political barriers. Or one could just blame<br />
it all on the consultants. Many <strong>of</strong> these factors,<br />
in fact, <strong>of</strong>ten combine to doom the plan.<br />
Bottom line: poor execution <strong>of</strong> the Plan.<br />
The most crucial factor, though, is that<br />
most <strong>of</strong> the people who will need to<br />
execute the Plan to make it work either do<br />
not underst<strong>and</strong> it, have no ownership <strong>of</strong><br />
it, or do not know what they need to do to<br />
contribute to it.<br />
<strong>Compliance</strong> strategy – the catharsis<br />
Aware <strong>of</strong> the pitfalls associated with large<br />
global departments in large institutions<br />
discussed above, the GCD leadership team<br />
knew that it needed to develop <strong>and</strong> execute a<br />
process that would yield more than a glossy<br />
binder <strong>of</strong> PowerPoint slides. The strategic<br />
planning process, hereafter referred to, as<br />
“Strategic Planning for Effectiveness” (SPE),<br />
needed the commitment, cooperation, <strong>and</strong><br />
collaboration necessary from all members <strong>of</strong><br />
the GCD to yield positive value. Moreover,<br />
SPE had to be replicable, yet flexible in the<br />
future, across the organization as external<br />
regulatory environments <strong>and</strong> business priorities<br />
constantly change.<br />
To that end, the leadership team <strong>of</strong> the GCD<br />
engaged a boutique management-consulting<br />
firm to help it design <strong>and</strong> facilitate the execution<br />
<strong>of</strong> the SPE across its complex organizational<br />
matrix. Because we had not found<br />
anyone who had done this before, we decided<br />
a small firm would force ownership in the<br />
GCD leadership team for two reasons. First,<br />
the process would need to be repeated in the<br />
future, <strong>and</strong> it would be unlikely that separate<br />
resources would be made available to support<br />
such future efforts. Second, as a matter <strong>of</strong><br />
pr<strong>of</strong>essional development, we wanted our<br />
leaders to become strategic thinkers.<br />
From the beginning <strong>of</strong> the SPE process, we<br />
carefully focused on design. The design process<br />
involved the consultants as well as senior<br />
GCD leaders. More importantly, the leaders<br />
<strong>and</strong> several middle-level employees from each<br />
<strong>of</strong> the GCD’s various regional <strong>and</strong> divisional<br />
operating units were assigned key roles in the<br />
process. We did this upfront to increase the<br />
likelihood that there would be commitment,<br />
collaboration, <strong>and</strong> ultimately, better execution<br />
across the organization. Within reason,<br />
this would work better than if the plan was<br />
hatched <strong>and</strong> executed by a select few leaders,<br />
particularly in an organization that had not<br />
done this before.<br />
Furthermore, the entire GCD leadership<br />
team was well aware that the SPE process<br />
would require a cultural shift across the<br />
organization for long-run success. Instead <strong>of</strong><br />
spending limited budget dollars <strong>and</strong> utilizing<br />
scarce resources for training <strong>and</strong> development<br />
programs to initiate the cultural shift, the<br />
team embarked on developing a process that,<br />
in <strong>and</strong> <strong>of</strong> itself, would create a cultural shift<br />
within the organization. By driving ownership<br />
for both design <strong>and</strong> execution deeply<br />
into the organization, we would move the<br />
entire GCD from a reactive to a proactive<br />
stance that would enable the organization to<br />
operate more efficiently <strong>and</strong> effectively in the<br />
longer term.<br />
Designing the SPE process<br />
With the proper design team in place, a series<br />
<strong>of</strong> face-to-face <strong>and</strong> virtual meetings were held<br />
with the design team, during the month-long<br />
design phase, to discuss <strong>and</strong> develop the process.<br />
To support the development <strong>and</strong> critical<br />
“buy-in,” a series <strong>of</strong> surveys were issued across<br />
the GCD to connect the forthcoming analytical<br />
components <strong>of</strong> the strategy development<br />
process with organizational commitment,<br />
success, <strong>and</strong> more importantly, with reality.<br />
Coupled with the feedback from the GCD,<br />
the design team determined that the strategy<br />
development <strong>and</strong> execution process would:<br />
n Include the proper analytical components<br />
(see below);<br />
n Support the business-line goals <strong>and</strong> strategies;<br />
n Be fact based;<br />
n Be organic <strong>and</strong> flexible to material environmental<br />
changes;<br />
n Link regulatory underst<strong>and</strong>ing <strong>and</strong><br />
business-line priorities to the execution <strong>of</strong><br />
strategic decisions;<br />
Continued on page 12<br />
June 2008<br />
10<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
C o r p o r a t e Co m p l i a n c e & Et h i c s :<br />
G u i d a n c e f o r En g a g i n g Yo u r Bo a r d<br />
“This video provides an<br />
overview <strong>of</strong> the Board’s<br />
role in compliance.”<br />
Odell Guyton<br />
Senior <strong>Corporate</strong> Attorney,<br />
Director <strong>of</strong> <strong>Compliance</strong>,<br />
Micros<strong>of</strong>t Corporation<br />
www.corporatecompliance.org<br />
“It’s pretty clear that<br />
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well-meaning compliance<br />
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supportive…”<br />
Bringing the vision <strong>of</strong><br />
leadership together<br />
with a compliant <strong>and</strong><br />
ethical culture<br />
Honorable<br />
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United States Sentencing<br />
Commission<br />
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So, What’s Your <strong>Compliance</strong> Strategy? ...continued from page 10<br />
n Develop in-house strategic expertise <strong>and</strong><br />
ownership <strong>of</strong> strategic decisions;<br />
n Create an internally replicable strategy<br />
development process;<br />
n Provide a process to develop teams, individual<br />
managers, <strong>and</strong> executives;<br />
n Create <strong>and</strong> nurture cross-matrix strategy<br />
development teams; <strong>and</strong><br />
n Minimize long-term dependence on strategic<br />
consultants.<br />
In order to properly roll out this process<br />
across the organization, the GCD senior<br />
leadership team, along with the consulting<br />
group, developed an SPE workbook to help<br />
codify <strong>and</strong> guide the effort. The workbook<br />
included analytical tools <strong>and</strong> action components<br />
(outlined in the next section) <strong>and</strong> was<br />
issued to the leadership teams <strong>of</strong> the GCD’s<br />
eleven regional units <strong>and</strong> nine business unit<br />
divisions. Completion was required in less<br />
than three months. Importantly, GCD senior<br />
leadership <strong>and</strong> the consultants provided support<br />
to all the units throughout the SPE to<br />
enable the teams to develop their plans.<br />
Workbook content – the SPE process<br />
The process was divided into the following<br />
five logical <strong>and</strong> easy-to-implement steps for<br />
execution:<br />
Step 1: External environmental assessment.<br />
This assessment was divided into two<br />
areas. The first focus was on the regulatory<br />
environment in which we operated. We asked<br />
for comprehensive focus <strong>and</strong> examination <strong>of</strong><br />
new or changed regulation in our key compliance<br />
risks:<br />
n Business conduct<br />
n Organizational duties<br />
n Market conduct<br />
n Reputation risk, <strong>and</strong><br />
n Anti-money laundering risk<br />
The result provided a detailed analysis <strong>of</strong> the<br />
regulatory changes, the regions <strong>and</strong> business<br />
lines impacted by them, the regulator driving<br />
the change, <strong>and</strong> the available time to respond.<br />
The second area focus was on key business-line<br />
initiatives. As a support <strong>and</strong> control function,<br />
the GCD’s role was to enable the bank’s businesses<br />
to succeed in executing their strategies<br />
<strong>and</strong> delivering on their goals. Through detailed<br />
meetings <strong>and</strong> interviews by compliance leaders<br />
with more than 300 key business people,<br />
current <strong>and</strong> future strategic priorities for each<br />
business line (e.g., global banking, private<br />
wealth management) were identified. We captured<br />
data, in a systematic fashion, regarding<br />
their plans for the introduction <strong>of</strong> simple <strong>and</strong><br />
exotic new products <strong>and</strong> for entry into new<br />
geographic markets (e.g., Islamic countries).<br />
The regulatory changes <strong>and</strong> business-line<br />
initiatives were examined <strong>and</strong> prioritized<br />
through a two-dimensional screening matrix<br />
that would become the signpost for guiding<br />
present <strong>and</strong> future focus for the GCD.<br />
Business-line <strong>and</strong> regulatory priorities were<br />
rank ordered, based on the following two<br />
dimensions:<br />
1. The importance <strong>of</strong> an initiative to a<br />
business <strong>and</strong> the likelihood it would be<br />
implemented by the business<br />
n High – the initiative would be critical<br />
to the success <strong>of</strong> the business.<br />
n Medium – the initiative would greatly<br />
help the business achieve its goals.<br />
n Low – the initiative would be helpful,<br />
but not have a significant impact on the<br />
achievement key business goals.<br />
2. The impact <strong>of</strong> the regulation on the execution<br />
<strong>of</strong> a business initiative<br />
n High – regulation could make the initiative<br />
extremely expensive or prohibitive,<br />
if not properly addressed.<br />
n Medium – regulation could make the<br />
initiative more expensive or have a<br />
material impact.<br />
n Low – regulation is unlikely to make<br />
the initiative more expensive or have a<br />
material impact<br />
Step 2: Internal capability assessment.<br />
Any organization’s ability to respond to the<br />
environmental issues identified is a function<br />
<strong>of</strong> its resources. To better underst<strong>and</strong><br />
the GCD’s resources <strong>and</strong> how they enabled<br />
it to respond to the environment, a detailed<br />
capability analysis was conducted. In prior<br />
exercises, the GCD identified its four major<br />
roles: advisory, advocacy, prevention, <strong>and</strong><br />
detection. The capability assessment analyzed<br />
our resources against these four roles.<br />
1. Advisory. In the advisory role, the GCD<br />
provides strategic support to the business,<br />
fosters business growth by providing<br />
guidance <strong>and</strong> advice to the businesses on<br />
compliant business solutions, monitors<br />
<strong>and</strong> interprets legal <strong>and</strong> regulatory focuses,<br />
develops proposals for changes to meet<br />
regulatory requirements, <strong>and</strong> supports<br />
implementation.<br />
2. Advocacy. In the advocacy role, the GCD<br />
proactively engages in purposeful dialogue<br />
with the bank’s regulators (which number<br />
more than 200 globally), lawmakers, <strong>and</strong><br />
various financial-services industry trade<br />
groups. The department seeks to influence<br />
the development <strong>of</strong> rules that affect the<br />
bank’s business <strong>and</strong> operating environment;<br />
manage regulatory inquiries, audits,<br />
inspections <strong>and</strong> investigations; <strong>and</strong> participate<br />
in the regulatory consultation process.<br />
3. Prevention. In the prevention role, the<br />
GCD designs <strong>and</strong> implements programs<br />
<strong>and</strong> processes, such as policy development<br />
<strong>and</strong> employee training.<br />
4. Detection. In the detection role, the<br />
GCD conducts risk-based electronic or<br />
manual surveillance <strong>and</strong> monitoring to<br />
identify violations <strong>of</strong> law <strong>and</strong> policy, <strong>and</strong><br />
to test the strength <strong>of</strong> compliance controls.<br />
Continued on page 14<br />
June 2008<br />
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So, What’s Your <strong>Compliance</strong> Strategy? ...continued from page 12<br />
A detailed analysis <strong>of</strong> these roles <strong>and</strong> the<br />
capabilities that support them was conducted<br />
throughout the entire GCD. The analysis included<br />
an examination <strong>of</strong> the assets, skills <strong>and</strong><br />
knowledge/people, systems, work processes,<br />
organizational structure, <strong>and</strong> performance<br />
metrics <strong>and</strong> how they all interacted to enable<br />
the capability. For example, the GCD’s ability<br />
to provide the businesses advice on such areas<br />
as real estate or Islamic lending practices (e.g.,<br />
Sharia law) was identified.<br />
These categories were defined as follows:<br />
Assets. These are things physically used by<br />
the department that can produce future economic<br />
benefit, the measurement <strong>of</strong> which can<br />
be expressed in monetary terms. An asset<br />
typically is listed on a balance sheet (e.g.,<br />
computer hardware, facilities).<br />
Skills <strong>and</strong> knowledge/people. The<br />
employee set <strong>and</strong> unique capabilities,<br />
such as intellectual capital, within a<br />
specific industry that bring value to the<br />
department (e.g., an employee or group<br />
with valuable experience <strong>and</strong> knowledge<br />
in the regulatory environment).<br />
Systems. Typically, s<strong>of</strong>tware that allows the<br />
department to manage its flow <strong>of</strong> information<br />
<strong>and</strong> make decisions (e.g., transaction surveillance<br />
s<strong>of</strong>tware).<br />
Work processes. Specific sequences <strong>of</strong> activities<br />
used to manage workflow <strong>and</strong> reach a<br />
desired goal (e.g., surveillance “hit” investigative<br />
processes, branch examination processes,<br />
financial management processes).<br />
Metrics. Quantitative <strong>and</strong> qualitative<br />
measurements, <strong>of</strong>ten used to assess the effectiveness<br />
<strong>and</strong> efficiency <strong>of</strong> the execution <strong>of</strong><br />
an activity (e.g., number <strong>of</strong> surveillance hits,<br />
training sessions given, suspicious activity<br />
reports filed).<br />
Step 3: Gap analysis. Based on the first<br />
two steps, a gap analysis was conducted to<br />
identify gaps between the GCD’s current<br />
<strong>and</strong> required regulatory <strong>and</strong> business focuses,<br />
<strong>and</strong> the capabilities needed to effectively <strong>and</strong><br />
efficiently meet the regulatory <strong>and</strong> business<br />
priorities. The specific questions included:<br />
n What capabilities add no value <strong>and</strong> should<br />
be dropped (i.e., they add no value but<br />
consume scarce resources)?<br />
n What capabilities do we need that do not<br />
currently exist?<br />
n What capabilities should be better leveraged<br />
or significantly improved because<br />
they are underutilized or inefficient?<br />
Given a resource-scarce<br />
environment, it was critical<br />
that everyone realized<br />
that not every gap closing<br />
strategy could be supported<br />
<strong>and</strong> that priorities<br />
needed to be set.<br />
To ensure that “the baby was not thrown<br />
out with the bath water,” each capability was<br />
examined with respect to the assets, skills <strong>and</strong><br />
knowledge/people, systems, <strong>and</strong> work processes.<br />
In some cases, we found the capability<br />
important but in need <strong>of</strong> improvement in one<br />
or more elements. Frequently, we found the<br />
area for improvement was development <strong>and</strong><br />
addition or redeployment <strong>of</strong> key people.<br />
Step 4: Gap closing strategies. Once the<br />
gaps were identified, initiatives to close them<br />
were developed. The initiatives ranged from<br />
redeploying or better utilizing existing staff,<br />
to changing work processes, to modifying or<br />
developing new systems.<br />
As leaders began to define the optimal gap closing<br />
initiative, we told them to consider options<br />
that were both effective <strong>and</strong> efficient. “Consider<br />
ways to creatively redeploy <strong>and</strong> utilize existing<br />
resources within the global compliance organization<br />
as an alternative to securing additional<br />
new resources (i.e., adding new costs to your<br />
budget should be your last alternative).”<br />
The last point was particularly important to<br />
the success <strong>of</strong> the SPE. People tend to rely<br />
on <strong>and</strong> guard resources under their immediate<br />
control, <strong>and</strong> to locally develop solutions<br />
to problems when they occur. The need<br />
for autonomy <strong>and</strong> the “not invented here<br />
syndrome” <strong>of</strong>ten prevail. The tendency <strong>of</strong>ten<br />
results in excess costs <strong>and</strong> slow <strong>and</strong> inefficient<br />
implementation solutions to problems<br />
that, more <strong>of</strong>ten than not, stretch across<br />
locations <strong>and</strong> individual spans <strong>of</strong> control.<br />
Through a collaborative strategy development<br />
<strong>and</strong> execution effort, we sought to<br />
break down these silos <strong>and</strong> achieve more<br />
effective <strong>and</strong> efficient use <strong>of</strong> capabilities<br />
across the GCD.<br />
For each strategy, two costs were identified:<br />
“Change the Bank” (one time<br />
development <strong>and</strong> implementation costs) <strong>and</strong><br />
“Run the Bank” (recurring operating costs).<br />
This injected a healthy dose <strong>of</strong> reality into the<br />
process by ensuring that there were no blank<br />
checks.<br />
Step 5: Action plans. The final step in the<br />
process was the development <strong>of</strong> action plans<br />
for each gap closing strategy <strong>and</strong> an on-going<br />
review process for ensuring that each plan was<br />
implemented. Each plan was championed<br />
by a member <strong>of</strong> the leadership team <strong>and</strong><br />
included individual accountabilities, milestones<br />
<strong>and</strong> completion dates, deliverables, <strong>and</strong><br />
resources (e.g., people <strong>and</strong> money) needed to<br />
complete the plan.<br />
Carrying Out the SPE<br />
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Although a sound the design was necessary<br />
to have a shot at success, a good design alone<br />
would not achieve the cultural shift necessary<br />
for success. The interaction <strong>and</strong> communication<br />
among those involved in the SPE process<br />
<strong>and</strong> the rest <strong>of</strong> the organization was a vital<br />
component to achieving an effective plan <strong>and</strong>,<br />
ultimately, execution <strong>of</strong> the plan. The following<br />
is a brief overview <strong>of</strong> the process used to<br />
carry out the SPE:<br />
Introduction <strong>of</strong> planning process<br />
As we noted above, we surveyed department<br />
management to lay the foundation for achieving<br />
the buy–in among the GCD leadership<br />
team. In that survey, we asked every member<br />
<strong>of</strong> senior department management to ascertain<br />
precisely what they thought was working<br />
well <strong>and</strong> what was not in the department<br />
that had grown rapidly over the previous four<br />
years. We collated those responses <strong>and</strong> hung<br />
every one <strong>of</strong> them in poster size on the walls<br />
<strong>of</strong> the conference room where we were holding<br />
the two-day kick-<strong>of</strong>f meeting with the<br />
entire GCD leadership team present. After<br />
two hours <strong>of</strong> detailed review <strong>and</strong> comment,<br />
the responses drove home the need for a unified<br />
strategic plan by the GCD.<br />
The meeting then moved to a detailed discussion<br />
<strong>of</strong> the process, <strong>and</strong> the reasons for<br />
every step. We covered the following topics:<br />
n The importance <strong>of</strong> SPE process to the GCD;<br />
n A review <strong>of</strong> the mission <strong>and</strong> roles <strong>of</strong> the<br />
GCD as focal points for the SPE process;<br />
n Introduction <strong>and</strong> explanation <strong>of</strong> the SPE<br />
process with the accompanying “analytic”<br />
document;<br />
n The importance <strong>of</strong> getting buy–in from regional/business<br />
leadership teams <strong>and</strong> staffs<br />
as well as others with critical knowledge;<br />
n Set post meeting expectations <strong>and</strong> schedule<br />
with respect to:<br />
o Steps to completion <strong>of</strong> plan<br />
o Meetings to discuss plan<br />
o Feedback from plan<br />
o Roll out <strong>of</strong> plan<br />
n Review process for ensuring its execution;<br />
<strong>and</strong><br />
n Introduction <strong>of</strong> the roles <strong>of</strong> outside strategic<br />
consultants who would help coach them<br />
throughout the entire planning process.<br />
Moreover, an internal point person from the<br />
leadership was identified. This person, in<br />
collaboration with the consulting team, was<br />
responsible for ensuring that the SPE ran<br />
smoothly <strong>and</strong> on time. The internal point<br />
person was a central point for any issues or<br />
questions faced by any team or individual. This<br />
would lead to quick <strong>and</strong> effective solutions.<br />
To ensure that everyone understood the SPE<br />
process <strong>and</strong> bought in, we provided an opportunity<br />
to provide final feedback <strong>and</strong> changes.<br />
Creation <strong>of</strong> Teams<br />
Following the kick <strong>of</strong>f meeting, SPE execution<br />
teams were created. With the help <strong>of</strong><br />
the consultants, each team addressed the following:<br />
n Identity <strong>of</strong> team leaders <strong>and</strong> members;<br />
n The scope <strong>of</strong> their tasks <strong>and</strong> deliverables;<br />
n Definition <strong>of</strong> key activities, resources <strong>and</strong><br />
deadlines;<br />
n Identity <strong>of</strong> any additional resources; <strong>and</strong><br />
n Development <strong>of</strong> localized implementation<br />
plans including organizational communications<br />
with key stakeholders.<br />
Execution <strong>of</strong> the SPE<br />
Throughout the SPE process, the GCD<br />
leadership, the teams, <strong>and</strong> the consultants<br />
communicated frequently. For each step <strong>of</strong><br />
the SPE, a formal review process, whereby the<br />
leadership team provided feedback to each<br />
team, was held. This ensured that the teams<br />
were on the right track <strong>and</strong> that emerging<br />
global issues were being captured. These issues<br />
were especially important.<br />
Moreover, as is the case with any process,<br />
improvements were constantly being made to<br />
the SPE based on feedback from the teams.<br />
Rather than bureaucratically execute the SPE,<br />
we wanted to ensure that it worked <strong>and</strong> that<br />
those involved in it continued to feel that<br />
they had influence over the process itself. We<br />
wanted them to make the SPE “their own.”<br />
The Gala Event<br />
Given the complex nature <strong>of</strong> the GCD<br />
organizational matrix <strong>and</strong> its geographic dispersion,<br />
a two-day, face-to-face event was held<br />
upon the completion <strong>of</strong> the planning process.<br />
This event provided the forum for final debate<br />
on all the initiatives <strong>and</strong> the development<br />
<strong>of</strong> the actual global strategic initiatives. We<br />
decided a face-to-face meeting was necessary<br />
for two reasons. First, given a resource-scarce<br />
environment, it was critical that everyone<br />
realized that not every gap closing strategy<br />
could be supported <strong>and</strong> that priorities needed<br />
to be set. Second, there might be common<br />
initiatives that could better be addressed on<br />
a global scale, rather than by each regional or<br />
business team. We looked for cost savings <strong>and</strong><br />
to optimize resources <strong>and</strong> approaches.<br />
Third, gaining ownership <strong>and</strong> consensus among<br />
all the teams for the overall GCD plan was critical<br />
to effective execution. Moreover, the session<br />
was a true test <strong>of</strong> whether a culture <strong>of</strong> collaboration<br />
<strong>and</strong> cooperation was emerging <strong>and</strong><br />
a barometer <strong>of</strong> the success <strong>of</strong> the pr<strong>of</strong>essional<br />
development component <strong>of</strong> the SPE process.<br />
During the session, the leadership struggled,<br />
at first, with the sheer number <strong>of</strong> initiatives<br />
that had been generated <strong>and</strong> continued to<br />
champion their self-identified priorities. By<br />
