Meet Ronald Berenbeim - Society of Corporate Compliance and Ethics

Volume Four
Number Two
April 2007
Bimonthly
Meet
Ronald
Berenbeim
Principle Researcher,
Business Ethics at
The Conference Board
page 18
The elephant in
the room–program
evaluation &
measurement
page 32
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April 2007

feature article
Meet Ronald Berenbeim
Principle Researcher, Business Ethics at The Conference Board
Editor’s Note: José A. Tabuena is with
the Center for Corporate Governance at
Deloitte & Touche LLP and serves on the
Advisory Board for Compliance & Ethics.
He conducted the following interview in
March 2007 with Mr. Ronald Berenbeim,
Principle Researcher, Business Ethics at The
Conference Board. An authority on business
ethics and corporate governance issues,
Mr. Berenbeim has written 44 Conference
Board studies. He can be reached at ronald.
berenbeim@conferenceboard.org
JT: Tell us about The Conference Board
and its involvement in the field of ethics and
compliance, and how you ended up in your
current role with The Conference Board
RB: Since the organization was founded
in 1916, the need to address business ethics
and compliance (E&C) issues has been fundamental
to The Conference Board’s mission.
The current involvement which focuses on
company ethics programs and practices began
in 1986-87 with the confluence of two important
events: (1) insider trading scandals and
(2) defense procurement irregularities.
Insider trading irregularities focused public
interest on business ethics in a way that had
not been seen at least since Watergate and
The Church Committee hearings on Foreign
Corrupt Practices, but it was the defense
contracting issues that had the more lasting
effect. These revelations spawned the Defense
Industry Initiative (DII) which led to the voluntary—and
in some cases, not so voluntary
(pursuant to a settlement agreement)—development
and implementation of company
ethics programs. I am glad to say that some of
the original DII people are still active in The
Conference Board’s Ethics research, councils,
conferences, and working groups.
Up to that time my own work on employee
relations and global management practices had
discussed some ethics issues, but it was a piece
that I did on the transition from owner to
professional management in U.S., European,
and Latin American companies that made the
ethics sale for me. In every case, I found that
a well-articulated code or statement of ethics
was the key to an effective transition, so in
1986-87, I did a research project on ethics
codes and practices. The member response was
very favorable, and we now have a full service
program with research, executive councils, live
and internet conferences and seminars, and
Research Working Groups in which senior
executives work with us on specific research
questions that are of special interest to them.
I joined The Conference Board in 1977. At
the time, I was a recovering lawyer who had
spent my early career in labor relations. I continued
to look at how companies dealt with
labor relations-type problems through studies
of employee complaint systems and plant
closing case studies, and I did some work on
international management organizations and
how companies in the U.S., Europe, Latin
America, and Japan dealt with external pressure
groups. All of these projects have served
me well in developing our ethics research and
working groups, and it has been good preparation
for the contributions that I have been
able to make to our councils and conferences.
JT: I think you will agree that there can be
confusion with the term “governance.” How
do you define corporate governance, and how
does it relate to ethics and compliance
RB: I do agree. Outside of the United
States, the terms are often used interchangeably.
The short-form answer is that ethics is
to such areas as governance and corporate
social responsibility (CSR) as mathematics is
to physics and chemistry. Good physicists and
chemists need to be literate and competent in
mathematics, and governance and CSR specialists
need a comparable facility in ethics.
Operationally, the boundaries between ethics
and governance (the subject with which
the definitions most often describe much the
April 2007
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José Tabuena
same thing) can be understood by describing
the way in which work in is typically divided
in a university political science program.
Governance is akin to “government” – a
descriptive term that focuses on governmental
structure