forcing the resource constraints <strong>and</strong> achieving<br />
acknowledgement that only about ten things<br />
could be truly global priorities, the leadership<br />
ultimately developed a list <strong>of</strong> key initiatives<br />
Continued on page 16<br />
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So, What’s Your <strong>Compliance</strong> Strategy? ...continued from page 15<br />
that were the most likely to achieve the largest<br />
impact on enhancing the department’s execution<br />
<strong>of</strong> its four key roles. We then identified<br />
sponsors, owners, deliverables, <strong>and</strong> deadlines.<br />
The end document was a clear, concise, fact–<br />
based strategy that was executable within given<br />
time <strong>and</strong> resource constraints.<br />
Review <strong>and</strong> followup phase<br />
Finally, we implemented an on-going periodic<br />
review process to monitor the execution<br />
<strong>of</strong> the gap closing strategies <strong>and</strong> action plans.<br />
We also made the execution <strong>of</strong> these plans<br />
a part <strong>of</strong> the performance reviews <strong>of</strong> those<br />
responsible for execution.<br />
Results <strong>of</strong> the SPE to date<br />
The evidence, thus far, suggests that the SPE is<br />
running fairly well from both the organizational<br />
development <strong>and</strong> substantive perspectives. As<br />
an organization, there is greater alignment <strong>and</strong><br />
focus. The “silo mentality” has decreased <strong>and</strong> a<br />
greater focus on the needs <strong>and</strong> priorities <strong>of</strong> the<br />
global organization, rather just than those <strong>of</strong><br />
the divisions <strong>and</strong> regions, had emerged. Clearly,<br />
there is more communication <strong>and</strong> collaboration<br />
across the organization, which helps the matrix<br />
run much more smoothly. Second, there is a<br />
marked shift in the level <strong>of</strong> strategic thinking<br />
throughout the organization as well as a more<br />
proactive stance. Third, the leaders <strong>of</strong> the GCD<br />
are working together to more efficiently utilize<br />
scarce resources. Fourth, <strong>and</strong> perhaps most<br />
importantly, the SPE process has helped the<br />
GCD establish much stronger partnerships<br />
with the business lines. The process required the<br />
leaders to spend more time interacting with the<br />
businesses to learn more about the businesses<br />
<strong>and</strong> their strategic priorities. This sent a strong<br />
signal to the business leaders that <strong>Compliance</strong><br />
was there to help them <strong>and</strong> the firm to succeed.<br />
From a substantive perspective, the top global<br />
initiatives that emerged addressed the key<br />
results <strong>of</strong> the survey (summarized above) that<br />
led to the entire process. Ultimately, several<br />
<strong>of</strong> the global initiatives accurately targeted<br />
global risks that were highlighted in the risk<br />
assessment process. To highlight a few important<br />
items:<br />
n Strategy. At the conclusion <strong>of</strong> the process,<br />
approximately ten global initiatives<br />
were defined, as well as other initiatives<br />
by location <strong>and</strong> business division. The<br />
initiatives were clear <strong>and</strong> executable <strong>and</strong><br />
addressed the important challenges <strong>and</strong><br />
risks the GCD was facing.<br />
n Organizational structure. Six <strong>of</strong> the<br />
initiatives addressed important structural<br />
issues <strong>and</strong> enhanced the networking<br />
<strong>and</strong> global execution capabilities <strong>of</strong> the<br />
organization.<br />
n Systems. Two initiatives were addressed<br />
that resulted in systems development,<br />
primarily focused on monitoring.<br />
n Processes. One <strong>of</strong> the global initiatives<br />
addressed the key process in need <strong>of</strong><br />
significant enhancements.<br />
n Resources. Several <strong>of</strong> the initiatives<br />
targeted talent development <strong>and</strong> fostered<br />
organizational alignment. The bottom line<br />
was that the process worked.<br />
Finally, as an unanticipated outcome, the<br />
SPE has become a meta-process, under which<br />
a number <strong>of</strong> other processes <strong>and</strong> initiatives<br />
(e.g., risk assessment) have become subsumed.<br />
Moreover, the SPE initiatives are not<br />
thought <strong>of</strong> as “projects,” but as “the way we<br />
do things around here” (i.e., the process has<br />
led to a cultural change in the organization).<br />
This has made for a much more efficient <strong>and</strong><br />
less unnecessarily complex organization.<br />
What we learned<br />
Clearly, we have learned a number <strong>of</strong> things<br />
from the SPE process. First, although the<br />
process appears to be solely about strategic planning,<br />
it has also proven to be an effective organizational<br />
development <strong>and</strong> culture change tool.<br />
It has gone a long way in building DB’s GCD.<br />
Second, how you implement the SPE is just<br />
has important as its analytical components.<br />
More specifically, the involvement <strong>and</strong> engagement<br />
<strong>of</strong> people throughout the organization<br />
is key to its effectiveness.<br />
Third, strategic thinking is more important<br />
than strategic planning. The SPE is a process<br />
<strong>of</strong> engaging people to think about strategic<br />
issues facing the organization (e.g., emerging<br />
compliance issues <strong>and</strong> business priorities). It is<br />
not about filling in <strong>and</strong> submitting a bunch <strong>of</strong><br />
planning forms. When people become comfortable<br />
with thinking strategically, the process<br />
becomes a part <strong>of</strong> the day-to-day culture <strong>of</strong><br />
the organization, <strong>and</strong> people naturally become<br />
more proactive <strong>and</strong> anticipate <strong>and</strong> prepare to<br />
respond to emerging strategic issues.<br />
Finally, anything that is worth doing takes<br />
time, resources, <strong>and</strong> commitment to succeed.<br />
This was something that the leadership team<br />
understood <strong>and</strong> did well. It was this commitment<br />
that caught the attention <strong>and</strong> enthusiasm<br />
<strong>of</strong> the organization. However, the SPE<br />
cannot be viewed as a one-time event. It is a<br />
management process that needs to continue<br />
to be supported, nurtured, <strong>and</strong> driven. n<br />
The authors would like to thank Alan Greatorex,<br />
the Head <strong>of</strong> Global <strong>Compliance</strong> Training <strong>and</strong><br />
Development for Deutsche Bank for the invaluable<br />
role he played in the design <strong>and</strong> execution <strong>of</strong> the<br />
strategic planning process described in this article.<br />
1 In re Caremark International Inc. Derivative Litigation, A2d; (Delaware<br />
Chancery Court, 1996).<br />
June 2008<br />
16<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
Call for Authors<br />
<strong>Compliance</strong> & <strong>Ethics</strong> Magazine<br />
<strong>Compliance</strong> & <strong>Ethics</strong> Magazine is published bimonthly<br />
by the <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong><br />
(SCCE). Pr<strong>of</strong>essionals in the compliance field are<br />
attracted to SCCE because it is the ultimate source<br />
<strong>of</strong> compliance <strong>and</strong> ethics information, providing the<br />
most current views on the corporate regulatory<br />
environment, internal controls, <strong>and</strong> overall conduct<br />
<strong>of</strong> business. National <strong>and</strong> global experts provide<br />
informative articles, share their knowledge <strong>and</strong><br />
provide pr<strong>of</strong>essional support so readers can make<br />
informed legal <strong>and</strong> cultural corporate decisions.<br />
We welcome all who wish to propose corporate<br />
compliance–related topics <strong>and</strong> write articles.<br />
Articles, when the topic allows, should include “how<br />
to” tips. Articles generally run between 1,250 <strong>and</strong><br />
2,500 words.<br />
If you are interested in submitting an article for<br />
publication in <strong>Compliance</strong> & <strong>Ethics</strong> Magazine, please<br />
contact Marlene Robinson:<br />
marlene.robinson@corporatecompliance.org<br />
+1 952 933 4977 or 888 277 4977<br />
Topics to consider:<br />
• Developing <strong>and</strong> managing effective compliance<br />
programs<br />
• <strong>Compliance</strong> <strong>and</strong> ethics training: senior<br />
management versus non-management<br />
• Conflict <strong>of</strong> interest<br />
• Code <strong>of</strong> conduct<br />
• Security<br />
• Investigations: attorney privileges<br />
• Sarbanes-Oxley Act updates<br />
• Pr<strong>of</strong>essional liability, audit, accounting<br />
• Enterprise risk management: risk-based<br />
assessments<br />
• <strong>Compliance</strong> & ethics program assessments<br />
• Information on new laws, regulations, <strong>and</strong><br />
rules affecting international compliance <strong>and</strong><br />
ethics governance:<br />
• Articles addressing current “hot” compliance<br />
<strong>and</strong> ethics issues<br />
All Aricles are due by the 15 th <strong>of</strong> the<br />
month 45 days prior to issue date.
SCCE Advisory Board<br />
Urton Anderson<br />
Chair, Department <strong>of</strong><br />
Accounting <strong>and</strong> Clark W.<br />
Thompson Jr. Pr<strong>of</strong>essor<br />
in Accounting Education,<br />
McCombs School <strong>of</strong><br />
Business, The University<br />
<strong>of</strong> Texas at Austin<br />
Marjorie Doyle<br />
Practice Leader,<br />
<strong>Ethics</strong> & <strong>Compliance</strong><br />
Solutions<br />
LRN<br />
Charles Elson<br />
Director <strong>of</strong> the<br />
John L. Weinberg<br />
Center for <strong>Corporate</strong><br />
Governance <strong>and</strong> Edgar<br />
S. Woolard, Jr. Chair in<br />
<strong>Corporate</strong> Governance,<br />
University <strong>of</strong> Delaware<br />
Odell Guyton<br />
Senior Counsel <strong>and</strong><br />
Director <strong>of</strong> <strong>Compliance</strong>,<br />
Micros<strong>of</strong>t Corporation<br />
SCCE Advisory Board<br />
Co-Chair<br />
Keith Hallel<strong>and</strong><br />
Ex-<strong>of</strong>ficio Advisory<br />
Board Member<br />
Founding partner <strong>of</strong><br />
Hallel<strong>and</strong> Lewis<br />
Nilan & Johnson, PA<br />
David J. Heller<br />
Chief <strong>Ethics</strong> <strong>and</strong><br />
<strong>Compliance</strong> Officer<br />
Vice President Risk<br />
Management<br />
Qwest<br />
Gary Hill<br />
Vice President <strong>and</strong><br />
Chief <strong>Ethics</strong> Officer<br />
Wal-Mart Stores, Inc.<br />
Michael Horowitz<br />
Litigation partner, member<br />
<strong>of</strong> the Business Fraud<br />
<strong>and</strong> Complex Litigation<br />
Group, Cadwalader,<br />
Wickersham & Taft LLP,<br />
<strong>and</strong> Commissioner, U.S.<br />
Sentencing Commission<br />
Shin Jae Kim Hong<br />
Partner,<br />
TozziniFreire Advogados<br />
São Paulo, Brazil<br />
Michael<br />
LaFontaine<br />
Chief <strong>Compliance</strong> Officer,<br />
U.S. Bancorp<br />
Sean Martin<br />
Vice President,<br />
Commercial Law,<br />
Amgen<br />
Joseph E. Murphy<br />
Co-Founder,<br />
Integrity Interactive<br />
Co-Editor, ethikos<br />
F. Lisa Murtha<br />
Managing Director,<br />
Huron Consulting<br />
Group<br />
Dennis Muse<br />
Chief Executive Officer,<br />
Global <strong>Compliance</strong><br />
Haydee Olinger<br />
Vice President–Chief<br />
<strong>Compliance</strong> Officer<br />
McDonald’s<br />
Corporation<br />
Mollie Painter-Morl<strong>and</strong><br />
DePaul University Associate<br />
Director, The Institute for<br />
Business <strong>and</strong> Pr<strong>of</strong>essional<br />
<strong>Ethics</strong>; Director, Center for<br />
Business <strong>and</strong> Pr<strong>of</strong>essional<br />
<strong>Ethics</strong>, University <strong>of</strong> Pretoria,<br />
South Africa<br />
Daniel Roach<br />
Vice President<br />
<strong>Compliance</strong> & Audit,<br />
Catholic Healthcare<br />
West<br />
SCCE Advisory<br />
Board Co-Chair<br />
James G. Sheehan<br />
Medicaid Inspector<br />
General, Office <strong>of</strong> the<br />
Medicaid Inspector<br />
General, New York State<br />
Leonard Shen<br />
Senior Vice President–<br />
Chief <strong>Ethics</strong> <strong>and</strong><br />
<strong>Compliance</strong> Officer,<br />
American Express<br />
Roy Snell<br />
CEO, <strong>Society</strong> <strong>of</strong><br />
<strong>Corporate</strong> <strong>Compliance</strong><br />
<strong>and</strong> <strong>Ethics</strong><br />
Debbie Troklus<br />
Assistant Vice President,<br />
Health Affairs/<br />
<strong>Compliance</strong>, University<br />
<strong>of</strong> Louisville Health<br />
Sciences Center<br />
Sheryl Vacca<br />
Senior Vice President/<br />
Chief <strong>Compliance</strong><br />
<strong>and</strong> Audit Officer,<br />
University <strong>of</strong> California<br />
Cheryl<br />
Wagonhurst<br />
Partner, Foley &<br />
Lardner LLP,<br />
LA Office, Regulated<br />
Industries Team<br />
Rebecca Walker<br />
Partner,<br />
Kaplan & Walker LLP<br />
Pr<strong>of</strong>essionals representing a broad range <strong>of</strong> industries make up this board.<br />
The level <strong>of</strong> diverse experience <strong>and</strong> pr<strong>of</strong>essional accomplishment is impressive. These industry leaders are<br />
enthusiastic <strong>and</strong> poised to lead the <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> into the future. SCCE promotes<br />
the compliance pr<strong>of</strong>ession by <strong>of</strong>fering valuable programs <strong>and</strong> tools to enhance knowledge <strong>and</strong> expertise in the<br />
compliance <strong>and</strong> ethics field.<br />
We are very excited to have such a diverse <strong>and</strong> experienced group <strong>of</strong> people leading this organization.<br />
Roy Snell, CEO<br />
June 2008<br />
18
Why are we where we are?<br />
We have more opportunities for members to get involved, because <strong>of</strong> the<br />
non-bureaucratic culture <strong>of</strong> our organization. Most importantly, we are<br />
a successful organization because <strong>of</strong> the talent <strong>of</strong> our membership.<br />
We have problems <strong>and</strong> frustrations just like any other organization.<br />
However, we don’t have the kind <strong>of</strong> problems that other organizations<br />
do. Our problems are associated with our entrepreneurial, fast-paced,<br />
risk-oriented approach. We want to get as many people involved as we<br />
can. As a result <strong>of</strong> our 50 compliance conferences, 48 audio conferences,<br />
four certifications, two magazines, <strong>and</strong> a myriad <strong>of</strong> other activities,<br />
we get a lot <strong>of</strong> people involved. You may see some people whose names<br />
come up regularly. Because <strong>of</strong> the number <strong>of</strong> things we do, we have<br />
to rely on some people to help regularly. The real question is, “How<br />
many people get to be involved in our organization compared to other<br />
pr<strong>of</strong>essional organizations?”<br />
Opportunities come from growth <strong>and</strong> risk. Growth <strong>and</strong> risk comes from<br />
entrepreneurial behavior. If you want to see limited opportunity, join a<br />
bureaucratic, constipated, committee-run organization. “No” is the word<br />
<strong>of</strong> the day. Everything has to be approved, overseen, changed, analyzed,<br />
<strong>and</strong> watered down to make sure everyone is happy <strong>and</strong> on board.<br />
If you count meaningful work, not just superficial, resume stuffing<br />
committee assignments, I would put our organization up against any<br />
other for generating opportunities for members to get involved. We<br />
want more people involved <strong>and</strong> to do that, we have to keep growing,<br />
take risks, move quickly, delegate, <strong>and</strong> trust. We must also manage <strong>and</strong><br />
tolerate the challenges associated with that approach.<br />
Other organizations have pre-meeting meetings to discuss who should<br />
be invited to meetings. There are meetings to examine all <strong>of</strong> the political<br />
ramifications <strong>of</strong> the topic to be discussed at the meeting. They<br />
discuss who would be <strong>of</strong>fended or not <strong>of</strong>fended by being included or<br />
not included. We, on the other h<strong>and</strong>, think <strong>of</strong> an idea <strong>and</strong> take action.<br />
We ask someone to get it done. If someone else is <strong>of</strong>fended by not being<br />
included, we try to find something for them to do <strong>and</strong> we get that<br />
done too. We have more resources to accommodate<br />
all these requests to be involved,<br />
because our resources are not tied up in<br />
meetings, political discussions, <strong>and</strong> endless<br />
ruminating about ramifications.<br />
We have approximately 150 people writing<br />
ROY sNELL<br />
articles each year. If you count people who promise to write articles,<br />
that number mushrooms to well over 300. Approximately 50 people are<br />
involved with our certifications annually. With 50 conferences, we have<br />
over 750 new speaking opportunities annually. No association anywhere<br />
near our size can touch this number. We have approximately 100 people<br />
involved in the speaker selection process for our 50 conferences. Approximately<br />
100 people help with the audio conferences annually. Many<br />
people are involved in product development, Website content, <strong>and</strong> a<br />
myriad <strong>of</strong> other projects.<br />
In this article I talk about our very talented, experienced, intelligent<br />
membership <strong>and</strong> our organization’s operational culture. As I mentioned,<br />
we have our own problems, but in the long run we grow faster,<br />
do more, <strong>and</strong> have more opportunities than other organizations. To<br />
create more opportunity, we all can’t be involved in every decision. We<br />
have to be willing to take risks <strong>and</strong> make mistakes. We are better <strong>of</strong>f<br />
because we <strong>of</strong>ten delegate to individuals <strong>and</strong> trust them, rather than<br />
delegating to committees. It’s not easy to do it the right way. In this<br />
article I discuss why we are the way we are, <strong>and</strong> the challenges <strong>and</strong><br />
compromises associated with our approach.<br />
Why are we the largest compliance <strong>and</strong> ethics organization in the<br />
world? I must admit, it is an assumption on my part, that with 6,600<br />
members (5,500 HCCA <strong>and</strong> 1,100 SCCE), we are the largest compliance<br />
<strong>and</strong> ethics pr<strong>of</strong>essional association in the world. It is the largest<br />
I have ever heard <strong>of</strong>. Nevertheless, we are very successful because we<br />
do things differently than others, <strong>and</strong> we have people who know this<br />
pr<strong>of</strong>ession better than most.<br />
We are where we are because we have a large number <strong>of</strong> people who<br />
know what they are doing. We have people who know the pr<strong>of</strong>ession<br />
<strong>and</strong> where it’s going. They know what is important <strong>and</strong> what is not.<br />
They are not trying to push their own agenda or trying to cash in on<br />
the compliance/ethics surge. We also have a system that allows them to<br />
be effective. The system or culture we have is unlike many non-pr<strong>of</strong>it<br />
membership organizations that become bureaucratic, indecisive, <strong>and</strong><br />
compromising.<br />
Continued on page 20<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
19
Why are we where we are?. ...continued from page 19<br />
The People<br />
Our members, speakers, conference program<br />
chairs, authors, our board, <strong>and</strong> our committee<br />
members have practical knowledge<br />
<strong>of</strong> our pr<strong>of</strong>ession. We have many people<br />
making hundreds <strong>of</strong> good decisions every<br />
month. Our people are practical. They get to<br />
the point. They know what they are doing<br />
because they have lived this pr<strong>of</strong>ession. They<br />
are not caught up in glamorous fringe issues,<br />
but rather, they underst<strong>and</strong> the pr<strong>of</strong>ession<br />
at its core. More than anything, they know<br />
where this pr<strong>of</strong>ession is going, because they<br />
know where this pr<strong>of</strong>ession has been, <strong>and</strong><br />
they know what is important.<br />
Generally speaking, people are not picked to<br />
work on projects because <strong>of</strong> who they are,<br />
who they work for, what degree they have,<br />
or how much money they are willing to give.<br />
Volunteers aren’t assigned to tasks because<br />
they are the most vocal or most powerful.<br />
People are assigned to tasks because they<br />
know what they are doing. We have the<br />
courage to assign the right task to the right<br />
person. Because we put the right people on a<br />
project, we have a greater return on investment<br />
(ROI). That increased ROI gives us<br />
more resources to get more people involved.<br />
This is not always easy. It’s <strong>of</strong>ten easier to go<br />
with the flow <strong>and</strong> assign tasks to people who<br />
insist on working on something. It <strong>of</strong>ten<br />
easier to pick the person who would be the<br />
most upset if they were not chosen. It is also<br />
a temptation <strong>of</strong> many organizations to assign<br />
everyone who wants to work on a task to the<br />
task. The world is full <strong>of</strong> people who can’t<br />
say no <strong>and</strong> believe more is better. Sometimes<br />
more isn’t better. Others accomplish tasks<br />
through extreme collaboration <strong>and</strong> by setting<br />
up a series <strong>of</strong> committees. If you work hard<br />
enough on anything, you can ruin it <strong>and</strong><br />
waste resources. There is so much to be done<br />
that there is no need to be so inefficient. We<br />
try to think about long-term gain as opposed<br />
to short-term gain.<br />
There are too many people to mention who<br />
exemplify the knowledge <strong>of</strong> this pr<strong>of</strong>ession.<br />
Just look at the Website, magazine, or brochures.<br />
Not only do people know what they<br />
are doing, but they come from many different<br />
perspectives. They represent the best <strong>of</strong> the<br />
best: compliance <strong>and</strong> ethics <strong>of</strong>ficers, consultants,<br />
academics, regulators, risk managers,<br />
auditors, certified fraud examiners, outside<br />
lawyers, CEOs, vendors, etc. We have specialists<br />
in ethics, risk, law, compliance, hotlines,<br />
auditing, disclosure, education, etc.<br />
We now have experts from 45 different<br />
industries <strong>and</strong> 12 countries. Collectively,<br />
these people have a deep underst<strong>and</strong>ing <strong>of</strong><br />
the pr<strong>of</strong>ession <strong>and</strong> all its components. With<br />
the aforementioned diversity <strong>of</strong> thought<br />
<strong>and</strong> experience, we minimize group think.<br />
Because we have involvement from many sectors<br />
<strong>of</strong> this pr<strong>of</strong>ession, we get a balanced <strong>and</strong><br />
realistic look at the practical implementation<br />
<strong>of</strong> compliance <strong>and</strong> ethics programs.<br />
Tasks are delegated to a limited number <strong>of</strong><br />
experts who get input from others, but they<br />
are not forced to over-engineer everything to<br />
keep people happy. It is difficult for people<br />
on the fringe <strong>of</strong> our pr<strong>of</strong>ession to keep things<br />
simple, because they are inexperienced <strong>and</strong>/<br />
or lost in the details. We delegated tasks to<br />
volunteers who get along, are trusted, avoid<br />
minutia, <strong>and</strong> pick a date <strong>and</strong> finish. Sometimes<br />
a project requires attention to minutia<br />
or a hard-charging pit bull. It is not <strong>of</strong>ten,<br />
but we make sure we get the hard chargers,<br />
<strong>and</strong> we back them when the going gets tough.<br />
Our members are experienced. People who<br />
know what they are doing can keep projects<br />
simple <strong>and</strong> too the point. People who don’t<br />
know what they are doing have to include<br />
everything they can think <strong>of</strong> in a project.<br />
They do that because they don’t know what’s<br />
really important <strong>and</strong> can’t sort the wheat from<br />
the chaff. Our volunteers are not theoretical.<br />
Our people want to get it right, but they underst<strong>and</strong><br />
the practical limitations that we have<br />
to deal with in the real world. Over the last<br />
12 years we have been very fortunate to have<br />
assembled some <strong>of</strong> the very best compliance<br />
<strong>and</strong> ethics pr<strong>of</strong>essionals in the business.<br />
The System<br />
We don’t do it with a committee when a<br />
collaborative <strong>and</strong> knowledgeable individual<br />
will do. We don’t write a white paper when<br />
a memo will do. Authority, accountability,<br />
<strong>and</strong> responsibility are <strong>of</strong>ten delegated to an<br />
individual or two, <strong>and</strong> we trust them. Much<br />
more gets done in our system. We get a better<br />
result than others do. A great example <strong>of</strong> this<br />
is Debbie Troklus, who runs our certification<br />
program. She has a Board, but they<br />
don’t meet just to meet. They don’t meet to<br />
think big things <strong>and</strong> tell others what to do.<br />
They get the right people together when they<br />
have a specific <strong>and</strong> a defined task. They hire<br />
experts to guide them, <strong>and</strong> follow their lead.<br />
If someone decides they know better <strong>and</strong> they<br />
don’t, we don’t cave in just because they are<br />
powerful, loud, confident, or just to keep the<br />
peace.<br />
Joe Murphy shared an old saying with me<br />
“Don’t let perfection be the hobgoblin <strong>of</strong><br />
the good.” That may apply to pr<strong>of</strong>essional<br />
associations more than any other type <strong>of</strong><br />
entity. Many people think that if they can<br />
make something a little better, it should be<br />
changed. Things rarely ever get done on time<br />
with that approach. Some things just fall by<br />
the wayside altogether, because people get<br />
frustrated <strong>and</strong> tired <strong>of</strong> the endless additional<br />
ideas <strong>and</strong> change. Some believe most <strong>of</strong> the<br />
important work on a project is accomplished<br />
in the first 20% <strong>of</strong> the effort. The remaining<br />
June 2008<br />
20<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
80% <strong>of</strong> time is spent perfecting the project,<br />
changing their changes, <strong>and</strong> it results in<br />
marginal improvement. That time could have<br />
been put to better use. Our people don’t add<br />
things on just because they can think <strong>of</strong> more<br />
to do. They underst<strong>and</strong> the ultimate mission<br />
<strong>and</strong> get the task done. They then move on to<br />
another unaccomplished task.<br />
We are clear <strong>of</strong> purpose. We <strong>of</strong>ten have a<br />
single task in mind when we start a project.<br />
In most organizations, when people get<br />
together to work on a specific project, they<br />
see all kinds <strong>of</strong> other knobs on the dashboard<br />
that could be turned, twisted, or tweaked.<br />
Our leaders keep our volunteers on track <strong>and</strong><br />
focused. For example, our conference planning<br />
committee focuses on program content<br />
<strong>and</strong> leaves the conference management to<br />
the conference managers. They don’t change<br />
the timing <strong>of</strong> sessions just because they can<br />
think <strong>of</strong> another way to do it. They don’t<br />
worry about how to register people. Our<br />
leaders focus their activities within their area<br />
<strong>of</strong> expertise. As a result, the content <strong>of</strong> our<br />
meetings is second to none.<br />
Sometimes people get involved in projects<br />
<strong>and</strong> inevitably see something related to the<br />
task at h<strong>and</strong> but outside their project scope.<br />
They think there is a better way to do it.<br />
Many organizations will go along to get<br />
along, even though what they are suggesting<br />
to change was just changed. Oftentimes there<br />
are many ways to do something. The variation<br />
<strong>of</strong> benefit between the choices can <strong>of</strong>ten<br />
be minimal. A change may result in a better<br />
outcome, but the effort to reengineer something<br />
may not outweigh the time required<br />
to change it. There are lost opportunity costs<br />
too. That time could have been spent getting<br />
something done that had never been done<br />
before. Our volunteers don’t change things<br />
because someone can think <strong>of</strong> another way<br />
to do it. Our volunteers don’t cave in to<br />
reinventing the wheel to keep the peace. We<br />
get so much more accomplished because we<br />
don’t change our changes, but rather, we use<br />
that time to accomplish new things.<br />
We have meetings with up to 200 speakers.<br />
Our main planning committee is never more<br />
than three people who select track chairs who<br />
are delegated responsibility, authority, <strong>and</strong><br />
accountability for selecting speakers within<br />
their track. We also have specific groups<br />
working on specific tasks, such as certification<br />
or the magazine. These groups perform<br />
a function. They don’t get together to think<br />
<strong>of</strong> things others could do for them. Things<br />
happen between meetings because they stay<br />
focused, develop task lists, <strong>and</strong> follow up.<br />
Each working group has someone in charge<br />
that can make sure that things are accomplished.<br />
We don’t delegate all the decision<br />
making to the group, but rather to the leader<br />
<strong>of</strong> the group. Unlike other organizations,<br />
we don’t always have to wait until the next<br />
meeting to make a decision or get approval.<br />
The leader gets feedback from the group <strong>and</strong><br />
makes decisions. In other organizations, committees<br />
can’t do anything without everyone<br />
on board. These groups act slowly <strong>and</strong> <strong>of</strong>ten<br />
water down what ever they are working on to<br />
get agreement. They wait until everyone signs<br />
<strong>of</strong>f on it; therefore, things can take forever.<br />
People working in our system have a greater<br />
chance <strong>of</strong> feeling a sense <strong>of</strong> accomplishment.<br />
Generally speaking, we delegate to those who<br />
can make a decision <strong>and</strong> who can get work<br />
done in a reasonable amount <strong>of</strong> time. We<br />
delegate to those who are collaborative <strong>and</strong><br />
can keep it simple. We delegate to those who<br />
can take direction <strong>and</strong> keep their word. We<br />
are not successful because <strong>of</strong> an individual<br />
or two. We are successful because <strong>of</strong> the<br />
incredibly large number <strong>of</strong> experienced <strong>and</strong><br />
knowledgeable people in our organization,<br />
how we assign tasks, <strong>and</strong> the system we ask<br />
people to work within.<br />
It is harder to do it the easier way. People<br />
sometimes get mad because they can’t decide<br />
things they want to decide, or can’t get<br />
involved in things they want to get involved<br />
in. People get mad because they can’t change<br />
something they want to change. It’s frustrating<br />
not to be involved in everything <strong>and</strong><br />
know everything that is going on.<br />
However, we disappoint fewer people in the<br />
long run, because we get more done <strong>and</strong> the<br />
things get done better. Most importantly, this<br />
system results in growth <strong>and</strong> that means there<br />
are more opportunities for more people to get<br />
involved. It’s not always true; however, it’s true<br />
a materially significant amount <strong>of</strong> time. At the<br />
end <strong>of</strong> the year, we see the significant accomplishments<br />
because <strong>of</strong> our systems <strong>and</strong> people.<br />
The results at the end <strong>of</strong> the year more than<br />
make up for the compromises that are made<br />
along the way. It is significantly more rewarding<br />
than the alternative. As a result, we have an<br />
organization we can all be proud <strong>of</strong>. n<br />
Contact Us!<br />
www.corporatecompliance.org<br />
info@corporatecompliance.org<br />
Fax: 952/988-0146<br />
SCCE<br />
6500 Barrie Road, Suite 250<br />
Minneapolis, MN 55435<br />
Phone: 888/277-4977<br />
To learn how to place an advertisment<br />
in <strong>Compliance</strong> & <strong>Ethics</strong>, contact<br />
Jodi Erickson Hern<strong>and</strong>ez:<br />
e-mail: jodi.ericksonhern<strong>and</strong>ez@<br />
corporatecompliance.org<br />
phone: 888/277-4977<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
21
feature article<br />
Meet Robert T. Morgan, CCEP, CFE<br />
Group Investigations Manager, Financial Integrity Unit, Micros<strong>of</strong>t Audit Group<br />
& Carol A. Morgan, CCEP, CFE, CPA, CIA, CISA<br />
Vice President, Audit & Risk Management Services, World Vision<br />
Editor’s note: Marlene Robinson, Story<br />
Editor for <strong>Ethics</strong> <strong>and</strong> <strong>Compliance</strong> Magazine,<br />
conducted this interview with Bob <strong>and</strong> Carol<br />
Morgan. Bob may be contacted by e-mail<br />
at Bobmorg@Micros<strong>of</strong>t.com or by phone at<br />
425/722-1586. Carol may be contacted by<br />
e-mail at CMorgan@WorldVision.org or by<br />
phone at 253/815-2460.<br />
This month we are <strong>of</strong>fering a special interview<br />
with two highly skilled corporate pr<strong>of</strong>essionals<br />
who are committed to living out<br />
their deepest values at home <strong>and</strong> at work.<br />
They share the same beliefs, not only in the<br />
compliance <strong>and</strong> ethics pr<strong>of</strong>ession, but in their<br />
roles as husb<strong>and</strong> <strong>and</strong> wife.<br />
Bob <strong>and</strong> Carol have been married more than<br />
38 years, have raised two daughters, <strong>and</strong> are<br />
now enjoying their role as gr<strong>and</strong>parents to two<br />
growing boys. They have moved eleven times <strong>and</strong><br />
lived in five states <strong>and</strong> seven different cities. Each<br />
started in a pr<strong>of</strong>ession very different from where<br />
they find themselves now. Changes in careers<br />
<strong>and</strong> unexpected opportunities helped mold the<br />
roles they now hold. It is not so strange that the<br />
choices they made complement not only their<br />
home life, but the workplace as well.<br />
According to a recent study conducted by the<br />
Families <strong>and</strong> Work Institute it is now necessary<br />
for 78% <strong>of</strong> married couples to work in<br />
order to maintain the lifestyle that they desire.<br />
<strong>MR</strong>: Bob, what is Micros<strong>of</strong>t’s Financial<br />
Integrity Unit (FIU)?<br />
Bob: The FIU is an investigative unit<br />
embedded in the Micros<strong>of</strong>t Audit Group.<br />
The FIU is one <strong>of</strong> three entities that compose<br />
the group. Internal Audit <strong>and</strong> Enterprise<br />
Risk Management are the other two. The<br />
FIU’s mission is to assist Micros<strong>of</strong>t <strong>and</strong> the<br />
board <strong>of</strong> directors in the effective discharge<br />
<strong>of</strong> their responsibilities over financial integrity<br />
<strong>and</strong> compliance with Micros<strong>of</strong>t’s St<strong>and</strong>ards<br />
<strong>of</strong> Business Conduct <strong>and</strong> policies.<br />
To accomplish our mission in serving a<br />
multi-national company like Micros<strong>of</strong>t, the<br />
FIU has pr<strong>of</strong>essional investigators assigned to<br />
Micros<strong>of</strong>t <strong>of</strong>fices located in the United States,<br />
Asia, <strong>and</strong> Europe. Our primary focus is to<br />
prevent, detect <strong>and</strong> investigate violations <strong>of</strong><br />
Micros<strong>of</strong>t’s St<strong>and</strong>ards <strong>of</strong> Business Conduct,<br />
but the FIU takes great pride in the contributions<br />
that it makes to the company’s control<br />
<strong>and</strong> compliance environment by making<br />
recommendations for process improvements<br />
<strong>and</strong> policy enhancements.<br />
<strong>MR</strong>: Bob, how was Micros<strong>of</strong>t’s Financial<br />
Integrity Unit formed?<br />
Bob: In setting the tone at the top,<br />
Micros<strong>of</strong>t’s executive management recognized<br />
the importance <strong>of</strong> being a good corporate citizen.<br />
To create an environment <strong>of</strong> exemplary<br />
corporate governance, Micros<strong>of</strong>t established<br />
the Office <strong>of</strong> Legal <strong>Compliance</strong> in 2002. After<br />
conducting an in depth study, the company<br />
then decided it needed a group <strong>of</strong> pr<strong>of</strong>essional<br />
investigators whose sole responsibility<br />
would be to identify <strong>and</strong> mitigate the risks <strong>of</strong><br />
financial fraud <strong>and</strong> abuse. This was a timely<br />
decision, as you will remember Congress<br />
passed the Sarbanes-Oxley Act during the<br />
summer <strong>of</strong> 2002. Martin Biegelman was hired<br />
as the FIU’s first director <strong>and</strong> was immediately<br />
tasked with staffing the FIU with competent<br />
<strong>and</strong> qualified investigators. A retired U.S.<br />
June 2008<br />
22<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
Postal Inspector, Martin looked for <strong>and</strong> found<br />
people with similar backgrounds in federal<br />
<strong>and</strong> local law enforcement, forensic accounting<br />
<strong>and</strong> data analysis. He also placed significant<br />
emphasis on individuals holding pr<strong>of</strong>essional<br />
certifications, such as the Certified<br />
Public Accountant (CPA) <strong>and</strong> Certified Fraud<br />
Examiner (CFE). I was the second person<br />
to be hired in December 2002. We now<br />
have eleven investigators located in five cities<br />
around the world <strong>and</strong> are looking to place<br />
investigators in two more cities.<br />
<strong>MR</strong>: Why label it an FIU rather than the<br />
more common name, Special Investigation Unit?<br />
Bob: Micros<strong>of</strong>t wanted to place greater<br />
emphasis on corporate governance, which<br />
entails more than conducting investigations<br />
in the traditional reactive mode. I believe the<br />
name, Financial Integrity Unit, connotes a<br />
broader <strong>and</strong> more positive meaning to the<br />
approach that Micros<strong>of</strong>t wishes to convey<br />
to its employees, customers, <strong>and</strong> partners<br />
about compliance. Because our unit is an<br />
integral part <strong>of</strong> the Micros<strong>of</strong>t Audit Group,<br />
it is important that we have a comprehensive<br />
fraud risk management strategy that is<br />
aligned with the company’s business objectives<br />
<strong>and</strong> organizational structure.<br />
<strong>MR</strong>: Being a part <strong>of</strong> a global team <strong>of</strong><br />
investigators that detect <strong>and</strong> prevent fraud in<br />
non-US locations sounds very intriguing <strong>and</strong><br />
would probably make a good James Bond<br />
movie. What is your pr<strong>of</strong>essional background<br />
<strong>and</strong> how did you get into the fraud <strong>and</strong> compliance<br />
field?<br />
Bob: After teaching high school physics<br />
<strong>and</strong> mathematics for four years, I joined the<br />
Philadelphia Police Department for which I<br />
served as a patrolman <strong>and</strong> detective for six<br />
years. I then became a US postal inspector<br />
<strong>and</strong> in that capacity held numerous criminal<br />
investigative assignments. My experience as<br />
a postal inspector taught me skills on how<br />
to conduct effective investigations <strong>of</strong> a wide<br />
variety <strong>of</strong> white-collar crimes, such as mail<br />
<strong>and</strong> wire fraud, identity theft, <strong>and</strong> financial<br />
embezzlement. More importantly, I learned<br />
the necessity <strong>of</strong> having effective crime prevention<br />
<strong>and</strong> security programs, which go h<strong>and</strong>in-h<strong>and</strong><br />
with identifying, recommending,<br />
<strong>and</strong> implementing strong internal controls,<br />
process improvements, <strong>and</strong> well-defined policies.<br />
The US Postal Service is a business <strong>and</strong><br />
therefore, has an organizational structure <strong>and</strong><br />
strategies like any business. As a result, it was<br />
not too difficult for me to make the transition<br />
from federal law enforcement to Micros<strong>of</strong>t<br />
<strong>and</strong> apply those same skills that I learned in<br />
the government to the compliance <strong>and</strong> investigative<br />
work that I now do in the FIU.<br />
<strong>MR</strong>: Bob, in your position you supervise<br />
a very diversified group <strong>of</strong> individuals, not<br />
all are US citizens, <strong>and</strong> many are <strong>of</strong> different<br />
nations. Is it difficult to underst<strong>and</strong> the specific<br />
cultures, social mores, <strong>and</strong> national laws?<br />
Bob: I believe going to work for a company<br />
with a global presence like Micros<strong>of</strong>t’s<br />
posed the biggest challenge for me. I had<br />
traveled extensively throughout the U.S. as a<br />
postal inspector, but I had never traveled to<br />
Europe, Asia, or Latin America until I joined<br />
Micros<strong>of</strong>t. Although learning new cultures,<br />
social mores, <strong>and</strong> foreign national laws has<br />
been a challenge, it has also been the most<br />
interesting <strong>and</strong> rewarding aspect <strong>of</strong> my job. I<br />
never in my wildest dreams imagined that I<br />
would visit some <strong>of</strong> the places where I have<br />
been <strong>and</strong> meet people with such diverse<br />
backgrounds. I have found that if you treat<br />
everyone with respect <strong>and</strong> dignity, they will<br />
treat you the same way, regardless <strong>of</strong> their<br />
ethnic or cultural backgrounds. I must say<br />
that I have learned a great deal from the people<br />
with whom I have worked <strong>and</strong> believe I<br />
am a much better person for the experience.<br />
<strong>MR</strong>: Tell us about the role ethics <strong>and</strong> culture<br />
plays in the operation <strong>of</strong> your program.<br />
Bob: That is why it is so important to<br />
identify <strong>and</strong> recruit personnel for the FIU<br />
with cultural backgrounds that are as diverse<br />
<strong>and</strong> reflective <strong>of</strong> the countries where the<br />
company does business. I rely on our foreignbased<br />
investigators for advice on how to h<strong>and</strong>le<br />
situations in the countries where they are<br />
assigned, because they know the laws, culture,<br />
<strong>and</strong> social mores better than I do. Our diverse<br />
team speaks eleven different languages, has<br />
over 200 years <strong>of</strong> investigative experience, <strong>and</strong><br />
nearly everyone on the team possesses at least<br />
one pr<strong>of</strong>essional certification.<br />
<strong>MR</strong>: How does the FIU work with<br />
Micros<strong>of</strong>t’s <strong>Ethics</strong> <strong>and</strong> <strong>Compliance</strong> Program?<br />
Bob: The FIU works h<strong>and</strong>-in-h<strong>and</strong><br />
with the Office <strong>of</strong> Legal <strong>Compliance</strong> (OLC),<br />
which reports directly to Micros<strong>of</strong>t’s General<br />
Counsel <strong>and</strong> Senior Vice President <strong>of</strong> Law<br />
<strong>and</strong> <strong>Corporate</strong> Affairs. The attorneys<br />
assigned to the OLC provide legal guidance<br />
<strong>and</strong> counsel for all our investigations in a<br />
very collaborative process. The OLC manages<br />
our external vendor, which receives<br />
<strong>and</strong> documents complaints <strong>and</strong> issues that<br />
are submitted to the company’s 24/7 business<br />
conduct line (hotline). The OLC refers<br />
issues to the FIU that fall within our area<br />
<strong>of</strong> responsibility. We then work with the<br />
OLC to prepare an investigative plan that<br />
will effectively address <strong>and</strong> resolve the issue.<br />
Management <strong>and</strong> Human Resources are kept<br />
informed along every step <strong>of</strong> the investigative<br />
process. When an investigation is concluded,<br />
we work together to identify <strong>and</strong> correct any<br />
process or control weaknesses that may have<br />
contributed to the problem.<br />
<strong>MR</strong>: Why do you find the FIU system<br />
better than other departmental anti-fraud<br />
solutions?<br />
Bob: The investigative process may<br />
Continued on page 24<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
23
Meet Robert T. Morgan & Carol A. Morgan ...continued from page 23<br />
June 2008<br />
24<br />
differ from one company or organization<br />
to another. The differences are frequently<br />
based on the nature <strong>of</strong> the business <strong>and</strong><br />
the organizational structure. Micros<strong>of</strong>t is a<br />
technology company <strong>and</strong> highly innovative.<br />
We therefore try to use <strong>and</strong> leverage the<br />
company’s technology in our never-ending<br />
pursuit to be as proactive as possible in our<br />
risk assessment efforts. We have also learned<br />
from other companies <strong>and</strong> adopted industry<br />
best practices to improve our program. We<br />
periodically meet with our counterparts from<br />
similar <strong>and</strong> other industries to discuss new<br />
methodologies <strong>and</strong> emerging risks. These<br />
benchmarking sessions have proven to be<br />
invaluable learning experiences that make us<br />
all better at carrying out our responsibilities<br />
<strong>and</strong> organizational missions.<br />
<strong>MR</strong>: Bob, how have the FIU <strong>and</strong><br />
Micros<strong>of</strong>t benefited from its relationship<br />
with SCCE?<br />
Bob: As you know, Odell Guyton,<br />
Micros<strong>of</strong>t’s Director, Office <strong>of</strong> Legal<br />
<strong>Compliance</strong>, is on the board <strong>of</strong> SCCE.<br />
Odell is responsible for introducing us<br />
to the HCCA [Health Care <strong>Compliance</strong><br />
Association] symposiums that he sponsored<br />
at Micros<strong>of</strong>t, beginning nearly six years<br />
ago. It was through my attendance at these<br />
symposiums that I learned about the seven<br />
principles <strong>of</strong> an effective compliance program.<br />
When I received the first literature <strong>and</strong> e-mail<br />
about the SCCE, I recognized the importance<br />
<strong>of</strong> pursuing the SCCE’s pr<strong>of</strong>essional<br />
certification designation (CCEP) <strong>and</strong> how an<br />
ongoing relationship with the SCCE could<br />
vastly improve the expertise <strong>of</strong> our unit, just<br />
like the benchmarking sessions do with our<br />
industry counterparts. We think so much <strong>of</strong><br />
the value that the SCCE has to <strong>of</strong>fer through<br />
the <strong>Compliance</strong> Academy training I recently<br />
attended, that we are encouraging others <strong>of</strong><br />
the FIU to become members <strong>of</strong> the organization<br />
<strong>and</strong> pursue the CCEP designation.<br />
<strong>MR</strong>: Carol, can you tell us about your<br />
position <strong>and</strong> the mission at World Vision?<br />
Carol: As the Vice President for Audit<br />
<strong>and</strong> Risk Management Services (ARMS), I<br />
am accountable to the Audit Committee <strong>of</strong><br />
the World Vision US Board <strong>of</strong> Directors for<br />
all aspects <strong>of</strong> the audit function. Our department<br />
mission is to promote stewardship<br />
<strong>of</strong> resources through objective, cost effective<br />
assessments designed to add value <strong>and</strong><br />
improve operations.<br />
<strong>MR</strong>: Carol, what is your pr<strong>of</strong>essional<br />
background <strong>and</strong> how did you get into the<br />
audit <strong>and</strong> compliance pr<strong>of</strong>ession?<br />
Carol: I began my working career<br />
in health care as a laboratory technician<br />
at Holy Redeemer, what was then a small<br />
Catholic hospital in suburban Philadelphia.<br />
After taking a break to spend time with my<br />
children, it became apparent that the field<br />
had exploded with the use <strong>of</strong> technology. I<br />
recognized that I would have to be retrained<br />
to just catch up with all the innovations that<br />
occurred during my sabbatical. It was then<br />
that I made the decision to change careers<br />
<strong>and</strong>, with the advice <strong>of</strong> my husb<strong>and</strong> Bob, I<br />
chose accounting. During my education process<br />
I took my first auditing class <strong>and</strong> knew I<br />
had found my niche.<br />
I started my auditing career with the<br />
Defense Contract Auditing Agency (DCAA)<br />
in Washington, DC. This exp<strong>and</strong>ed my audit<br />
focus to include government compliance. A<br />
move to the West Coast made it necessary<br />
to change direction, so I took a position<br />
in the Internal Audit department at Safeco<br />
Insurance. This blended well with my audit<br />
compliance experience because, as you know,<br />
the insurance industry is highly regulated. I<br />
really missed government auditing, but it was<br />
apparent that federal positions were few <strong>and</strong><br />
far between. Instead, I did the next best thing<br />
<strong>and</strong> went to work for Todd Pacific Shipyards,<br />
a government contractor, as the manager <strong>of</strong><br />
the Internal Audit department. Then Sarbanes-Oxley<br />
hit the pr<strong>of</strong>ession, <strong>and</strong> I realized<br />
I would need public accounting experience<br />
to stay current. I accepted a position with<br />
McGladrey <strong>and</strong> Pullen, a CPA firm, where<br />
I exp<strong>and</strong>ed my experience to not-for-pr<strong>of</strong>it<br />
accounting specific to credit unions. It was<br />
during this time that I received a call from a<br />
former co-worker, whom I worked with at<br />
Safeco, about the opportunity with World<br />
Vision. So here I am. I guess you could say I<br />
was called to work at World Vision.<br />
<strong>MR</strong>: Carol, when you made your choice<br />
to work for World Vision, what unique<br />
qualities or qualifications did you bring to<br />
this position?<br />
Carol: I think my eclectic background<br />
<strong>and</strong> varied experiences prepared me for my<br />
role here at Word Vision. Did I mention<br />
I had a decorating business while I was a<br />
stay-at-home mom? Bob’s work <strong>and</strong> job in<br />
the government necessitated frequent moves,<br />
eleven in all, that strengthened my project<br />
management <strong>and</strong> decision-making abilities.<br />
I got to the point where I could sell our<br />
existing property <strong>and</strong> choose a new home<br />
all within the span <strong>of</strong> four weeks. Meeting<br />
new people during these relocations helped<br />
sharpen my listening skills, <strong>and</strong> that is what<br />
an auditor does best, listens. I believe I cope<br />
well with stress because at a young age, as a<br />
laboratory technician, I worked in the blood<br />
bank. Talk about stressful situations! One<br />
wrong action <strong>and</strong> a real live person could be<br />
irreparably harmed. That is not to say I do<br />
not become impatient or anguish about outcomes.<br />
It just means I believe I do a good job<br />
<strong>of</strong> putting a situation into perspective. Also,<br />
it was a very easy transition from safeguarding<br />
the taxpayer dollar as a government auditor<br />
to championing the needs <strong>of</strong> the poor<br />
through the stewardship <strong>of</strong> donated funds.<br />
Continued on page 26<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
Want to become certified in<br />
<strong>Compliance</strong> & <strong>Ethics</strong>?<br />
Earn your Certified<br />
<strong>Compliance</strong> & <strong>Ethics</strong><br />
Pr<strong>of</strong>essional (CCEP)<br />
certification today,<br />
<strong>and</strong> be recognized for<br />
your experience <strong>and</strong><br />
knowledge.<br />
www.corporatecompliance.org<br />
The <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong><br />
<strong>Ethics</strong> (SCCE) <strong>of</strong>fers you the opportunity to<br />
take the Certified <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong><br />
Pr<strong>of</strong>essional (CCEP) certification exam.<br />
The CCEP gives individuals from all industries<br />
the platform to demonstrate their knowledge<br />
<strong>and</strong> expertise in compliance <strong>and</strong> ethics.<br />
In the U.S., the exam is available at an H&R<br />
Block near you. The exam is also available in<br />
more than 30 countries.<br />
CCEP Certification<br />
Benefits<br />
• Demonstrate pr<strong>of</strong>essional st<strong>and</strong>ards <strong>and</strong><br />
status for compliance pr<strong>of</strong>essionals<br />
• Heighten the credibility <strong>of</strong> compliance<br />
practitioners <strong>and</strong> enhance the credibility<br />
<strong>of</strong> compliance programs staffed by these<br />
certified pr<strong>of</strong>essionals<br />
• Ensure that each certified practitioner has<br />
the knowledge base necessary to perform<br />
the compliance function<br />
• Facilitate communication with other<br />
industry pr<strong>of</strong>essionals, such as government<br />
<strong>of</strong>ficials <strong>and</strong> attorneys<br />
• Demonstrate the hard work <strong>and</strong> dedication<br />
necessary in the compliance field<br />
qUALIFICATIONS<br />
See the CCEP C<strong>and</strong>idate H<strong>and</strong>book at<br />
www.corporatecompliance.org/h<strong>and</strong>book<br />
Cost: $250 for SCCE members<br />
$350 for non-members<br />
Credits Required: 20<br />
You may obtain all twenty credits by:<br />
• attending SCCE-sponsored conferences<br />
• speaking at conferences regarding<br />
compliance <strong>and</strong> ethics<br />
• attending conferences, seminars, or<br />
workshops sponsored by other companies<br />
(please fill out an Individual Accreditation<br />
Application for each)<br />
TAKING THE EXAM<br />
There are several opportunities to<br />
take the CCEP exam:<br />
• At SCCE’s <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> Institute,<br />
SCCE’s Academies, or SCCE’s Regional<br />
Conferences<br />
• At an H & R Block near you:<br />
visit www.goAMP.com to register<br />
• In more than 30 countries: visit<br />
www.corporatecompliance.org/CCEP<br />
for more information<br />
Questions?<br />
Please contact SCCE via phone at<br />
+1 952 933 4977 or 888 277 4977<br />
or e-mail info@corporatecompliance.org<br />
Or visit our Web site:<br />
www.corporatecompliance.org/CCEP<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong><br />
<strong>Compliance</strong> & <strong>Ethics</strong><br />
6500 Barrie Road, Suite 250<br />
Minneapolis, MN 55435, United States<br />
www.corporatecompliance.org<br />
“We sought the assistance <strong>of</strong> a<br />
pr<strong>of</strong>essional certification consulting firm,<br />
Applied Measurement Pr<strong>of</strong>essionals,<br />
for the development <strong>of</strong> this certification.<br />
Many experienced compliance <strong>and</strong><br />
ethics pr<strong>of</strong>essionals were involved in<br />
the 18-month process. We had more<br />
than 100 people sit for the first exam. I<br />
couldn’t be more pleased with the effort<br />
<strong>and</strong> response. This is a big step in the<br />
maturation process for the compliance<br />
<strong>and</strong> ethics pr<strong>of</strong>ession.”<br />
— Roy Snell, CEO, SCCE<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
25
Meet Robert T. Morgan & Carol A. Morgan ...continued from page 24<br />
June 2008<br />
26<br />
<strong>MR</strong>: World Vision has been very successful<br />
in building a better world for children.<br />
Can you tell us more about their program?<br />
Carol: World Vision is a Christian<br />
humanitarian organization dedicated to<br />
working with children, families, <strong>and</strong> their<br />
communities in nearly 100 countries around<br />
the world, to reach their full potential by<br />
tackling the causes <strong>of</strong> poverty <strong>and</strong> injustice.<br />
Citizens in the United States have helped<br />
to sponsor more than 920,000 children by<br />
giving them access to critical resources, such<br />
as clean water, better nutrition, health care,<br />
education, <strong>and</strong> economic opportunities. In<br />
fiscal year 2007, we raised more than $957<br />
million. These funds were used to drill 194<br />
water wells in Nigeria, Mali, <strong>and</strong> Ghana<br />
alone, respond to 85 humanitarian emergencies,<br />
<strong>and</strong> assist an estimated 7 million disaster<br />
survivors. We moved more than 147,000<br />
metric tons <strong>of</strong> food donated by the United<br />
States government <strong>and</strong> World Food Program<br />
equaling 4,900 semi truckloads <strong>of</strong> freight.<br />
Together with churches <strong>and</strong> businesses, we<br />
facilitated the assembly <strong>of</strong> 70,000 caregiver<br />
kits for use by volunteers in Africa to care<br />
for the needs <strong>of</strong> people affected by HIV <strong>and</strong><br />
AIDS. We have made more than $355 million<br />
in small micro-enterprise loans with a<br />
repayment rate <strong>of</strong> 98%. To achieve all this,<br />
we partner with more than 12,000 churches<br />
<strong>and</strong> work with more than 7,200 volunteers.<br />
In our advocacy efforts, we have coauthored<br />
the Child Soldier Act, which<br />
limits assistance to countries using children<br />
in armed conflict, <strong>and</strong> stressed the importance<br />
for Congress to extend the President’s<br />
Emergency Plan for AIDS Relief. Last year<br />
we began a tour <strong>of</strong> more than 80 churches<br />
with the “World Vision Experience AIDS,”<br />
interactive exhibit, which gives visitors a reallife<br />
look into the lives <strong>of</strong> children <strong>and</strong> AIDSaffected<br />
communities.<br />
World Vision does not just stop with relief<br />
work. We know that by helping to build resilience<br />
<strong>and</strong> self-sustainability, we are equipping<br />
communities to h<strong>and</strong>le disasters themselves,<br />
meaning reduced long-term impact <strong>and</strong> fewer<br />
lost lives.<br />
<strong>MR</strong>: World Vision has six core values that<br />
are central to its identity. How do these affect<br />
your work in Audit <strong>and</strong> Risk Management<br />
Services?<br />
Carol: Where other organizations have<br />
codes <strong>of</strong> conduct or ethics, World Vision has<br />
a statement <strong>of</strong> core values. These basic values<br />
guide our behavior <strong>and</strong> require us to demonstrate<br />
we are Christian, we are committed to<br />
the poor, we value people, we are stewards,<br />
we are partners, <strong>and</strong> we are responsive. As an<br />
individual <strong>and</strong> an employee <strong>of</strong> World Vision,<br />
I am responsible to uphold the core values,<br />
honor them in my decision-making, express<br />
them in my relationships, <strong>and</strong> put them into<br />
practice consistently in my work ethos.<br />
<strong>MR</strong>: It must make you feel good to know<br />
that you are working for an organization that<br />
has such a strong purpose <strong>and</strong> truly makes<br />
a difference in so many lives each day. But,<br />
I can also see that your position as Vice<br />
President <strong>of</strong> Audit <strong>and</strong> Risk Management<br />
Services could be a very important job,<br />
because you have to ensure that proper values<br />
are enforced <strong>and</strong> justice is served to accomplish<br />
their mission. How do you see the<br />
Audit department supporting an ethics <strong>and</strong><br />
compliance program?<br />
Carol: I am humbled by the passion<br />
<strong>and</strong> dedication displayed by my colleagues.<br />
They work directly with donors <strong>and</strong> the poor<br />
we are committed to serving. Although Audit<br />
does not always have the opportunity to participate<br />
in these invaluable relationships, our<br />
role is truly considered by the organization<br />
as a value-added effort. Just as a for-pr<strong>of</strong>it<br />
businesses are heavily regulated, so too is the<br />
world <strong>of</strong> fundraising. World Vision is a taxexempt<br />
organization under Section 501(c)<br />
(3) <strong>of</strong> the US Internal Revenue Code. This<br />
may limit our compliance with Sarbanes-<br />
Oxley, but because we receive government<br />
grants, we are bound to comply with the<br />
Office <strong>of</strong> Management <strong>and</strong> Budget (OMB)<br />
Circular regulations. Add to that the fact that<br />
each state has specific regulations relevant to<br />
conducting fundraising activities within their<br />
borders, <strong>and</strong> your compliance burden has just<br />
become heavier. Because we are a faith-based<br />
organization <strong>and</strong> also work with children, we<br />
have elected to abide by governing bodies,<br />
such as the Evangelical Council for Financial<br />
Accountability (ECFA), which sets st<strong>and</strong>ards<br />
for fund-raising practices, <strong>and</strong> InterAction,<br />
a coalition <strong>of</strong> non-government organizations<br />
(NGOs) that self-review <strong>and</strong> evaluate controls<br />
over the protection <strong>of</strong> children <strong>and</strong> the most<br />
vulnerable populations. We also receive large<br />
qualities <strong>of</strong> surplus goods from manufacturers<br />
<strong>and</strong> pharmaceutical companies. These items<br />
must be valued <strong>and</strong> recorded in a consistent<br />
<strong>and</strong> reasonable manner. Consequently,<br />
we add another level <strong>of</strong> compliance with<br />
the Association <strong>of</strong> Evangelical Relief <strong>and</strong><br />
Development Organizations (AERDO) to<br />
guide practices for organizations h<strong>and</strong>ling<br />
gifts-in-kind. As we perform each audit effort,<br />
we look to these st<strong>and</strong>ards as benchmarks <strong>and</strong><br />
educational opportunities.<br />
<strong>MR</strong>: Sharing the fruits <strong>of</strong> your labors,<br />
both <strong>of</strong> you attended SCCE Academies <strong>and</strong><br />
received your CCEPs this past year. What<br />
influenced your decision to take time out<br />
<strong>of</strong> your already busy schedules to attend an<br />
academy <strong>and</strong> to become CCEP certified?<br />
Carol: In November 2007, language<br />
was added to the Federal Acquisition<br />
Regulations (FAR) requiring contractors<br />
(those receiving federal funds under government<br />
contacts) to have in place a formal<br />
compliance program. It has been my past<br />
observations that whatever is added to the<br />
FAR filters down to the OMB Circular in<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
some form. I wanted to be prepared with<br />
information from an authority source on<br />
what a formal program looks like. I also<br />
believe it is a sign <strong>of</strong> commitment to excellence<br />
for an individual to seek certification<br />
in a body <strong>of</strong> knowledge to be accepted as<br />
a technical expert. I believe World Vision<br />
has all the building blocks. We just need to<br />
pull them all together. It is very much like a<br />
jigsaw puzzle with the straight outer edges in<br />
place. We hope to fill in the middle gaps over<br />
the next year using the tools provided at the<br />
SCCE Academy.<br />
Bob: I agree with Carol that pursuing<br />
pr<strong>of</strong>essional certifications relevant to your<br />
field <strong>of</strong> expertise is part <strong>of</strong> being a consummate<br />
pr<strong>of</strong>essional. Pr<strong>of</strong>essionals should possess<br />
a commitment to excellence in order<br />
to be recognized as a subject matter expert.<br />
Attending the SCCE <strong>Compliance</strong> Academy<br />
this year was a very good decision for me personally<br />
<strong>and</strong> pr<strong>of</strong>essionally.<br />
<strong>MR</strong>: Do you think it was time well spent?<br />
What are your expectations <strong>and</strong> goals now<br />
that you are certified, <strong>and</strong> what benefits do<br />
you think you have gained from this experience?<br />
How do you think that being certified<br />
will enhance your personal <strong>and</strong> pr<strong>of</strong>essional<br />
growth?<br />
Carol: I truly believe that the time I<br />
spent at the academy was very beneficial. It<br />
provided a networking forum that cut across<br />
business lines <strong>and</strong> time zones. I intend to keep<br />
in contact with many <strong>of</strong> the other attendees<br />
whom I was fortunate to meet <strong>and</strong> exchange<br />
ideas with during our short week together. As<br />
I delve into this process, I am sure attendance<br />
at additional conferences will be required<br />
to reinforce what I initially learned. As to<br />
attaining the certification, I believe education<br />
should be a constant in everyone’s life<br />
<strong>and</strong> completion <strong>of</strong> a certification requirement<br />
strengthens this commitment.<br />
Bob: Attending the SCCE <strong>Compliance</strong><br />
Academy this year was time well spent <strong>and</strong><br />
very worthwhile. It was the most relevant<br />
training that I have taken so far, relating to<br />
what I do on a daily basis at Micros<strong>of</strong>t. The<br />
training set forth in simple <strong>and</strong> underst<strong>and</strong>able<br />
terms what constitutes an effective compliance<br />
program for any organization. A bonus<br />
for attending the academy was being able to<br />
meet <strong>and</strong> network with the other compliance<br />
practitioners who deal with the same issues<br />
that I do. I look forward to maintaining the<br />
contacts that I made at the academy, as well<br />
as attending future conferences to sustain my<br />
personal <strong>and</strong> pr<strong>of</strong>essional growth.<br />
<strong>MR</strong>: Why did you become involved with<br />
SCCE <strong>and</strong> have you worked with other associations<br />
in ethics <strong>and</strong> compliance?<br />
Carol: Because I hold the Certified<br />
Fraud Examiners (CFE) certification, I was<br />
in attendance at the Association <strong>of</strong> Certified<br />
Fraud Examiners conference in July 2007,<br />
<strong>and</strong> it was there that I first became aware <strong>of</strong><br />
your organization. This coincided with an<br />
individual goal to begin to look at compliance<br />
at a more detailed level within World<br />
Vision. I stopped by the exhibit booth <strong>and</strong><br />
requested information to be sent to my<br />
home. What a surprise when Bob opened the<br />
envelope because he thought it was for him.<br />
We were both on the same journey, unaware<br />
that each <strong>of</strong> us had targeted the same goal.<br />
Did I mention that Bob also holds the CFE<br />
designation as well?<br />
Bob: SCCE complements my membership<br />
<strong>and</strong> participation in the Association <strong>of</strong><br />
Certified Fraud Examiners (ACFE). I joined<br />
the SCCE <strong>and</strong> pursued the CCEP designation<br />
to exp<strong>and</strong> my knowledge <strong>of</strong> the corporate<br />
compliance discipline. I have also learned<br />
<strong>and</strong> exp<strong>and</strong>ed my knowledge by being able<br />
to meet <strong>and</strong> speak with others who have a<br />
common interest <strong>and</strong> mutual concerns in this<br />
discipline.<br />
<strong>MR</strong>: As SCCE continues to grow, we<br />
want to add more membership benefits.<br />
What do you think would be an additional<br />
benefit that SCCE could add?<br />
Carol: I would like to see a more extensive<br />
library <strong>of</strong> source references. It would also<br />
be great to begin to have self-study guides or<br />
Web-based training events.<br />
Bob: I agree with Carol. I would like to<br />
see some Web-based training <strong>and</strong> a library<br />
<strong>of</strong> resource material. You might also want to<br />
consider posting a job bank for resumes <strong>and</strong><br />
a blog for communicating <strong>and</strong> exchanging<br />
ideas on compliance issues <strong>of</strong> mutual concern.<br />
[Editor’s note: Job postings are available<br />
on our Web site. Click on “Careers” on the<br />
far right side <strong>of</strong> the top menu bar on the<br />
home page.]<br />
<strong>MR</strong>: What are the biggest compliance<br />
risks that your organization faces today?<br />
Carol: Our core activities around<br />
fundraising will always carry a compliance<br />
burden. As compliance requirements increase,<br />
the cost to meet these requirements escalates.<br />
This develops a decision tension between<br />
meeting a compliance need that will most<br />
likely reduce the amount <strong>of</strong> resources we can<br />
forward to the field in our continuing efforts<br />
to reach our mission goals. In addition, the<br />
added cost to meet these compliance requirements<br />
may increase our overhead rate that is<br />
viewed by many members <strong>of</strong> the public as an<br />
unnecessary burden.<br />
Bob: My biggest concern is the possibility<br />
that we are not receiving all the compliance<br />
<strong>and</strong> ethics issues that we should, because<br />
employees are reluctant to report them.<br />
There are many reasons for this, some <strong>of</strong><br />
which may be cultural, because Micros<strong>of</strong>t is a<br />
multi-national company with <strong>of</strong>fices in over a<br />
100 countries where reporting issues may not<br />
be culturally acceptable or may even violate<br />
local laws. According to research conducted<br />
Continued on page 30<br />
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June 2008<br />
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Meet Robert T. Morgan & Carol A. Morgan ...continued from page 27<br />
by the <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> Leadership<br />
Council in 2007, the number one indicator<br />
for misconduct in organizations is a culture<br />
<strong>of</strong> retaliation <strong>and</strong> discomfort <strong>of</strong> employees to<br />
speak up. Employees must have the ability to<br />
report unethical behavior or practices without<br />
fear <strong>of</strong> retaliation. Although Micros<strong>of</strong>t<br />
embraces openness <strong>and</strong> honesty as two <strong>of</strong> its<br />
core values <strong>and</strong> has a strong anti-retaliation<br />
policy, I believe it is only normal human<br />
nature that makes employees reluctant to<br />
seek advice about ethical dilemmas or challenge<br />
current practices.<br />
<strong>MR</strong>: What compliance issues are you seeing<br />
with global companies who operate in<br />
different countries?<br />
Carol: This is a real issue for organizations<br />
working in countries where laws <strong>and</strong><br />
cultures are so different than those here in<br />
the U.S. For examples, we just need to look<br />
at the difficulties with the implementation <strong>of</strong><br />
a hotline reporting mechanism or compliance<br />
with the US Patriot Act. All these compliance<br />
frameworks are US driven <strong>and</strong> are not welcomed<br />
in some foreign countries. It is important<br />
to be in tune with your legal department<br />
<strong>and</strong> to work within your sphere <strong>of</strong> influence.<br />
It is important to find that common thread<br />
that unites our government-imposed requirements<br />
with non-US counterparts.<br />
Bob: In addition to compliance with the<br />
Patriot Act that Carol mentioned, I believe<br />
multi-national companies need to provide<br />
training <strong>and</strong> establish controls to prevent violations<br />
<strong>of</strong> the Foreign Corrupt Practices Act<br />
(FCPA). Violations <strong>of</strong> the FCPA could have<br />
far-reaching repercussions, such as loss <strong>of</strong><br />
reputation, fines, <strong>and</strong> other severe penalties<br />
like disbarment from government contracts.<br />
<strong>MR</strong>: How is the compliance pr<strong>of</strong>ession<br />
changing, <strong>and</strong> how do you see it changing in<br />
the future?<br />
Carol: It is evident that the internal<br />
audit function <strong>of</strong> the future will move<br />
from an internal control focus to an enterprise<br />
risk-management centric framework.<br />
<strong>Compliance</strong> is a critical building block <strong>of</strong><br />
this framework. I tend to be an early adopter.<br />
Consequently, I will be molding our audit<br />
team with an eye to this future.<br />
Bob: Effective risk assessment is a<br />
fundamental ingredient to any compliance<br />
program. More training in this area will be<br />
required to make compliance pr<strong>of</strong>essionals<br />
more pr<strong>of</strong>icient in this skill.<br />
<strong>MR</strong>: Clearly, couples must learn to adjust<br />
when you both have high powered jobs <strong>and</strong><br />
very busy travel <strong>and</strong> work schedules. There<br />
has been a definite shift in the workplace <strong>and</strong><br />
home. Many <strong>of</strong> our readers are in the same<br />
situation. Can you tell us if you have found<br />
a workable solution to managing your career,<br />
family, friends, stress, <strong>and</strong> relaxation? Do you<br />
have special hobbies? Is there anything that<br />
you think would be helpful to other corporate<br />
pr<strong>of</strong>essionals?<br />
Carol: Work-life balance is tricky for<br />
everyone today. There are times when it cannot<br />
be helped where travel will interfere with<br />
that special day or planned event. We do try<br />
to minimize this whenever possible. However,<br />
for this to work, not only do mom <strong>and</strong> dad<br />
need to be in tune, but the rest <strong>of</strong> family has<br />
to contribute grace <strong>and</strong> underst<strong>and</strong>ing as<br />
well. Our daughters were almost always quick<br />
to underst<strong>and</strong>. However, there are always<br />
those little sacrifices we all must make, but<br />
until now, I think we have weathered this<br />
rather well. It does help that both Bob <strong>and</strong> I<br />
have a good underst<strong>and</strong>ing <strong>of</strong> our work-related<br />
responsibilities. Having a common focus<br />
removes that pain-point misconception that<br />
work is more important than family. Most<br />
important, we have come to underst<strong>and</strong> our<br />
limitations as to time <strong>and</strong> talent.<br />
As to hobbies, I tend to like a bit <strong>of</strong> quiet<br />
time where Bob needs his exercise routine.<br />
Outside <strong>of</strong> this, we tend to do most things<br />
together <strong>and</strong> <strong>of</strong>tentimes include the rest <strong>of</strong><br />
the family. And now that we are empty nesters,<br />
we have discussed beginning to make<br />
time to golf together.<br />
Bob: We all know there is a delicate balance<br />
between satisfying the commitments <strong>of</strong><br />
work <strong>and</strong> home. I am fortunate that I have<br />
enjoyed a wife <strong>and</strong> two daughters who always<br />
supported me throughout my career. Their<br />
underst<strong>and</strong>ing <strong>and</strong> consideration made it<br />
easier for me to do my job, especially during<br />
extremely sensitive <strong>and</strong> critical criminal investigations<br />
that took me from home for considerable<br />
periods <strong>of</strong> time as a federal agent.<br />
That is why it is most important that the<br />
time that you do spend with your family is<br />
quality time that everyone will remember. It’s<br />
all about making fond “memories” which we<br />
are now trying to do with our gr<strong>and</strong>children.<br />
As for my personal time, I enjoy exercising at<br />
the gym <strong>and</strong> working around the house.<br />
<strong>MR</strong>: From the tone-at-the-top to the tone<br />
at home, how do you keep a healthy balance<br />
in your daily lives?<br />
Carol: I like to stay connected to our<br />
daughters <strong>and</strong> their families. I do try to<br />
carve out some time on the weekend to be<br />
with them. A rule hard learned is not to take<br />
on more than you can manage. There is no<br />
shame in realizing you should not be spreading<br />
the peanut butter too thin.<br />
Bob: I try to keep the weekends free so<br />
I can devote time to my family <strong>and</strong> personal<br />
commitments. I use the time to unwind,<br />
exercise, <strong>and</strong> be with my daughters <strong>and</strong> their<br />
families. Carol <strong>and</strong> I have had this common<br />
goal forever, <strong>and</strong> it seems to have worked well<br />
for keeping our peace <strong>of</strong> mind <strong>and</strong> family<br />
harmony. n<br />
June 2008<br />
30<br />
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June 2008<br />
31
Federal agency compliance:<br />
Applying corporate lessons<br />
in government settings<br />
By Emil Moschella, Attorney-at-Law<br />
Editor’s Note: Emil Moschella has more than<br />
28 years <strong>of</strong> experience as an FBI agent-attorney.<br />
He retired in 1996 as Chief <strong>of</strong> the General<br />
Counsel’s Legal Advice <strong>and</strong> Training Section. In<br />
1997 he became Director <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong><br />
for Horizon Blue Cross Blue Shield <strong>of</strong> New<br />
Jersey. He is currently assisting the FBI in the<br />
implementation <strong>of</strong> its compliance program. He<br />
may be reached at emoschella@gmail.com.<br />
In March 2007, the Department <strong>of</strong><br />
Justice (DOJ), Office <strong>of</strong> Inspector<br />
General (OIG) issued a highly critical<br />
report regarding the Federal Bureau <strong>of</strong><br />
Investigation’s (FBI) use <strong>of</strong> “National Security<br />
Letters (NSL).” This resulted in congressional<br />
oversight committee hearings 1 <strong>and</strong> numerous<br />
editorials critical <strong>of</strong> the FBI <strong>and</strong> calling for<br />
change. 2 The FBI moved quickly to fix the<br />
problems identified by the OIG, <strong>and</strong> was<br />
properly lauded for that effort in a March 26,<br />
2008 Washington Post editorial. 3 However,<br />
the larger story is still unfolding. FBI<br />
Director Robert S. Mueller, III authorized<br />
the adoption <strong>of</strong> corporate-style compliance<br />
program to prevent similar shortfalls from<br />
occurring in the future.<br />
The corporate rationale<br />
Corporations have adopted the discipline <strong>of</strong><br />
the integrity <strong>and</strong> compliance program methodology<br />
for a number <strong>of</strong> reasons. For many<br />
companies, it is the prudent thing to do,<br />
because it is effectively required by a number<br />
<strong>of</strong> federal enactments. The 1991 Federal<br />
Sentencing Guidelines for Organizations<br />
(FSG), various guidance issued by regulators,<br />
<strong>and</strong> specific legal requirements (Health<br />
Insurance Portability <strong>and</strong> Accountability Act<br />
in the medical area, Bank Secrecy Act in the<br />
financial area, Sarbanes Oxley for all publicly<br />
traded corporations). In 1986, a substantial<br />
number <strong>of</strong> major defense contractors, in<br />
response to a series <strong>of</strong> prosecutions <strong>and</strong> other<br />
reported irregularities, established the Defense<br />
Industry Initiative on Business <strong>Ethics</strong> <strong>and</strong><br />
Conduct. In doing so, they agreed to have a<br />
written code <strong>of</strong> ethics, establish appropriate<br />
ethics training programs for their employees,<br />
establish monitoring mechanisms to detect<br />
improper activity, share their best practices,<br />
<strong>and</strong> be accountable to the public. This organization<br />
remains viable to this day.<br />
In January, 2003 Deputy Attorney General<br />
Larry Thompson issued a memor<strong>and</strong>um<br />
to all United States Attorneys captioned<br />
“Principles <strong>of</strong> Federal Prosecution <strong>of</strong> Business<br />
Organizations.” 4 In what is now known as the<br />
Thompson Memor<strong>and</strong>um, he stated that one<br />
<strong>of</strong> the factors to be considered in determining<br />
whether to bring federal criminal charges<br />
against an organization <strong>and</strong> negotiate a plea<br />
agreement is “the existence <strong>and</strong> adequacy <strong>of</strong><br />
the corporation’s compliance program.” 5<br />
Having a corporate compliance program<br />
became a matter <strong>of</strong> the corporate director’s<br />
duty <strong>of</strong> care. In December, 1996, the<br />
Delaware Chancery Court, In re Caremark<br />
International Inc. Derivative Litigation 6<br />
identified a type <strong>of</strong> directorial behavior that<br />
would breach the fiduciary duty <strong>of</strong> care. The<br />
court in dicta 7 stated: “I am <strong>of</strong> the view that<br />
a director’s obligation includes a duty to attempt<br />
in good faith to assure that a corporate<br />
information <strong>and</strong> reporting system, which the<br />
board concludes is adequate, exists, <strong>and</strong> that<br />
Emil Moschella<br />
failure to do so under some circumstances<br />
may … render a director liable for losses<br />
caused by non-compliance with applicable<br />
legal st<strong>and</strong>ards.” The ruling created a fiduciary<br />
obligation to assure that a legal compliance<br />
mechanism existed within the organization.<br />
The FSG, as amended in November 2004,<br />
anticipated the full involvement <strong>of</strong> the governing<br />
body by requiring it to be “knowledgeable<br />
about the content <strong>and</strong> operation <strong>of</strong><br />
the compliance <strong>and</strong> ethics program” <strong>and</strong> to<br />
exercise reasonable oversight with respect to<br />
the implementation <strong>and</strong> effectiveness <strong>of</strong> the<br />
compliance <strong>and</strong> ethics program. 8<br />
This has been an evolutionary process, but it<br />
seems to be the case that corporate ethics <strong>and</strong><br />
compliance programs are well entrenched in<br />
the way that modern corporations operate.<br />
The question presented here is, “Should<br />
government agencies also establish formalized<br />
programs that are geared to prevent<br />
<strong>and</strong> detect agency non-compliance with<br />
laws, regulations, policies, directives, orders,<br />
memor<strong>and</strong>a <strong>of</strong> underst<strong>and</strong>ing, <strong>and</strong> similar<br />
requirements?”<br />
The federal agency rationale<br />
The FBI has as strong tradition <strong>of</strong> personal<br />
<strong>and</strong> institutional integrity <strong>and</strong> those concepts<br />
Continued on page 34<br />
June 2008<br />
32<br />
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successfully complete. You could receive up to six (6) CEUs per year.<br />
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June 2008<br />
33
Federal agency compliance: ...continued from page 32<br />
are part <strong>of</strong> the FBI value system <strong>and</strong> imbedded<br />
in its motto <strong>of</strong> Fidelity, Bravery, <strong>and</strong><br />
Integrity. In addition, the FBI leadership is<br />
constantly aware that it walks the fine line <strong>of</strong><br />
protecting the country from the next terrorist<br />
attack <strong>and</strong> protecting the individual rights <strong>of</strong><br />
the very citizens it is guarding. It is with this<br />
organizational cultural background that the<br />
FBI decided to adopt the corporate compliance<br />
methodology in the face <strong>of</strong> the systemic<br />
failure. The larger question presented here<br />
is, “What should be the impetus for other<br />
agencies <strong>of</strong> government, to adopt a similar<br />
methodology?”<br />
Unlike many corporate codes <strong>of</strong> business<br />
conduct, I have found no positively stated<br />
government-wide policy to comply with the<br />
letter <strong>and</strong> spirit <strong>of</strong> the law. But, it can be<br />
found, at least inferentially, in the federal<br />
employee oath <strong>of</strong> <strong>of</strong>fice. Federal employees<br />
take an oath on commencement <strong>of</strong> service<br />
to “well <strong>and</strong> faithfully discharge the duties <strong>of</strong><br />
the <strong>of</strong>fice” they are entering <strong>and</strong> to support<br />
<strong>and</strong> defend the Constitution <strong>of</strong> the United<br />
States. 9 Especially in a country that rightfully<br />
takes enormous pride in being governed by<br />
law <strong>and</strong> not by men, if the oath means anything,<br />
it certainly has to mean that the duties<br />
<strong>of</strong> the <strong>of</strong>fice are discharged in compliance<br />
with law.<br />
Accepting that premise, it seems that it would<br />
give rise to an obligation to the American<br />
people <strong>and</strong> to reciprocal obligations between<br />
the government as an employer <strong>and</strong> the<br />
government employee. The first obligation<br />
is that government executives, as custodians<br />
<strong>and</strong> defenders <strong>of</strong> the public trust, have an<br />
affirmative responsibility to assure the American<br />
people that the agencies responsible for<br />
enforcing the law are doing that in compliance<br />
with the law. To carry out that obligation,<br />
the government as the employer has the<br />
job <strong>of</strong> ensuring that personnel responsible<br />
for discharging the law governing the agency<br />
have been given appropriate guidance, usually<br />
in the form <strong>of</strong> policy, have been trained, <strong>and</strong><br />
are appropriately monitored (See below: the<br />
<strong>Compliance</strong> Control Environment). On the<br />
other h<strong>and</strong>, government employees must<br />
know the rules that guide their <strong>of</strong>ficial activities,<br />
act in accordance with the rules, <strong>and</strong><br />
report to their supervisors on perceived weaknesses<br />
in the policies, training, or monitoring.<br />
The compliance control environment<br />
A compliance program’s aspirational goal<br />
is to prevent non-compliance with the law.<br />
<strong>Compliance</strong> is a management process that<br />
provides a reasonable level <strong>of</strong> assurance to<br />
line managers, executives, <strong>and</strong> those charged<br />
with oversight responsibility (including the<br />
Congress <strong>and</strong> the American people) that<br />
there is compliance with the rules. Invariably,<br />
when going through this process (i.e., risk<br />
analysis, receiving information directly from<br />
employees, etc.), actual non-compliance with<br />
the rules may be detected <strong>and</strong> <strong>of</strong> course will<br />
have to be addressed promptly. <strong>Compliance</strong><br />
<strong>and</strong> integrity go h<strong>and</strong> in h<strong>and</strong>. <strong>Compliance</strong> is<br />
a business process. Integrity represents an institutional<br />
commitment to a set <strong>of</strong> values, <strong>and</strong><br />
in this context, the values are stated in terms<br />
<strong>of</strong> honoring the rule <strong>of</strong> law through a commitment<br />
to compliance with the law. For ease<br />
<strong>of</strong> discussion, the term “<strong>Compliance</strong> Control<br />
Environment” is used throughout this article<br />
to describe the policies <strong>and</strong> procedures, training,<br />
monitoring, <strong>and</strong> auditing that define<br />
how an organization controls its business to<br />
affect compliance with the law.<br />
Other compliance program elements<br />
For corporations, in addition to a well conceived<br />
<strong>and</strong> executed compliance control environment,<br />
due diligence in preventing <strong>and</strong><br />
detecting violations <strong>of</strong> law includes:<br />
n high level buy-in into the compliance<br />
program;<br />
n boards <strong>of</strong> directors being knowledgeable<br />
about the compliance processes in place<br />
<strong>and</strong> monitoring those;<br />
n training appropriate personnel, including<br />
the board;<br />
n systematic risk assessment;<br />
n promotion <strong>of</strong> the compliance program<br />
through human resource policies that<br />
are consistently enforced throughout the<br />
organization;<br />
n anonymous <strong>and</strong> confidential reporting <strong>of</strong><br />
compliance concerns; <strong>and</strong><br />
n monitoring <strong>and</strong> auditing.<br />
“<strong>Compliance</strong> is the business <strong>of</strong> the<br />
business”<br />
<strong>Corporate</strong> compliance programs operate on<br />
the underlying premise that “<strong>Compliance</strong><br />
is the business <strong>of</strong> business.” In essence, this<br />
means that the business units, in addition<br />
to managing other internal risks, including<br />
operational efficiency <strong>and</strong> effectiveness <strong>and</strong><br />
all-around pr<strong>of</strong>itability, are also accountable<br />
for the risks associated with non-compliance<br />
with legal <strong>and</strong> regulatory requirements.<br />
Under the corporate compliance paradigm,<br />
federal program managers would be required<br />
to identify potential compliance risks evident<br />
from weaknesses in the compliance control<br />
environment before actual non-compliant<br />
behavior is detected.<br />
Oversight mechanisms are not enough<br />
Government agencies are under tremendous<br />
scrutiny from the oversight community,<br />
including agency inspector generals, internal<br />
auditors, the Government Accounting Office<br />
(GAO), congressional staffs, <strong>and</strong> committees.<br />
The press, public policy groups, the general<br />
public, <strong>and</strong> their access to government<br />
records through the Freedom <strong>of</strong> Information<br />
Act provide another layer <strong>of</strong> oversight. This<br />
oversight is absolutely necessary, but it is not<br />
enough, because it represents only one piece<br />
Continued on page 36<br />
June 2008<br />
34<br />
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Federal agency compliance: ...continued from page 34<br />
<strong>of</strong> the compliance control environment - the<br />
audit function. The question that an adverse<br />
audit result should raise, in addition to “Here<br />
is a problem – fix it,” is: “What else is out<br />
there?” A viable compliance program will<br />
be instrumental in answering that question.<br />
Indeed, much oversight is issue-specific. In<br />
addition to addressing specific issues, oversight<br />
might be effectively directed to testing<br />
the processes <strong>and</strong> procedures that an agency<br />
has, to provide a level <strong>of</strong> confidence that the<br />
agency is carrying out its responsibilities in<br />
compliance with the law.<br />
An agency compliance program does not wait<br />
for the internal audit, inspector general, or a<br />
congressional committee action to identify<br />
<strong>and</strong> address issues. It is a process driven by<br />
an ongoing analysis <strong>of</strong> the risk <strong>of</strong> non-compliance<br />
that is prioritized on the basis <strong>of</strong> the<br />
impact <strong>and</strong> probability <strong>of</strong> non-compliance.<br />
In its simplest form, the current state <strong>of</strong><br />
traditional agency oversight is “quality<br />
control” which comes at the end <strong>of</strong> the<br />
business process cycle. In effect, a compliance<br />
program would close the circle that<br />
was started with the creation <strong>of</strong> the inspector<br />
general corps more than 30 years ago. A<br />
compliance program would further enhance<br />
agency awareness <strong>of</strong> weaknesses in their<br />
compliance control environment, so that they<br />
can address compliance issues while they are<br />
inchoate. The compliance control environment<br />
represents the first line <strong>of</strong> defense<br />
against non-compliant activities. This process<br />
will not assure perfection from a compliance<br />
st<strong>and</strong>point. In fact, perfection is not expected<br />
under the FSG 10 where it is stated that “the<br />
failure to prevent or detect the instant <strong>of</strong>fense<br />
does not necessarily mean that the program<br />
is not generally effective in preventing <strong>and</strong><br />
detecting criminal conduct.”<br />
The starting point for this proposal is not that<br />
the government is in a runaway mode from a<br />
legal compliance st<strong>and</strong>point or that government<br />
employees are intentionally violating<br />
the law. 11 In fact, the proposal is premised on<br />
proposition that a corporate-style compliance<br />
programs will work well in the government,<br />
because they will fully leverage the integrity<br />
<strong>and</strong> desire <strong>of</strong> the agency <strong>of</strong>ficials <strong>and</strong><br />
individual employees to do the right thing.<br />
The focus <strong>of</strong> ethics <strong>and</strong> compliance programs<br />
is not on employee personal conduct, but on<br />
the agency business processes controlling legal<br />
compliance.<br />
This process does not present short term<br />
fixes. It is long term. It looks to the causes <strong>of</strong><br />
non-compliance <strong>and</strong> not the effects. It looks<br />
to management processes <strong>and</strong> not individual<br />
short-comings. It looks to cease reliance on<br />
the inspection process <strong>and</strong> to achieve quality<br />
by building quality into the process in the<br />
first place. It is a process <strong>of</strong> constant improvement.<br />
Benefits <strong>of</strong> a corporate-style<br />
compliance program<br />
The benefits <strong>of</strong> a corporate styled compliance<br />
program for the government agency are that:<br />
n It will demonstrate to agency constituencies<br />
(i.e., the public <strong>and</strong> established<br />
oversight mechanisms) a concrete process<br />
by which its commitment to the execution<br />
<strong>of</strong> the law in compliance with the law is<br />
carried out in a holistic, structured, <strong>and</strong><br />
disciplined way.<br />
n It will demonstrate that the agency, in a<br />
collaborative but structured framework,<br />
will help employees fulfill their oath to<br />
faithfully discharge their duties.<br />
n It will help agencies detect internal management<br />
control weaknesses.<br />
n It will give life to agency values <strong>of</strong> individual<br />
<strong>and</strong> organizational integrity.<br />
n It will allow agencies to solve issues across<br />
functional lines <strong>and</strong> in the process gain<br />
effectiveness <strong>and</strong> efficiency <strong>of</strong> operations.<br />
n It will be cost effective by creating streamlined<br />
process that will get the job done<br />
right the first time <strong>and</strong> avoid the costly<br />
fixes.<br />
Initial steps<br />
In order to achieve a reasonable assurance<br />
that the agency has done what it can to provide<br />
for a robust system <strong>of</strong> internal controls<br />
to achieve legal compliance, it should take<br />
the following steps:<br />
n Require agency executives who are responsible<br />
for the operations <strong>and</strong> activities <strong>of</strong><br />
the agency to identify <strong>and</strong> resolve weaknesses<br />
in the compliance control environment<br />
(i.e., the policies, employee training,<br />
<strong>and</strong> monitoring that guide employees in<br />
their day-to-day activities) <strong>and</strong> to work<br />
in a methodical <strong>and</strong> disciplined way to<br />
address those weaknesses.<br />
n Executives will need to actively solicit<br />
information from employees at all levels,<br />
in an environment <strong>of</strong> confidentiality/anonymity<br />
(if requested), <strong>and</strong> always backed<br />
by a non-reprisal policy, rather than waiting<br />
for the “whistleblower.”<br />
n Establish a code <strong>of</strong> conduct that includes<br />
compliance with all legal/policy requirements.<br />
The Office <strong>of</strong> Government <strong>Ethics</strong><br />
regulations state 12 that public service is<br />
a public trust <strong>and</strong> that: “Each employee<br />
has a responsibility to the United States<br />
Government <strong>and</strong> its citizens to place<br />
loyalty to the Constitution, laws <strong>and</strong><br />
ethical principles above private gain.” This<br />
is an extremely important concept, but it<br />
addresses only personal financial conflicts.<br />
There must be an institutional commitment<br />
to carrying out agency business in<br />
compliance with the law that goes beyond<br />
addressing personal conflicts <strong>of</strong> interest.<br />
n Establish high-level buy-in <strong>and</strong> active support<br />
by agency executives. As mentioned<br />
Continued on page 38<br />
June 2008<br />
36<br />
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Programs, ITT<br />
In many ways, mid-level managers are on the “front lines” <strong>of</strong><br />
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Past Web/Audio Conferences<br />
n <strong>Compliance</strong> Week - April 25, 2008<br />
n Law & <strong>Compliance</strong>: State <strong>and</strong> Local Government <strong>Compliance</strong><br />
& <strong>Ethics</strong> Programs - March 05, 2008<br />
n Lessons Learned from the Student Financial Aid Sc<strong>and</strong>als:<br />
Where Do We Go from Here? - January 29, 2008<br />
n New Rules for Federal Contractors: How to Develop an<br />
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n Human Resources <strong>Compliance</strong> - December 06, 2007<br />
n Code <strong>of</strong> <strong>Ethics</strong> - November 16, 2007<br />
n CCA vs. CIA - November 15, 2007<br />
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Leading Integrity: Is Your<br />
<strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong><br />
Function Positioned for<br />
Success? 2 part series Part 1: June 5 –<br />
Part 2: June 24<br />
Speakers:<br />
Joe Murphy, CCEP, Of Counsel, <strong>Compliance</strong><br />
Systems Legal Group, Co‐Editor, ethikos<br />
Donna Boehme, Principal, <strong>Compliance</strong> Strategists,<br />
LLC Special Advisor, <strong>Compliance</strong> Systems Legal Group<br />
Next to strong management commitment, the positioning<br />
<strong>of</strong> the compliance <strong>and</strong> ethics function is probably the<br />
single most critical barometer <strong>of</strong> whether a program will<br />
ultimately achieve its twin goals <strong>of</strong> driving an ethical culture<br />
<strong>and</strong> detecting/ preventing wrongdoing. This is because<br />
you can have all the bells <strong>and</strong> whistles <strong>of</strong> a “best practice”<br />
program, but if the people responsible for its day-to-day<br />
operation <strong>and</strong> oversight are not empowered to effectively<br />
“drive the car”, it won’t make it out <strong>of</strong> the garage. Is your<br />
compliance <strong>and</strong> ethics team empowered, with clearly<br />
defined rule <strong>and</strong> m<strong>and</strong>ate, <strong>and</strong> positioned for success? If<br />
not, what are the strategies for making this happen within<br />
your company?<br />
June 2008<br />
37
Federal agency compliance: ...continued from page 36<br />
above, the FSG requires both board level<br />
<strong>and</strong> high-executive level involvement in<br />
this process. Similarly, the spirit <strong>of</strong> this<br />
concept must be carried through in the<br />
federal agency.<br />
n Adopt the underlying philosophy that<br />
“<strong>Compliance</strong> is the business <strong>of</strong> the business.”<br />
Although a “<strong>Compliance</strong> Office”<br />
with a compliance <strong>of</strong>ficer who has the<br />
mission <strong>of</strong> being the facilitator, compliance<br />
program st<strong>and</strong>ard-setter, <strong>and</strong> overall<br />
compliance program advisor <strong>and</strong> monitor<br />
must be established, the responsibility for<br />
compliance must remain with the business<br />
units that own the governmental activity.<br />
Who better knows where the weaknesses<br />
are in the compliance control environment,<br />
if any, than the personnel who are<br />
performing the functions on a daily basis?<br />
n Recognize that the program must be risk<br />
driven. Whether you are operating in a<br />
corporate or governmental arena, funding<br />
<strong>and</strong> personnel resources are not unlimited.<br />
Therefore, there must be an analysis <strong>of</strong><br />
agency activities, prioritization <strong>of</strong> the risks,<br />
review <strong>of</strong> the compliance control environment,<br />
<strong>and</strong> mitigation <strong>of</strong> any deficiencies<br />
detected in an orderly but ongoing <strong>and</strong><br />
disciplined manner. 13<br />
n Establish a compliance committee structure<br />
that is organized along the established<br />
lines <strong>of</strong> agency business. The committee<br />
will have regularly scheduled meetings<br />
(quarterly at a minimum), be chaired<br />
by the highest level <strong>of</strong>ficial in that line,<br />
<strong>and</strong> will receive regular reports on the<br />
identification <strong>of</strong> possible weakness in the<br />
compliance control environment <strong>and</strong> the<br />
status <strong>of</strong> efforts to mitigate those concerns.<br />
n Address all aspects <strong>of</strong> agency business<br />
processes <strong>and</strong> decision making. The<br />
compliance program should encompass all<br />
aspects <strong>of</strong> the agency activities, from the<br />
mission-specific to the support functions<br />
common to all agencies – personnel,<br />
finance, facilities, information, <strong>and</strong><br />
security to name a few. This program<br />
requires a change in organizational<br />
culture. This cannot be done by simply<br />
addressing the mission-specific activities.<br />
n Involve all employees in the process by requiring<br />
them to know the rules governing<br />
their activity, act in accordance with those<br />
rules, <strong>and</strong> report (without reprisal) when<br />
they express a concern about compliance.<br />
Issue human resource policies in support<br />
<strong>of</strong> that involvement.<br />
It should be noted that what is advanced<br />
here, in many ways, is analogous to the<br />
requirements placed on government agencies<br />
in the management <strong>of</strong> financial systems by<br />
the GAO St<strong>and</strong>ards for Internal Controls,<br />
<strong>and</strong> OMB circular A-123, dealing with the<br />
assessment <strong>of</strong> those controls.<br />
Conclusion<br />
Executive branch executives are guardians <strong>of</strong><br />
the public trust. That guardianship comes<br />
with a fiduciary duty to assure the citizens<br />
that existing internal controls are sufficient<br />
to prevent agency non-compliance with legal<br />
requirements. Our legal system effectively requires<br />
this <strong>of</strong> our corporate leaders. It should<br />
be no less for the government agencies that<br />
enforce the law.<br />
One agency, the FBI, has done just that.<br />
Under Director Mueller’s leadership, the<br />
FBI has taken the first steps in advancing<br />
the management <strong>of</strong> legal risk by establishing<br />
a corporate-style compliance program that<br />
covers all aspects <strong>of</strong> its operations. The initial<br />
results will not be as dramatic as the headlines<br />
that prompted the change, but the change<br />
is, in fact, dramatic <strong>and</strong> meaningful. This is<br />
not a one-time effort, <strong>and</strong> results will not be<br />
overnight. If the corporate experience is any<br />
measure, it may take years to see the actual<br />
benefits. n<br />
Note: The views expressed are those <strong>of</strong> the author<br />
<strong>and</strong> do not reflect those <strong>of</strong> the FBI.<br />
1 See, “Senators Cite F.B.I. Failures as Chief Promises Change” by Scott<br />
Shane, NY Times, 3/28/07.<br />
2 See, “Make the FBI Follow the Law”, Boston Globe, 3/13/2007; “Break<br />
up the FBI”, LA Times, Opinion by John Yoo (former DOJ <strong>of</strong>ficial),<br />
3/21/2007; “Revise the Patriot (sic) Act”, Editorial, LA Times, 3/26/07.<br />
3 See, Oversight Results – The FBI tightens it procedures for using<br />
national security letters, Editorial, Washington Post, 03/26/2008, p.<br />
A-18.<br />
4 Available at http://www.usdoj.gov/dag/cftf/corporate_guidelines.htm<br />
5 This was updated in December, 2006 by Deputy Attorney General Paul<br />
J. McNulty. (See http://www.corporatecompliance.org/Content/NavigationMenu/Resources/<strong>Compliance</strong>Basics/mcnulty_memo.pdf)<br />
6 In re Caremark Int’l Derivative Litig., 698 A.2d 959 (Del. Ch. 1996).<br />
7 See also, Stone v. Ritter, 911 A.2d 362 (Del. 2006) where the Court<br />
confirmed that the Caremark dictum is the law <strong>of</strong> Delaware, holding<br />
that “Caremark articulates the necessary conditions for assessing director<br />
oversight liability.”<br />
8 Federal Sentencing Guidelines § 8B2.1.(b)(2)<br />
9 http://www.opm.gov/constitution_initiative/oath.asp<br />
10 FSG at 8B2.1(a)2<br />
11 The Associated Press reported on an <strong>Ethics</strong> Resource Center report<br />
stating: “Overall, three out five government workers acknowledge<br />
witnessing violations <strong>of</strong> ethical st<strong>and</strong>ards, policy or law over the past<br />
year. . .” (See, http://ap.google.com/article/ALeqM5ivPvlvc-f0uGdm7zkd5jBjTr8rMQD8UFKS8G0).<br />
Also see, http://www.ethics.org/<br />
12 At 5 C.F.R. § 2635.101<br />
13 The FSG at § 8B2.1.c requires organizations to engage in a risk analysis<br />
process.<br />
Be Sure to Get<br />
Your CHC CEUs<br />
Inserted in this issue <strong>of</strong> <strong>Compliance</strong> &<br />
<strong>Ethics</strong> is a quiz related to the article:<br />
n So, What’s Your <strong>Compliance</strong> Strategy?<br />
— By Henry Klehm III, David<br />
Schweiger, <strong>and</strong> Andrew Schweiger on<br />
page 6.<br />
n What are Boards to do when Investors<br />
Call? — By Lou Thompson on<br />
page 40<br />
n Global <strong>Compliance</strong>: China — By<br />
Scott Lane <strong>and</strong> Robert Leffel, page 44<br />
To obtain your CEUs, take the quiz<br />
<strong>and</strong> print your name at the top <strong>of</strong><br />
the form. Fax it to Liz Hergert at<br />
952/988-0146, or mail it to Liz’s attention<br />
at SCCE, 6500 Barrie Road,<br />
Suite 250, Minneapolis, MN 55435.<br />
Questions? Please call Liz Hergert at<br />
888/277-4977.<br />
<strong>Compliance</strong> & <strong>Ethics</strong> readers taking<br />
the CEU quiz have one year from<br />
the published date <strong>of</strong> the CEU article to<br />
submit their completed quiz.<br />
June 2008<br />
38<br />
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June 2008<br />
39
What Are Boards to Do<br />
When Investors Call?<br />
By Lou Thompson<br />
Editor’s Note: Lou Thompson is Managing Director<br />
for Kalorama Partners, LLC <strong>and</strong> a <strong>Compliance</strong><br />
Week columnist. Lou is the former CEO,<br />
President, <strong>and</strong> board member <strong>of</strong> the National<br />
Investor Relations Institute, <strong>and</strong> an internationally<br />
recognized expert on corporate disclosure,<br />
governance <strong>and</strong> other strategic management issues.<br />
He was also the Assistant White House Press<br />
Secretary to President Ford. He may be contacted<br />
by e-mail at lou@kaloramapartners.com.<br />
A<br />
wake-up call for directors <strong>and</strong><br />
senior management came recently<br />
from this country’s oldest nonpr<strong>of</strong>it<br />
organization devoted to the advancement <strong>of</strong><br />
high ethical st<strong>and</strong>ards in organizations. The<br />
<strong>Ethics</strong> Resource Center reported that while<br />
progress has been made on the compliance<br />
front, few advances have occurred in creating<br />
an ethical business culture. 1 Its study found<br />
that the risk <strong>of</strong> ethical misconduct in corporate<br />
America has risen to pre-Enron levels.<br />
The Center found that more than half <strong>of</strong> employees<br />
have seen ethical misconduct in their<br />
companies, but most do not use the hotlines<br />
or other means to report misconduct out <strong>of</strong><br />
fear <strong>of</strong> retaliation. Yet, companies with strong<br />
ethical cultures have reduced their ethics risk<br />
by a very significant measure.<br />
It therefore behooves boards to take the appropriate<br />
preventive measures to better protect<br />
themselves, given the heightened liability<br />
that directors face in today’s environment.<br />
Some may argue that passage <strong>of</strong> the Sarbanes-<br />
Oxley Act (SOX) was an overreaction to<br />
the debacles at Enron, WorldCom, Tyco,<br />
<strong>and</strong> others, but the devastation wrought on<br />
investors, employees, <strong>and</strong> other stakeholders<br />
was catastrophic. As a result <strong>of</strong> SOX, serving<br />
as a director today places one in the glare <strong>of</strong><br />
public scrutiny like no other time in the history<br />
<strong>of</strong> corporate America.<br />
Commensurate with SOX, came a wave<br />
<strong>of</strong> shareholder activism that has increased<br />
significantly each proxy year, <strong>and</strong> the appetite<br />
on the part <strong>of</strong> the activists has been whetted<br />
by the growing number <strong>of</strong> successes when<br />
challenging boards <strong>of</strong> directors <strong>and</strong> senior<br />
managers on proxy issues. In 2007, activist<br />
investors scored better than an 80% success<br />
rate in achieving a majority vote for short<br />
slates <strong>of</strong> their director c<strong>and</strong>idates.<br />
Add hedge funds to the activist mix whose<br />
battles with management <strong>and</strong> boards are not<br />
so much timed with the proxy season, but<br />
can occur anytime they believe that a company<br />
is not living up to their expectations <strong>of</strong><br />
its valuation potential.<br />
The two key proxy issues for 2008 were related<br />
to executive pay <strong>and</strong> proxy access for nominating<br />
directors. A record 135 new activist<br />
campaigns were announced during the fourth<br />
quarter <strong>of</strong> 2007 for the 2008 proxy season.<br />
According to RiskMetrics Group, Inc. activist<br />
shareholders submitted say-on-pay proposals at<br />
more than 90 US companies this year – a 73%<br />
increase over 2006. 2 Even though these are<br />
non-binding, given the current environment,<br />
it would be difficult for boards to ignore sayon-pay<br />
proposals that receive a majority vote.<br />
Aflac, Inc. this year <strong>and</strong> Verizon Communications<br />
in 2009 will be giving shareholders an<br />
opportunity to cast a non-binding vote on the<br />
companies’ executive compensation plans.<br />
The Securities <strong>and</strong> Exchange Commission<br />
(SEC) stirred the hornets’ nest at the end <strong>of</strong><br />
Lou Thompson<br />
November when it maintained the status quo<br />
on proxy access for director nominations. SEC<br />
Chairman Christopher Cox recognized that<br />
the commissioners were sharply divided over<br />
the issue <strong>and</strong> were not going to reach agreement<br />
on an access proposal in time for the<br />
2008 proxy season. So, in a three-to-one vote,<br />
the Commission adopted an amendment to<br />
Rule 14a-8 that allowed companies to exclude<br />
proposals pertaining to the election <strong>of</strong> directors.<br />
This issue is not likely to go away <strong>and</strong> will<br />
probably be addressed again this year.<br />
In the meantime, the American Federation<br />
<strong>of</strong> State, County <strong>and</strong> Municipal Employees<br />
(AFSCME), planned to submit binding proposals<br />
that called for reimbursement <strong>of</strong> proxy-fight<br />
solicitation expenses in connection with nominating<br />
one or more c<strong>and</strong>idates in a contested director<br />
election. Charles Elson <strong>of</strong> the University<br />
<strong>of</strong> Delaware’s Weinberg Center for <strong>Corporate</strong><br />
Governance said, “If the reimbursement proposals<br />
do well, they may, in the end, supplant<br />
access. I think it’s the ultimate solution.”<br />
The inability to nominate directors could<br />
result in activist investors marshalling support<br />
to withhold votes for specific directors,<br />
particularly in companies that have adopted<br />
majority voting. And, we could see an increase<br />
in activist hedge funds <strong>and</strong> other major inves-<br />
Continued on page 41<br />
June 2008<br />
40<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
tors attempting to pressure boards to nominate<br />
specific individuals to the board. Boards should<br />
have in place a policy on how they will h<strong>and</strong>le<br />
investor requests to meet with the board.<br />
In my <strong>Compliance</strong> Week column “Barbarians<br />
At the Gate: Do You Open Up?” 3 I suggested<br />
that boards consider:<br />
n The investor’s track record in communicating<br />
with the company. An investor who<br />
has made no attempt to talk with management,<br />
but goes straight to the board for<br />
the first time, does not deserve the same<br />
access as one who has made a number <strong>of</strong><br />
attempts to communicate with management,<br />
even though they may not have<br />
achieved their desired results.<br />
n Whether the investor is <strong>of</strong>fering shortterm<br />
solutions to perceived problems for<br />
short-term gains or has come forth with<br />
recommendations that could bring longterm<br />
increases in shareholder value.<br />
One guiding principle, with respect to board<br />
members meeting with investors, is that<br />
directors must be accompanied by an <strong>of</strong>ficer<br />
who is intimately familiar with the company’s<br />
disclosure record. This is a measure to guard<br />
against violating Regulation Fair Disclosure<br />
by unknowingly discussing material, nonpublic<br />
information.<br />
In general, ignoring or deciding not to meet<br />
with major investors can be a zero-sum game<br />
leading to a loss <strong>of</strong> good will <strong>and</strong>, very likely,<br />
negative publicity for doing so. Besides, it<br />
doesn’t hurt to listen. You don’t have to accept<br />
what they say, <strong>and</strong> someone might even come<br />
up with a good idea.<br />
For several years after the SEC created the<br />
rules called for by the Sarbanes-Oxley Act,<br />
there was heavy emphasis on the role <strong>of</strong> the<br />
board audit committee until internal audit<br />
controls were in place. Then, as executive<br />
compensation became a hot issue, particularly<br />
as the SEC instituted its new rules on disclosing<br />
executive compensation, the board emphasis<br />
shifted to the compensation committee.<br />
Now, with heightened emphasis on the<br />
director nominating process, the nominating<br />
<strong>and</strong> governance committee is in the spotlight.<br />
One <strong>of</strong> the most progressive efforts on the<br />
part <strong>of</strong> a board reaching out to major investors<br />
occurred recently when Doug Leatherdale, as<br />
chairman <strong>of</strong> UnitedHealth Group’s nominating<br />
<strong>and</strong> governance committee, created an advisory<br />
committee comprised <strong>of</strong> some <strong>of</strong> the company’s<br />
major investors <strong>and</strong> members <strong>of</strong> the medical<br />
pr<strong>of</strong>ession. The corporation is a leader in managed<br />
care programs. Leatherdale, who had been<br />
chairman <strong>and</strong> CEO <strong>of</strong> the St. Paul Companies<br />
for 11 years, asked the advisory group to describe<br />
what characteristics they were looking for in<br />
directors. He also invited them to submit names<br />
for consideration. There was actually a match<br />
between a person the nominating committee<br />
was considering <strong>and</strong> who the investors recommended.<br />
While companies may be reluctant to<br />
voluntarily engage their major investors in the<br />
board nominating process, the success <strong>of</strong> the<br />
UnitedHealth Group’s model should serve as a<br />
positive example for others to consider following.<br />
The company also included in its proxy an<br />
extensive “plain English” discussion <strong>of</strong> how it addressed<br />
its options backdating issue <strong>and</strong> the steps<br />
it has taken to resolve its issues with investors.<br />
The SEC made another decision last November<br />
in which it urged companies <strong>and</strong> others to establish<br />
electronic shareholder forums that would<br />
facilitate discussion among investors <strong>of</strong> proxy issues,<br />
but could not be used for proxy solicitation<br />
purposes. There is some evidence that companies<br />
will monitor forums created by others, as they do<br />
the blogs, but they are unlikely to establish their<br />
own corporate sponsored forums. Many view<br />
these forums as “the devil’s playground.”<br />
The board should be kept apprised <strong>of</strong> significant<br />
information discussed in these forums,<br />
who the key players are, <strong>and</strong> whether the<br />
company should respond. Under the theory<br />
<strong>of</strong> “keep your friends close <strong>and</strong> your enemies<br />
closer,” companies might want to consider<br />
creating a shareholder e-forum to have a<br />
better h<strong>and</strong>le on what’s going on among<br />
their activist investors. Moreover, they might<br />
even derive some benefit by demonstrating<br />
that they are taking the initiative to listen to<br />
investors’ ideas <strong>and</strong> engage in a discussion <strong>of</strong><br />
what is best for the long-term future <strong>of</strong> the<br />
company <strong>and</strong> its shareholders.<br />
Yahoo <strong>and</strong> Motley Fool have already established<br />
these forums where investors – mostly<br />
institutional – communicate with one another<br />
all the time. Imagine a shareholder-activist like<br />
Eric Jackson, chief executive <strong>of</strong> Jackson Leadership<br />
Systems, using one <strong>of</strong> these electronic<br />
forums to marshal support behind a withholdvote<br />
campaign for specific directors. Jackson<br />
used his blog <strong>and</strong> videos posted on YouTube<br />
to b<strong>and</strong> together some 100 shareholders with a<br />
combined stake <strong>of</strong> $60 million in Yahoo. That<br />
resulted in a 33% “against” vote for seven <strong>of</strong> 10<br />
Yahoo directors at the company’s annual meeting<br />
in June 2007. CEO Terry Semel quickly<br />
became Yahoo’s former CEO.<br />
Moving now to what board members should<br />
expect from their investor relations <strong>of</strong>ficers<br />
(IROs). According to a National Investor<br />
Relations Institute survey, 4 some 80% <strong>of</strong> IROs<br />
provide written reports to the board on their<br />
activities <strong>and</strong> various aspects <strong>of</strong> the company’s<br />
stock performance. But, fewer than half are actually<br />
in the boardroom where directors can ask<br />
questions about what the investors are thinking,<br />
whether the investors underst<strong>and</strong> the company’s<br />
strategy, <strong>and</strong> if so, are they buying it?<br />
Given the liability that directors shoulder,<br />
Continued on page 42<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
41
What Are Boards to Do When Investors Call? ...continued from page 41<br />
they should want the best possible information<br />
from the IRO so they can avoid surprises.<br />
IROs should not review their written<br />
reports before the board, but should use their<br />
time to provide strategic insight as to the<br />
key issues investors are concerned with, <strong>and</strong><br />
respond to the board’s questions.<br />
Lastly, there are five areas where the IRO <strong>and</strong><br />
the corporate secretary should provide assistance<br />
to the board:<br />
1. Participation in a periodic discussion on<br />
the issue <strong>of</strong> earnings guidance <strong>and</strong> whether<br />
the company’s policy with respect to guidance<br />
should be continued or revised.<br />
2. Along with the general counsel <strong>and</strong> the<br />
corporate secretary, the IRO should work<br />
with the board in developing guidelines<br />
for shareholder access to the board.<br />
3. The IRO <strong>and</strong> the corporate secretary<br />
should be proactive in talking with investors,<br />
prior to the start <strong>of</strong> the proxy season,<br />
on potentially contested issues to see if<br />
there are areas <strong>of</strong> compromise before they<br />
become proxy proposals.<br />
4. Companies should be proactive in meeting<br />
with the proxy advisory services, prior to<br />
the proxy season, to explain the company’s<br />
position on various issues before being<br />
rolled into the advisory service’s blanket<br />
recommendations.<br />
5. The IRO <strong>and</strong> corporate secretary should<br />
also be meeting with the people in the<br />
major investor firms who actually vote the<br />
proxies, <strong>and</strong> these are generally not the<br />
same people. CEOs, CFOs <strong>and</strong> IROs normally<br />
meet with the people who manage<br />
the funds.<br />
How directors relate to the IRO varies<br />
considerably. For example, the vice president<br />
for investor relations at Nike has confidential<br />
meetings with her board members. Some<br />
directors are calling the IRO directly to ask<br />
questions about investors. Obviously, IROs<br />
don’t enjoy being the messenger when it<br />
comes to giving the board bad news, but<br />
CEOs should avoid killing the messenger.<br />
Some companies retain an outside third party<br />
to conduct periodic perception surveys <strong>of</strong><br />
the company’s major investors <strong>and</strong> analysts,<br />
<strong>and</strong> these reports are provided to the board.<br />
This way the IRO doesn’t have to serve as the<br />
intermediary. No IRO wants to be in the position<br />
<strong>of</strong> telling the board, for example, that<br />
the “street” lacks confidence in the CEO.<br />
In closing, as the shareholder democracy<br />
movement takes on greater momentum,<br />
boards <strong>of</strong> directors need to be prepared to<br />
work with management in dealing with the<br />
various issues before them. As a close friend,<br />
who was a career McKinsey partner, a chairman,<br />
<strong>and</strong> CEO who now serves on three<br />
boards recently told me, “We came away<br />
from Sarbanes-Oxley spending too much<br />
time looking over our shoulders at compliance<br />
issues, rather than looking ahead <strong>and</strong><br />
doing the things directors are supposed to do<br />
in helping management chart the strategic<br />
direction <strong>of</strong> the corporation.”<br />
Directors want to make sure their house is<br />
in order by establishing best practices for<br />
the board <strong>and</strong> to take advantage <strong>of</strong> their<br />
corporate resources – including the IRO – in<br />
executing their duties to the company <strong>and</strong> its<br />
shareholders. In this current environment, if<br />
one follows the old axiom that an ounce <strong>of</strong><br />
prevention is worth a pound <strong>of</strong> cure, it could<br />
make life as a director more predictable <strong>and</strong><br />
allow one to breathe more easily. n<br />
1 Available at http://ethics.org/research/nbes.asp. Accessed May 1, 2008.<br />
2 Available at http://www.riskmetrics.com. Accessed May 1, 2008.<br />
3 <strong>Compliance</strong> Week magazine, published March 20, 2007.<br />
4 National Investors Relations Institute, Executive Alert “NIRI Releases<br />
2004 Trend Survey Report.” January 21, 2005.<br />
2nd Annual SCCE<br />
Volunteer Project<br />
SCCE’s 7th Annual<br />
<strong>Compliance</strong> & <strong>Ethics</strong> Institute<br />
September 14-17, 2008<br />
Greater Chicago Food Depository<br />
Saturday, September 13, 2008,<br />
12:00 – 4:00 p.m.<br />
We had a great experience with our First<br />
Annual volunteer project last year working<br />
with Habitat for Humanity! This year, join<br />
us for another unforgettable event in Chicago<br />
with the Greater Chicago Food Depository<br />
(GCFD). As Cook County’s food<br />
bank, the Greater Chicago Food Depository<br />
distributes more than 40 million pounds<br />
<strong>of</strong> food each year. A large portion <strong>of</strong> this<br />
food must be inspected or sorted <strong>and</strong> then<br />
packaged before it can be safely distributed<br />
through a network <strong>of</strong> 600 member agencies<br />
(food pantries, kitchens, shelters, etc.).<br />
Volunteers complete much <strong>of</strong> this work.<br />
We will be repacking food in the warehouse<br />
<strong>and</strong> getting it ready for distribution.<br />
Your volunteer experience includes:<br />
n Transportation to <strong>and</strong> from the facility<br />
n Lunch<br />
n Beverages <strong>and</strong> snacks<br />
n A rewarding community service <strong>and</strong><br />
networking experience<br />
This is just a part <strong>of</strong> a great<br />
experience in Chicago. Be<br />
sure to register for this event<br />
when you’re completing your<br />
conference registration. Visit<br />
www.complianceethicsinstitute.<br />
org or please contact Lizza<br />
Catalano at lizza.catalano@<br />
corporatecompliance.org for more<br />
information.<br />
June 2008<br />
42<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
SCCE Co m p l i a n c e Ac a d e m i e s<br />
Become a Certified<br />
<strong>Compliance</strong> & <strong>Ethics</strong> Pr<strong>of</strong>essional (CCEP)<br />
Attend one <strong>of</strong> the SCCE 2008 Academies<br />
<strong>and</strong> sit for the exam on the fifth day<br />
following a four-day intensive training session<br />
“This four-day course was the most robust theoretical support on the compliance & ethics discipline I could ever attend.<br />
And the caliber <strong>of</strong> the invited speakers was impressive, as well. The feedback to my colleagues was very short: a firstclass<br />
course. I strongly recommend this course.” — Zaur Ahmadov, <strong>Compliance</strong> & <strong>Ethics</strong> Advisor, Group <strong>Compliance</strong><br />
& <strong>Ethics</strong>, BP (British Petroleum)<br />
August 4–7, 2008<br />
Chicago, IL<br />
CCEP Exam August 8, 2008<br />
September 22–25, 2008<br />
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November 17–20, 2008<br />
San Francisco, CA<br />
CCEP Exam November 21, 2008<br />
The <strong>Compliance</strong> Academy is a four-day intensive training course<br />
designed for participants with a basic knowledge <strong>of</strong> compliance concepts. The Academy<br />
covers specific subject matter in depth <strong>and</strong> is a great preparation course for the CCEP<br />
exam. (The course provides you with sufficient credits required to sit for the exam.)<br />
Becoming CCEP certified demonstrates sufficient knowledge <strong>of</strong> government regulations<br />
<strong>and</strong> compliance processes to underst<strong>and</strong> <strong>and</strong> address legal obligations <strong>and</strong> promote<br />
organizational integrity through the operation <strong>of</strong> effective compliance programs.<br />
Register online at www.corporatecompliance.org<br />
Questions? Call +1 952 933 4977 or 888 277 4977<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
43<br />
June 2008
Global <strong>Compliance</strong>:<br />
China<br />
By Scott Lane <strong>and</strong> Robert Leffel<br />
Editor’s note: We’d like to thank Ethisphere<br />
Magazine for allowing us to reprint a series<br />
<strong>of</strong> articles featuring compliance <strong>and</strong> ethics in<br />
selected foreign countries. This article about<br />
China is the first in this series.<br />
Historically a nation opposed to<br />
foreign investment, the Chinese<br />
economy has recently shifted into<br />
a modern, market-oriented system that caters<br />
heavily to international business. Today, the<br />
country is a major player in several important<br />
industries, such as manufacturing, food<br />
processing, petroleum <strong>and</strong> textiles. (see table<br />
& graph on page 45)<br />
Now, business leaders across the world eagerly<br />
turn their eyes towards China <strong>and</strong> notice a<br />
country that relishes its new-found power<br />
<strong>and</strong> the attention that comes with it. Such<br />
change doesn’t come without its share <strong>of</strong><br />
obstacles–with thous<strong>and</strong>s <strong>of</strong> years <strong>of</strong> history<br />
come deep-rooted traditions, some <strong>of</strong> which<br />
test the boundary <strong>of</strong> moral principles as they<br />
are understood in the western world. Bribery<br />
<strong>and</strong> corruption, for example, are not just<br />
common, but each runs rampant throughout<br />
the nation’s business practices. In order for<br />
Western companies to enter China’s booming<br />
market, it is first necessary to underst<strong>and</strong> the<br />
unique cultural <strong>and</strong> legal processes involved<br />
in conducting business in the country.<br />
The ethical climate for foreign enterprises<br />
When international business managers <strong>and</strong><br />
chief executives open dialog about exp<strong>and</strong>ing<br />
their business to China, they discuss<br />
topics such as intellectual property protection,<br />
stifling government bureaucracy, lack<br />
<strong>of</strong> product quality st<strong>and</strong>ards, discrimination<br />
issues, <strong>and</strong> rampant corruption in business<br />
dealings. While the government is making<br />
attempts at improving these categories, many<br />
concerns remain unaddressed.<br />
Although China has significantly strengthened<br />
its intellectual property laws since joining<br />
the World Trade Organization (WTO) in<br />
2001, the country still has the highest piracy<br />
rate in the world–an estimated $1 billion is<br />
lost each year to Chinese piracy alone. Even<br />
though the Chinese government formed the<br />
State Intellectual Property Office in 1998 to<br />
help enforce patent, trademark, <strong>and</strong> copyright<br />
laws, this organization is considered<br />
relatively ineffective by outside sources.<br />
The government was also forced to reexamine<br />
its quality st<strong>and</strong>ard regulations after a series<br />
<strong>of</strong> sc<strong>and</strong>als involving contaminated or harmful<br />
toothpaste, pet food, <strong>and</strong> most recently,<br />
toys. New committees were formed to tackle<br />
these issues but it remains to be seen how<br />
productive they will be.<br />
Discrimination issues run rampant<br />
throughout the country. Gender<br />
discrimination against women has been<br />
documented for years. More complicated are<br />
the discrimination issues involving migrant<br />
workers moving from rural farml<strong>and</strong>s to cities<br />
<strong>and</strong> towns. There have even been reports<br />
<strong>of</strong> height <strong>and</strong> other physical requirements<br />
neccessary for obtaining certain Chinese<br />
government positions.<br />
Business dealings with the government are<br />
notoriously strewn with unethical practices,<br />
both under-the-table <strong>and</strong> overt. A strong<br />
sense <strong>of</strong> family <strong>and</strong> loyalty to ones friends<br />
leads to a very nepotistic business environment.<br />
Some Chinese refer to the famous<br />
philosopher Confucius who surmises in<br />
Analects, “The father conceals the wrongs <strong>of</strong><br />
his son, <strong>and</strong> the son conceals the wrongs <strong>of</strong><br />
his father. This is justice.” Foreign businesses<br />
entering the market with no significant political<br />
connections have a considerably more<br />
difficult task <strong>of</strong> integrating than those who do<br />
have connections.<br />
Corruption isn’t limited to government<br />
dealings, however. It’s common for Chinese<br />
business deals to include various perks <strong>and</strong><br />
benefits for the buyer, including lavish vacations<br />
<strong>and</strong> expensive electronics, in addition to<br />
any negotiated price to help secure important<br />
contracts. While the Organization for<br />
Economic Cooperation <strong>and</strong> Development<br />
(OECD), whose members include the United<br />
States, Japan <strong>and</strong> the European Union, has<br />
helped curb corruption in international business<br />
dealings in recent years, China has been<br />
<strong>and</strong> remains notably absent from the group.<br />
Ultimately, experts believe that China is<br />
proactively working to fix its ethical problems.<br />
Shanghai is a positive example <strong>of</strong> a city<br />
leading the way in this regard. One theory<br />
for the improvements points to the increasing<br />
st<strong>and</strong>ard <strong>of</strong> living for many Chinese who no<br />
longer rely on shady benefits or under-thetable<br />
bribes for their livelihood. As Chinese<br />
businesses increase their presence throughout<br />
the world, they will consequently bring their<br />
ethics with them, good or bad. Politicians<br />
<strong>and</strong> business leaders in China are aware that<br />
ethical policies are dem<strong>and</strong>ed by consumers<br />
in a free-market economy nowadays. If the<br />
country <strong>and</strong> its businesses want to compete<br />
with other economically successful nations,<br />
the improvements will have to continue.<br />
Etiquette tips you should know before<br />
you go<br />
Greetings<br />
In China, it is a sign <strong>of</strong> respect to greet a person<br />
using his or her family name only, such<br />
Continued on page 46<br />
June 2008<br />
44<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
Overview <strong>of</strong> China<br />
MAJOR INDUSTRIES: TOP EXPORT PARTNERS 2006: TOP IMPORT PARTNERS 2005:<br />
n Mining <strong>and</strong> ore production<br />
n Machine building<br />
n Textile <strong>and</strong> Apparel<br />
n Petroleum<br />
n Cement<br />
n Chemicals <strong>and</strong> fertilizers<br />
n Food processing<br />
n Transportation equipment<br />
n Telecommunications equipment<br />
Other<br />
44.7%<br />
USA 21%<br />
Hong Kong 16%<br />
Japan 9.5%<br />
S. Korea 4.6%<br />
Germany 4.2%<br />
Other<br />
50.9%<br />
Japan 14.6%<br />
S. Korea 11.3%<br />
Taiwan 10.9%<br />
USA 7.5%<br />
Germany 4.8%<br />
2006 COUNTRY STATISTICS<br />
POPULATION: 1,321.8 million people<br />
MEDIAN AGE: 32.7 years (men) 33.7 years (women)<br />
LIFE EXPECTANCY: 71.13 years (men) 74.87 years (women)<br />
LANGUAGES: St<strong>and</strong>ard Chinese or M<strong>and</strong>arin (Putonghua, based on<br />
Bejing dialect), Yue (Cantonese), Wu (Shanghainese),<br />
Minbel (Fuzhou), Minnan (Hokkien-Taiwanese)<br />
CAPITAL:<br />
Bejing (15 million people)<br />
LITERACY RATE: 90.9%<br />
GDP per capita (PPP) $7,700<br />
GDP (Purchasing Power Parity) $10.7T<br />
GDP (Official Exchange Rate) $2.518T<br />
GDP (Real Growth Rate) 10.7%<br />
INFLATION: 1.5%<br />
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Global <strong>Compliance</strong>: China ...continued from page 44<br />
as Mr. Fong or Ms. Li. Unlike in a western<br />
environment, the Chinese family name comes<br />
first <strong>and</strong> is usually one syllable. In some cases,<br />
multiple names follow the family name which<br />
can be difficult for some Westerners. In some<br />
cases, Chinese people also insert an English<br />
name. It is always a good idea to ask a native<br />
speaker which name is the family name if you<br />
are confused. To be on the safe side, simply<br />
assume the first name is the surname.<br />
Business meetings<br />
In China, it is assumed that the first person<br />
who enters the room is the head <strong>of</strong> the group.<br />
Try <strong>and</strong> keep to this approach so as not to<br />
confuse everyone. For business purposes,<br />
formality is a sign <strong>of</strong> respect; do not try to<br />
become too friendly too soon. Never tell<br />
jokes to start a meeting. Meetings in China<br />
tend to start slow, don’t rush the meeting<br />
<strong>and</strong> talk business right away. Pace yourself.<br />
Dress formally in China. Men should wear<br />
a suit <strong>and</strong> tie at all times, despite what can<br />
be harsh temperatures. Women should dress<br />
conservatively <strong>and</strong> stick to plain colors. Negotiating<br />
in China can be quite interesting.<br />
Always remember that negotiations are rarely<br />
sequential. It is perfectly possible to “go over<br />
old ground time after time. No deal is closed,<br />
until it is “signed <strong>and</strong> chopped.”<br />
any questions about the card i.e. (You are<br />
based here in Beijing, I see.) This is always a<br />
sign <strong>of</strong> respect <strong>and</strong> interest in the person you<br />
are meeting. At the table, it is acceptable to<br />
lay the card in front <strong>of</strong> you on the table.<br />
Gift giving<br />
Gift giving is becoming less common,<br />
particularly as Western companies enforce<br />
their gift-giving policies. In addition, many<br />
Chinese government <strong>of</strong>ficials will not accept<br />
gifts after recent crackdowns on corruption.<br />
If you have to give a gift, it should be small,<br />
customary, thoughtful, <strong>and</strong> always wrapped.<br />
Dinner <strong>and</strong> social events<br />
Always be prepared for a very long dinner or<br />
lunch engagement. Food is an important part<br />
<strong>of</strong> doing business in China. Be prepared to<br />
give a brief <strong>and</strong> friendly speech in response to<br />
the hosts speech at a banquet. When invited<br />
for a meal, never just “dig in” as in many<br />
Western environments. Always wait either<br />
to be served first by your host, or for you<br />
to serve your host the food from the shared<br />
dishes. It is considered poor etiquette to look<br />
after yourself despite others.<br />
Make sure you sample every dish. Sometimes<br />
this is hard, but it will greatly impress your host.<br />
bribery <strong>and</strong> corruption st<strong>and</strong>ing in the way <strong>of</strong><br />
a successful operation. While there has been<br />
some progress in the last few years, in part<br />
thanks to new government efforts to fight<br />
corruption resulting in some serious sentences<br />
for corrupt government <strong>of</strong>ficials, the<br />
situation is still far from ideal. Corruption is<br />
said to be closely related to the “guanxi,” or a<br />
network <strong>of</strong> business relations or connections<br />
that creates a basis for social interaction <strong>and</strong><br />
the development <strong>of</strong> trust <strong>and</strong> cooperation.<br />
Deal with it<br />
To minimize bribery, begin with an underst<strong>and</strong>ing<br />
<strong>of</strong> how the Chinese power system,<br />
guanxi, works <strong>and</strong> how you can actually use it<br />
to help you. Take time to develop a corporate<br />
guanxi; its quite possible to create <strong>and</strong> sustain<br />
relationships with high-level government<br />
<strong>of</strong>ficials without resorting to bribery. Create<br />
a policy that, while reflecting the company<br />
global values <strong>and</strong> principles, takes into<br />
account <strong>and</strong> specifically speaks to local traditions.<br />
Put gifts <strong>and</strong> entertainment into context<br />
<strong>and</strong> perspective. Find allies among local<br />
management <strong>and</strong> capitalize on the desire <strong>of</strong><br />
Chinese technocrats <strong>and</strong> managerial class to<br />
adopt US <strong>and</strong> European business st<strong>and</strong>ards,<br />
best practices <strong>and</strong> “rule <strong>of</strong> law.” Be polite <strong>and</strong><br />
firm, but not patronizing.<br />
Business cards<br />
Business cards, or name cards as they are<br />
known in Asia, are extremely important.<br />
Always have plenty <strong>of</strong> them with you, in your<br />
pockets, your jacket, <strong>and</strong> your briefcase. Treat<br />
your own business cards with respect, place<br />
them in a small leather wallet <strong>and</strong> protect<br />
them. When exchanging business cards, never<br />
toss or “deal” your business card across the<br />
table. Always hold the card out with both<br />
h<strong>and</strong>s with the writing facing the receiver.<br />
When you receive a card, don’t slap it into<br />
your wallet or in your pocket. Look at the<br />
card, treat it with respect, check it over, ask<br />
Always leave something on your plate at the<br />
end <strong>of</strong> the meal or your host might think that<br />
you are still hungry.<br />
If a Chinese person gives you a compliment,<br />
it is polite to deny it graciously. Modesty<br />
is highly valued in China. Keep the above<br />
guidelines in mind, but above all, be yourself.<br />
Five compliance <strong>and</strong> ethics issues to<br />
consider<br />
1. Corruption, bribery, <strong>and</strong> kickbacks<br />
It is <strong>of</strong>ten said that doing business in China<br />
is an ethics <strong>and</strong> compliance mine field, with<br />
2. Trade secrets <strong>and</strong> confidential<br />
information<br />
Chinas booming economy has encouraged<br />
many foreign high-tech companies to open<br />
R&D, design, or manufacturing centers<br />
in the mainl<strong>and</strong>. As a result, more local<br />
employees have access to trade secrets, which<br />
creates a significant risk <strong>of</strong> loss <strong>and</strong> intellectual<br />
property infringement. Chinese laws<br />
do <strong>of</strong>fer some protection <strong>of</strong> trade secrets, but<br />
they also require the aggrieved party to show<br />
evidence <strong>of</strong> actual damage before pursuing<br />
legal remedies.<br />
Continued on page 48<br />
June 2008<br />
46<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
Congratulations to CCEP designees!<br />
The <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> (SCCE) <strong>of</strong>fers<br />
you the opportunity to take the Certified <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong><br />
Pr<strong>of</strong>essional (CCEP) certification exam.<br />
Achieving certification<br />
has required a diligent<br />
effort by these individuals.<br />
CCEP certification<br />
denotes a pr<strong>of</strong>essional with<br />
sufficient knowledge <strong>of</strong><br />
relevant regulations <strong>and</strong><br />
expertise in compliance<br />
processes to assist corporate<br />
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obligations. CCEPs promote<br />
organizational integrity<br />
through the development<br />
<strong>and</strong> operation <strong>of</strong> effective<br />
compliance programs.<br />
Jennifer A. Allison<br />
Robert G. Anderson<br />
Eduardo N.T. Andrade<br />
Virginia Rae Bly<br />
Cathi Bowman<br />
Lizza Sue Catalano<br />
Carrie Susan Cloud<br />
Karen J. Coleman<br />
Denise M. Dechiaro<br />
Jill Ustane Edmondson<br />
Barry Joe Elmore<br />
Leah M. Fitzgerald<br />
Terry D. Goatley<br />
Mark D. Goodman<br />
Lisa V. Gressel<br />
Charles W. Hagen<br />
Keith R<strong>and</strong>all Hawley<br />
Erik Allen Hennings<br />
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Johnston<br />
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Darrell Glenn<br />
Kennemer<br />
Arlene D. Knighten<br />
Nickie F. Kubasak<br />
Rachel Deonna Kurtz<br />
Latour Rey Lafferty<br />
Kari Alene Lidbeck<br />
Marco Loures<br />
Carolyn R. Marks<br />
Karen Kisiolek Matz<br />
Carol M. Mcginnis<br />
Betsey Mcgrail<br />
Michelle L. Miller<br />
Jo F. Molock<br />
Mary Sue Moore<br />
Linda Joy Moore<br />
Robert Thomas<br />
Morgan<br />
Mark Neu<br />
Maryellen O’Neill<br />
Kate R. Otto<br />
Mary Helen Peters<br />
Anthony Reeves<br />
W<strong>and</strong>a Renee Robins<br />
Paula F. Saddler<br />
Jane Hummel<br />
Simmons<br />
John D. Springer<br />
Stanley D. Stemkoski<br />
Angelle S Stuart<br />
Mauri Michelle<br />
Thornton<br />
Dorothy Vedvick<br />
Marilyn J. Williams<br />
Cheryl Ann Wilson<br />
Caveni Y. Wong<br />
Mark F. Wood<br />
Kathleen P. Woods<br />
Rachel L. Yaron<br />
Joseph M. Yonek<br />
John Robert Z<strong>and</strong>er<br />
Questions? Please contact:<br />
Liz Hergert at +1 952 933 4977, 888 277 4977 or CCEP@corporatecompliance.org.<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> & <strong>Ethics</strong><br />
6500 Barrie Road, Suite 250, Minneapolis, MN 55435<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
47
Global <strong>Compliance</strong>: China ...continued from page 46<br />
Deal with it<br />
The passive <strong>and</strong> reactive approach to protecting<br />
trade secrets by the Chinese law, the lack<br />
<strong>of</strong> preventative remedies, <strong>and</strong> inefficient enforcement<br />
create some serious complications.<br />
Take strong proactive steps including: 1) Create<br />
a strong <strong>and</strong> unambiguous confidentiality<br />
policy; 2) Require all employees to sign confidentiality<br />
<strong>and</strong> non-compete agreements; 3)<br />
Introduce the disclosure procedure to identify<br />
conflicts <strong>of</strong> interest <strong>and</strong> concurrent employment;<br />
<strong>and</strong> 4) Conduct periodic audits.<br />
3. Conflicts <strong>of</strong> interest<br />
Chinese culture <strong>of</strong>fers a somewhat different<br />
perspective on conflicts <strong>of</strong> interest. Favoritism<br />
is fairly common. Favoring family <strong>and</strong> cronies<br />
has roots in Chinese Confucian tradition,<br />
although some counter arguments exist as<br />
well. The system <strong>of</strong> guanxi may also be a<br />
contributing factor.<br />
Deal with it<br />
Evaluate how big the problem is <strong>and</strong> what<br />
the costs <strong>and</strong> consequences are. If you tackle<br />
it, tread carefully; imposing US policies in<br />
this area will likely be met with resistance <strong>and</strong><br />
will not achieve much. Introduce transparent<br />
hiring <strong>and</strong> purchasing processes <strong>and</strong> criteria.<br />
Reward employees for recommending a successful<br />
job c<strong>and</strong>idate or a vendor, but remove<br />
that employee from the decision-making process.<br />
Introduce other ways <strong>of</strong> favoring family<br />
<strong>and</strong> friends, such as <strong>of</strong>fering discounts <strong>and</strong><br />
events. Try to make guanxi your ally rather<br />
than your enemy.<br />
4. Workplace discrimination<br />
Although there is a ban on discrimination<br />
for government posts, Chinese companies<br />
routinely refuse to employ people because <strong>of</strong><br />
their sexual orientation, medical condition,<br />
or gender. Discrimination lawsuits against<br />
Western companies in China are relatively<br />
rare, but not unheard <strong>of</strong>. Nokia China is<br />
facing legal action for allegedly turning away<br />
a successful applicant in Guangdong because<br />
he is a carrier <strong>of</strong> Hepatitis B (HBV). In a<br />
recent case involving giant Chinese appliance<br />
maker Galanz, a man hanged himself just<br />
days after he was denied employment because<br />
<strong>of</strong> HBV. Not only can discrimination result<br />
in costly lawsuits <strong>and</strong> settlements, the damage<br />
to a companies reputation can be significant.<br />
Deal with it<br />
Zero tolerance, active policy enforcement,<br />
<strong>and</strong> training are the best <strong>and</strong> probably the<br />
most cost-effective solutions. Apply the same<br />
st<strong>and</strong>ards you would apply at home. Make<br />
sure your local HR <strong>and</strong> hiring managers<br />
underst<strong>and</strong> the importance <strong>of</strong> an antidiscrimination<br />
policy, the benefits <strong>of</strong> diversity, <strong>and</strong><br />
the consequences for discriminatory conduct.<br />
This is a good example <strong>of</strong> when a Western<br />
company can <strong>and</strong> should apply a higher<br />
st<strong>and</strong>ard than local business practice.<br />
5. Product liability<br />
In the wake <strong>of</strong> product recalls <strong>and</strong> safety<br />
scares in the United States <strong>and</strong> Europe, ranging<br />
from dog food to seafood <strong>and</strong> from tires<br />
to toys, product liability risk is suddenly at<br />
the top <strong>of</strong> the agenda for many companies<br />
that have their products made in China. The<br />
root causes <strong>of</strong> the problem are multiple, the<br />
most obvious being long <strong>and</strong> <strong>of</strong>ten complex<br />
supply chains in China, but also include<br />
an extremely fragmented manufacturing<br />
industry, weak manufacturing <strong>and</strong> quality<br />
st<strong>and</strong>ards, <strong>of</strong>ten inefficient or non-existent<br />
quality controls both by the Chinese <strong>and</strong> by<br />
the foreign importers who sometimes put too<br />
much trust in their suppliers, <strong>and</strong> differing<br />
business cultures.<br />
Deal with it<br />
Depending on the severity <strong>and</strong> the nature <strong>of</strong><br />
risk <strong>and</strong> the scope <strong>and</strong> extent <strong>of</strong> the involvement<br />
with Chinese manufacturing, a company<br />
may take some <strong>of</strong> the following steps:<br />
1) Make an effort to underst<strong>and</strong> your supply<br />
chain in China;<br />
2) Know your risks by conducting a proper<br />
periodic risk assessment on a proactive<br />
basis;<br />
3) Insist that your prime vendors inform you<br />
when they change subcontractors or make<br />
other product substitutions <strong>and</strong> pass this<br />
requirement along the line;<br />
4) Introduce quality control st<strong>and</strong>ards that<br />
your vendors will need to adhere to as the<br />
condition <strong>of</strong> doing business with you <strong>and</strong><br />
make sure these requirements are passed<br />
along the supply chain;<br />
5) Educate your vendors <strong>and</strong> help them do<br />
things right; most Chinese companies are<br />
reputable <strong>and</strong> care about their reputation<br />
<strong>and</strong> product quality as much as you do;<br />
6) Trust but verify: Implement audit <strong>and</strong> inspection<br />
programs for the vendor facilities<br />
<strong>and</strong> introduce your own quality control<br />
for all imports with a proper evaluation<br />
for design <strong>and</strong> manufacturing defects; <strong>and</strong><br />
7) Create a comprehensive quality control<br />
program. It may not prevent all risks, but<br />
it may serve as an affirmative defense. n<br />
Reprinted with permission from Ethisphere<br />
Magazine September 19, 2007.<br />
June 2008<br />
48<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
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June 2008<br />
49
Statute Gone Wild?<br />
By Guy Aulabaugh<br />
Editor’s note: Guy Aulabaugh is the Custodian <strong>of</strong><br />
Records <strong>and</strong> <strong>Compliance</strong> Officer for Mantra Films,<br />
Inc. in Santa Monica, California. He may be<br />
contacted by e-mail at guyaulabaugh@yahoo.com.<br />
Following a brief description <strong>of</strong> the legal issues<br />
this company has faced, Guy explains how their<br />
<strong>Compliance</strong> department was designed to prevent<br />
future problems. This article addresses compliance<br />
with child pornography laws. Other charges<br />
against Mantra <strong>and</strong> Joe Francis are beyond the<br />
scope <strong>of</strong> this article.<br />
Mantra Films, Inc. (Mantra) makes<br />
the ever-controversial reality-based<br />
shows under the br<strong>and</strong> name “Girls<br />
Gone Wild.” Mantra is owned <strong>and</strong> run by<br />
the inimitable Joe Francis, whose high-pr<strong>of</strong>ile<br />
successes <strong>and</strong> tribulations are known by many<br />
who watch the various cable television news<br />
programs <strong>and</strong> talk shows. This article attempts<br />
to describe, in brief, Mantra’s creation <strong>of</strong> its<br />
<strong>Compliance</strong> department <strong>and</strong> implementation<br />
<strong>of</strong> policies <strong>and</strong> procedures created to maintain<br />
compliance pursuant to Title 18, Section 2257<br />
<strong>of</strong> the United States Code (18 U.S.C. § 2257)<br />
<strong>and</strong> all <strong>of</strong> the underlying regulations incumbent<br />
thereto. Title 18, Section 2257 governs the<br />
record keeping requirements for the production<br />
<strong>of</strong> any book, magazine, periodical, film,<br />
videotape, or other matter that contains sexually<br />
explicit material that is intended to be mailed<br />
or shipped interstate or in foreign commerce.<br />
The statute also requires that a disclosure notice<br />
appears on the packaging <strong>of</strong> this material.<br />
On Dec. 13, 2006, Mantra pled guilty to the<br />
charges <strong>of</strong> failing to keep sufficient records as<br />
required by 18 U.S.C. § 2257, as well as various<br />
labeling violations regarding some DVD<br />
sleeves that were improperly printed. The<br />
record keeping violations stem from content<br />
that was shot in 2002 involving two women<br />
who had misrepresented their ages to the<br />
cameraman, <strong>and</strong> filled out false written release<br />
forms in order to get on a Girls Gone Wild<br />
show. They were 17 years old, rather than 18<br />
years old as they represented. As a side note,<br />
Joe Francis had never met these two individuals,<br />
nor was he even in the country when<br />
these women were filmed. Camerapersons are<br />
independent contractors <strong>and</strong> remain personally<br />
liable for all <strong>of</strong> the content which they<br />
shoot. However, Title 18, Section 2257 attaches<br />
a form <strong>of</strong> strict liability on behalf <strong>of</strong> the<br />
custodian <strong>of</strong> records for any company that fails<br />
to maintain the required records. Under the<br />
statute, the custodian <strong>of</strong> records is liable, per<br />
se, for any record keeping violations regarding<br />
Title 18 content. The statute further allows the<br />
US Department <strong>of</strong> Justice to conduct periodic<br />
warrantless inspections <strong>of</strong> such records for any<br />
company who produces Title 18 content.<br />
Congress passed the Child Protection <strong>and</strong> Obscenity<br />
Enforcement Act <strong>of</strong> 1988 to further support<br />
its laws against child pornography. Among<br />
other things, it requires producers <strong>of</strong> certain<br />
kinds <strong>of</strong> content to maintain records regarding<br />
the individuals depicted. Congress subsequently<br />
modified the recordkeeping provisions at least<br />
twice, with the Child Protection Restoration<br />
<strong>and</strong> Penalties Enhancement Act <strong>of</strong> 1990, <strong>and</strong><br />
the Prosecutorial Remedies <strong>and</strong> Tools Against<br />
the Exploitation <strong>of</strong> Children Today Act <strong>of</strong> 2003<br />
(PROTECT Act). All the various amendments<br />
have made the reach <strong>of</strong> the recordkeeping requirements<br />
<strong>of</strong> 18 U.S.C. § 2257 fairly extensive.<br />
The requirements apply only to producers, but<br />
that term is defined broadly. Producers include<br />
all those who create a visual representation<br />
<strong>of</strong> actual sexually explicit conduct, through<br />
videotaping, photographing, or computer<br />
manipulation. These kinds <strong>of</strong> producers are<br />
defined as “primary producers” under the<br />
Guy Aulabaugh<br />
regulations issued by the Attorney General.<br />
Those who use such images for “assembling,<br />
manufacturing, publishing, duplicating, reproducing,<br />
or reissuing” any material containing<br />
that image for a commercial purpose, from<br />
a photograph to a magazine or film, are also<br />
producers. Finally, those who upload such<br />
images to a Website or otherwise manage the<br />
content <strong>of</strong> a Website are considered producers.<br />
These last two types <strong>of</strong> producers are considered<br />
“secondary producers” under the applicable<br />
regulations. On the other h<strong>and</strong>, those<br />
who process images <strong>and</strong> have no commercial<br />
interest in such images, those who merely distribute<br />
the images, those who provide Internet<br />
or telecommunications services, or who store,<br />
retrieve, host, format, or translate the communication<br />
without selecting or altering its<br />
content are not producers. They are, however,<br />
required to verify that the required records<br />
have been kept by the creator <strong>and</strong> that disclosure<br />
statements are attached to the images.<br />
Pursuant to a Deferred Prosecution Agreement,<br />
Mantra’s compliance is confirmed<br />
through a federal monitoring program,<br />
wherein we submit quarterly reports including<br />
all the necessary compliance documentation<br />
<strong>and</strong> information for all <strong>of</strong> our products. The<br />
documentation is audited by a federal monitor,<br />
whose reports are conveyed to the Obscenity<br />
Continued on page 54<br />
June 2008<br />
50<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
SCCE <strong>Corporate</strong> Members<br />
AIG<br />
Contact: Christine Mullen<br />
Chief <strong>Compliance</strong> Officer<br />
Christine.mullen@aig.com<br />
www.aig.com<br />
Alfaro-Abogados<br />
Contact: Liliana Alfaro<br />
Partner<br />
lilianaarauz@alfarolaw.com<br />
www.alfarolaw.com<br />
Allstate Insurance Company<br />
Contact: Lyn A. Scrine-Filipovic<br />
Director <strong>of</strong> Integration<br />
Iscrine@allstate.com<br />
www.allstate.com<br />
Amgen Inc<br />
Contact: Kathleen Schump<br />
Executive Assistant<br />
kschump@amgen.com<br />
www.amgen.com<br />
<strong>Compliance</strong> Spectrum<br />
Contact: Chrisan Herrod<br />
VP Marketing & Business Dev (IND)<br />
chrisan.herrod@compliancespectrum.com<br />
Dell<br />
Contact: Jeannie McCarter<br />
Jeannie_mccarter@dell.com<br />
Epcor<br />
Contact: Cindy McCracken<br />
Executive Assistant<br />
cmccracken@epcor.ca<br />
Ernest & Young<br />
Chris Ideker<br />
Global Solutions Leader<br />
chris.ideker@ey.com<br />
Foley & Lardner LLP<br />
Contact: Cheryl Wagonhurst<br />
Partner<br />
cwagonhurst@foley.com<br />
www.foley.com<br />
Genentech<br />
Summar Davidow<br />
Sr. Admin Associate<br />
davidow.summar@gene.com<br />
Georgia System Operations<br />
Contact: Andrea Barclay, CCEP<br />
<strong>Corporate</strong> <strong>Compliance</strong> Admin<br />
<strong>and</strong>rea.barclay@gasoc.com<br />
www.gasoc.com<br />
Global <strong>Compliance</strong><br />
Karen Kistenmacher<br />
Director Marketing Communications<br />
karen.kistenmacherf@globalcompliance.com<br />
Holl<strong>and</strong> & Knight LLP<br />
Contact: Christopher A. Myers,<br />
Partner<br />
chris.myers@hklaw.com<br />
www.hklaw.com<br />
IFCO Systems NA Inc.<br />
Contact: Steve Worster<br />
VP <strong>Compliance</strong><br />
steve.worster@ifcosystems.com<br />
www.ifcosystems.com/america/na/en/<br />
index.php<br />
Integrity Interactive Corporation<br />
Contact: Michael R. Levin, Esq<br />
Dir <strong>Compliance</strong> & <strong>Ethics</strong> Services<br />
melvin@i2c.com<br />
www.integrity-interactive.com<br />
Jones Day<br />
Contact: Robert C. Cook<br />
Partner<br />
ccook@jonesday.com<br />
www.jonesday.com<br />
LRN<br />
Contact: Adam Turtletaub<br />
aturtletaub@lrn.com<br />
www.lrn.com<br />
Medtronic<br />
Contact: Amy Patterson<br />
amy.j.patterson@medtronic.com<br />
www.medtronic.com<br />
Metro Water District <strong>of</strong> Southern CA<br />
Contact: Edith Yamasaki<br />
Sr. Administrative Analyst<br />
eyamasaki@mwdh2o.com<br />
www.mwdh2o.com<br />
Micros<strong>of</strong>t Corporation<br />
Contact: Odell Guyton<br />
Senior <strong>Corporate</strong> Attorney<br />
& Director <strong>of</strong> <strong>Compliance</strong><br />
odellg@micros<strong>of</strong>t.org<br />
www.micros<strong>of</strong>t.com<br />
Nortel<br />
Contact: Robert J. Bartzokas<br />
Chief <strong>Compliance</strong> Officer<br />
rbartzok@nortel.com<br />
Parson Consulting<br />
Contact: James Clendenen<br />
Dir West Region<br />
Parson Consulting<br />
jclendenen@parsonconsulting.com<br />
www.parsonconsulting.com<br />
PNM Resources<br />
Contact: Sarah Smith<br />
Director <strong>Ethics</strong> & <strong>Compliance</strong><br />
sarah.smith@pnmresources.com<br />
PotashCorp<br />
Contact: Ann M. Baltys<br />
Legal Assistant<br />
ambaltys@potashcorp.com<br />
www.potashcorp.com<br />
PricewaterhouseCoopers LLP<br />
Contact: Christopher Michaelson<br />
Director<br />
christopher.michaelson@us.pwc.com<br />
www.pwc.com<br />
Qwest Communications<br />
Contact: Dave Heller<br />
Chief <strong>Ethics</strong> & <strong>Compliance</strong> Officer<br />
dave.heller@qwest.com<br />
www.qwest.com<br />
RedHawk Communications, Inc.<br />
Antoinette Taylor<br />
Director <strong>of</strong> Marketing<br />
ataylor@redhawkethics.com<br />
Shook, Hardy & Bacon LLP<br />
Contact: Carol A. Poindexter<br />
Partner<br />
cpoindexter@shb.com<br />
www.shb.comcom<br />
The Network<br />
Contact: Angella Davis<br />
Marketing Manager<br />
angelladavis@tnwinc.com<br />
www.tnwinc.com<br />
Tozzini, Freire, Teixeira, E Silva<br />
Shin Jae Kim Hong<br />
Partner<br />
shin@tozzinifreire.com.br<br />
TSYS, Inc.<br />
Contact: Daniel J. Priban<br />
Director Risk & <strong>Compliance</strong><br />
dpriban@tsys.com<br />
www.tsys.com<br />
United Parcel Service<br />
Contact: Ruth Ward<br />
Comp & <strong>Ethics</strong> Supervisor<br />
rmward@ups.com<br />
www.ups.com<br />
Wal-Mart Stores<br />
Contact: Gary Hill<br />
Dir International <strong>Ethics</strong><br />
gary.hill@wal-mart.com<br />
www.walmart.com<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
51
New SCCE Members<br />
The <strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> Florida<br />
<strong>and</strong> <strong>Ethics</strong> welcomes the following new n Susan A. Blair, University <strong>of</strong> FL<br />
members <strong>and</strong> organizations. All member n Maria A. Casablanca, Nortel<br />
contact information is available on the n Dena M. Coelho, Fidelity National Info<br />
SCCE Web-site in the Members-Only Services<br />
section: www.corporatecompliance.org. n Karen A. Hancock, First Coast Service<br />
Options<br />
Arizona<br />
n Cylina M. Sides, First Coast Service<br />
n Karen Ansell, Apollo Group Inc<br />
Options Inc<br />
California<br />
Georgia<br />
n Sadia Ali<br />
n Christian R. Cooper<br />
n Michael Barthe, Hythiam, Inc.<br />
n Thomas J. Kelleher, Jr., Smith, Currie &<br />
n Doug Beeuwsaert, Lyndon Group LLC Hancock LLP<br />
n Gustavo De La Torre, Santa Clara Valley<br />
Water District<br />
Hawaii<br />
n Suzanne Dotzler, Amgen Inc<br />
n H David Burge, Kamehameha Schools<br />
n Wendy Blair Fields, Amgen Inc<br />
n Laurie Hanvey, Methodist Hospital Idaho<br />
n Lynda Hilliard, Univ <strong>of</strong> California<br />
n Stacy Pearson, CPA, Boise State University<br />
n Anthony Jackson, Methodist Hospital n Julian R. Rush, Policy Technologies<br />
n Music M. McCall, City Of San Diego/ International Inc<br />
Office <strong>of</strong> <strong>Ethics</strong> & Integrity<br />
n Mark Neu, CCEP, Tenet<br />
Illinois<br />
n Jim Passey, Huntington Hospital<br />
n Margaret F. Brown, Coram Inc<br />
n Jo Anne SawyerKnoll, City <strong>of</strong> San Diego/ n Christine J. Efantis, Molex Inc<br />
Office <strong>of</strong> <strong>Ethics</strong> & Integrity<br />
n Elena A. Lovoy, Law Offices <strong>of</strong> Elena A<br />
n Deborah Tolomeo, King & Spalding Lovoy<br />
n Vinca Weatherly, Amgen Inc<br />
n Julie Palles, FirstGroup America<br />
n Janice E. Williams, Pechanga Development n Scott M. Permentier, DePaul University<br />
Corp<br />
n Mary Jo Rizzo, Depaul University<br />
n Victoria Ruder, Community Counseling<br />
Colorado<br />
Centers <strong>of</strong> Chicago<br />
n Doris Blyth, University <strong>of</strong> Colorado<br />
n Greg Pachner, Noble Energy, Inc. Indiana<br />
n Sharon L. Thompson, MA MFCT, MWH n William Mark Brooks, Eli Lilly <strong>and</strong><br />
Global Inc<br />
Company<br />
n Christine S. White, Molson Coors Brewing Co n Kira A. Cooper, MED Institute Inc<br />
n Steven Guymon, Eli Lilly & Company<br />
Conneticut<br />
n Lawrence Plutko, Yale New Haven Health Kentucky<br />
n Rachel D. Green, Toyota<br />
Washington, DC<br />
n John E. Steiner, Univ <strong>of</strong> KY<br />
n Dan I. Stoll, US Agency for Intl Development<br />
n Shawn Wright, Blank Rome LLP<br />
Massachusetts<br />
n Tyler Hart, Iron Mountain<br />
n Kara L. Hill<br />
n Kevin J. Kelley, JD, MPA, CHC, The<br />
Kelley Law Office<br />
n Bethany M. Machacek, CCEP, Integrity<br />
Interactive Corporation<br />
Maine<br />
n Mary Edith St Jean, St Joseph Hospital<br />
Michigan<br />
n Mindy Willis, DTE Energy<br />
Missouri<br />
n Jan Jackson, MCHCP<br />
North Carolina<br />
n Alice A. Burkholder, City <strong>of</strong> Greensboro<br />
n Edward P. Paitsel, Nortel Networks<br />
n Ch<strong>and</strong>rika Raghavan, Talecris Biotherapeutics<br />
n Tina Tyson, Duke Univ School <strong>of</strong> Medicine<br />
n Christian E. Whicker, Duke Energy<br />
Nebraska<br />
n Lisa M. Matya, ACI Worldwide<br />
New Jersey<br />
n Douglas Horr, CIA CBA EDM, Stevens<br />
Institute <strong>of</strong> Technology<br />
New York<br />
n Diane Delaney-Sheehan, New York University<br />
n William J. Dimmig, People Inc<br />
n Barbara DiTata, Esq, NYC School Const<br />
Authority<br />
n Terry Dylewski, Binghamton University -<br />
State University <strong>of</strong> New York<br />
n Valerie Haliburton, Colgate-Palmolive<br />
Company<br />
n S. Rebecca Holl<strong>and</strong>, New York University<br />
n Marcia Isaacson, State University <strong>of</strong> New York<br />
n Robert Jinnett, AIG<br />
n Monique Phillips, NYU Medical Center<br />
n Elena Rossano, Taro Pharmaceuticals USA Inc<br />
June 2008<br />
52<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
n Donna Scuto, State Univ <strong>of</strong> NY At Buffalo<br />
n Gwen N. Shannon, Federal Reserve Bank<br />
<strong>of</strong> New York<br />
n Steve Stabile, The New School<br />
n C Veronica Williams, Metropolitan<br />
Transportation Authority<br />
Ohio<br />
n Jill Springer, The Ohio State University<br />
Oregon<br />
n Patty A. Bragg, Providence Health &<br />
Services<br />
n Earl A. Curtis, Portl<strong>and</strong> General Electric<br />
n Thom W. Disco, Providence Health &<br />
Services<br />
n Julie Ebner, Providence Health & Services<br />
n Monique Lamirault, Schnitzer Steel<br />
n Sally Rhys, Coaching for Perspective<br />
Pennsylvania<br />
n Julie Agris, Vantage Holding Company,<br />
LLC<br />
n Bessie G. Jordan, GlaxoSmithKline<br />
n Colleen P. Lyons, The Lyons Trust<br />
n Maria M. Perez, McNeil Consumer<br />
Healthcare<br />
Puerto Rico<br />
n Antonio Aponte-Sanchez, FHC HS <strong>of</strong><br />
Puerto Rico<br />
Tennessee<br />
n William A. Moles, II, CIA, University <strong>of</strong><br />
Tennessee<br />
Texas<br />
n Douglas Arrington, UT Southwestern<br />
n Michael Bl<strong>and</strong>a, Texas State University<br />
n Cathy Jones, Shell Oil<br />
n Timothy B. Morris, Nortel<br />
n Elaine Pearson, Univ <strong>of</strong> Houston Downtown<br />
n K Royal, S<strong>and</strong>ra Day O’Connor College<br />
<strong>of</strong> Law<br />
n Alan R. Woods, Baker Hughes Incorporated<br />
Virginia<br />
n Rhonda Bishop, Virginia Commonwealth<br />
University<br />
n Robert C. Brown, CFE, Capital One<br />
Financial Corp<br />
n Jennifer L. Burruss, VA Commonwealth<br />
University<br />
n Jaycee L. Dempsey, VA Commonwealth<br />
University<br />
n Peggy L. Fischer, PhD CFE, OIG<br />
National Science Foundation<br />
n Christiana Franchet, L-3 Communications<br />
n Brian E. Hess, CFE, OIG National<br />
Science Foundation<br />
n Cathy S. Kilcoyne, VSE Corporation<br />
Washington<br />
n Martin T. Biegelman, CFE, Micros<strong>of</strong>t<br />
Corp<br />
n Ed A. Bourassa, T-Mobile<br />
n Rich Cohan, FACHE CCP, Providence<br />
Health & Services<br />
n Sean C. Delich, T-Mobile<br />
n Meg Grimaldi, Providence Health &<br />
Services<br />
n Brock RJ Phillips, CPA CFE, Micros<strong>of</strong>t<br />
Corp<br />
n Marc Stepper, Puget Sound Energy<br />
Wisconsin<br />
n Lisa Martinez, Manpower, Inc<br />
Ontario, Canada<br />
n Kevin B. Coon, Baker & McKenzie<br />
Sweden<br />
n Annika Ohlsson, Amgen AB<br />
Call for Statistical Surveys<br />
SCCE is looking for informational studies/surveys that<br />
<strong>of</strong>fer statistics designed to gauge the state <strong>of</strong> corporate<br />
compliance, integrity, governance, <strong>and</strong> ethics. This<br />
information would be made available on the SCCE Web<br />
site’s Resources page. If you are aware <strong>of</strong> any studies/<br />
surveys that would benefit your colleagues in making<br />
better <strong>and</strong> more informed decisions, please e-mail Marlene<br />
Robinson at marlene.robinson @corporatecompliance.org.<br />
Thank you for your help!<br />
SCCE’S<br />
MISSION<br />
SCCE exists to champion<br />
ethical practice <strong>and</strong><br />
compliance st<strong>and</strong>ards<br />
in all organizations <strong>and</strong><br />
to provide the necessary<br />
resources for compliance<br />
pr<strong>of</strong>essionals <strong>and</strong><br />
others who share these<br />
principles.<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org<br />
June 2008<br />
53
Statute Gone Wild? ...continued from page 50<br />
Prosecution Task Force, which in turn submits<br />
its findings to the federal judge under whose<br />
jurisdiction our performance is judged.<br />
The monitoring program includes a work<br />
plan involving the implementation <strong>of</strong> improved<br />
compliance policies <strong>and</strong> procedures.<br />
This includes the establishment <strong>of</strong> a robust<br />
training program for all Mantra employees,<br />
independent contractors, <strong>and</strong> third-party<br />
agents. Mantra has implemented an internal<br />
audit mechanism in order to track labeling<br />
requirements <strong>and</strong> age verification. Its<br />
technology has been upgraded <strong>and</strong> exp<strong>and</strong>ed,<br />
allowing it to obtain better images <strong>of</strong> the age<br />
verification documentation. Further, Mantra<br />
employs the services <strong>of</strong> independent private<br />
investigators to verify performers’ identities.<br />
The whole process is quite extensive <strong>and</strong><br />
most likely sets the st<strong>and</strong>ard in the adult<br />
entertainment industry. Mantra is proud that<br />
the Department <strong>of</strong> Justice has been rather<br />
supportive in this process <strong>and</strong> applauds our<br />
efforts as being a model in compliance initiatives<br />
for the adult entertainment industry.<br />
The way that Mantra complies with the<br />
statute is actually quite simple, because the<br />
requirements <strong>of</strong> the statute are fairly simple.<br />
For each <strong>and</strong> every performer who appears<br />
in Title18 content, we have to obtain a clear<br />
image <strong>of</strong> a state or federally issued picture<br />
identification card, verifying that, in fact, the<br />
performer is <strong>of</strong> majority age.<br />
I try to look at the compliance process in a<br />
holistic light; discovering, creating, implementing,<br />
<strong>and</strong> finally developing, being one organic<br />
process. This process is a single-minded<br />
function – there is no room for mistakes. We<br />
must maintain absolute perfection <strong>and</strong> be —<br />
COMPLIANT...such a nice sounding word.<br />
As the custodian <strong>of</strong> records, I bear the responsibility<br />
<strong>and</strong>, [hard swallow] criminal liability<br />
<strong>of</strong> making sure that we have the necessary<br />
documentation for all Title 18, Section 2257<br />
content. This requires Mantra’s <strong>Compliance</strong><br />
Department to identify all Title 18 content,<br />
obtain <strong>and</strong> record all required images <strong>and</strong><br />
documentation, <strong>and</strong> finally, build the database<br />
containing all <strong>of</strong> the information, documentation,<br />
<strong>and</strong> images accessible, according to the<br />
regulations underlying 18 U.S.C. § 2257.<br />
Otherwise, Mantra’s <strong>Compliance</strong> department<br />
performs the same functions as any other<br />
<strong>Compliance</strong> department. It trains all <strong>of</strong> Mantra’s<br />
employees, independent contractors, <strong>and</strong><br />
third-party agents in its compliance policies<br />
<strong>and</strong> procedures. It tracks any <strong>and</strong> all content<br />
produced by Mantra, all <strong>of</strong> which must be<br />
logged into the database, retaining all necessary<br />
compliance documentation <strong>and</strong> rights<br />
information for each individual performer.<br />
Before any content is distributed, it must first<br />
be cross-referenced with the database <strong>and</strong><br />
verified as being compliant.<br />
Ironically, Mantra is more <strong>of</strong> a reality-based<br />
content provider than an adult-entertainment<br />
industry provider. I estimate that less than 5%<br />
<strong>of</strong> our content qualifies as content regulated<br />
under 18 U.S.C. § 2257. However, I would<br />
speculate that the more explicit content, which<br />
qualifies as Title 18-governed content, does help<br />
drive the market for our products. Despite our<br />
shows being relatively tame as compared with<br />
much adult content, Mantra <strong>and</strong> its founder<br />
Joe Francis remain popular targets for many talk<br />
show hosts <strong>and</strong> special interest groups. Let’s face<br />
it; our product is controversial. However, critics<br />
<strong>of</strong>ten make false assumptions about the content<br />
produced by Mantra.<br />
Although everyone can agree with the purpose<br />
behind the statute, as one who daily strives to<br />
maintain perfect compliance under 18 U.S.C.<br />
§ 2257, it can be a struggle to determine what<br />
the statute requires. For example, the regulations<br />
fail to adequately define what acceptable<br />
government-issued picture identification is.<br />
Because Mantra’s policies are to maintain<br />
strict compliance with all laws <strong>and</strong> regulations,<br />
it <strong>of</strong>ten is prevented from producing<br />
content that would otherwise be legal. In<br />
other words, even if a potential performer is<br />
clearly over the age <strong>of</strong> 18, if she does not have<br />
a state driver’s license, we do not produce the<br />
content. This includes content that may or<br />
may not be regulated by 18 U.S.C. § 2257.<br />
The consequences are too high to even take a<br />
remote chance that the Department <strong>of</strong> Justice<br />
would construe the content as being noncompliant<br />
with 18 U.S.C. § 2257. Through this<br />
vetting process, I submit that much constitutionally<br />
protected speech is chilled.<br />
Recently, the Sixth Circuit Court <strong>of</strong> Appeals<br />
has overruled 18 U.S.C. § 2257 as being<br />
unconstitutional in its entirely. However, the<br />
Department <strong>of</strong> Justice has obtained an en<br />
banc hearing, providing further review <strong>of</strong> the<br />
court’s decision. Therefore, without stating<br />
anything more specific about the constitutionality<br />
<strong>of</strong> the statute, rest assured that the<br />
debate continues, with no clear solution on<br />
the horizon. Obviously, companies such as<br />
Mantra have no interest in filming underage<br />
performers, <strong>and</strong> the government does reasonably<br />
need an enforcement mechanism in<br />
place to prosecute <strong>and</strong> convict the producers<br />
<strong>and</strong> purveyors <strong>of</strong> child pornography. However,<br />
as it currently st<strong>and</strong>s, individuals could<br />
be criminally convicted <strong>of</strong> a serious crime<br />
for producing content that, in reality, does<br />
not portray any underage performers (even<br />
if it could be proven as such) resulting from<br />
the failure to maintain the particular records<br />
required by 18 U.S.C. § 2257. Hopefully, the<br />
legislature <strong>and</strong> courts will be able to resolve<br />
these issues, so that the legislative purpose<br />
– the protection <strong>of</strong> children – is furthered<br />
as much as possible, without unnecessarily<br />
chilling an unreasonable amount <strong>of</strong> constitutionally<br />
protected speech. n<br />
June 2008<br />
54<br />
<strong>Society</strong> <strong>of</strong> <strong>Corporate</strong> <strong>Compliance</strong> <strong>and</strong> <strong>Ethics</strong> • +1 952 933 4977 or 888 277 4977 • www.corporatecompliance.org
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June 2008<br />
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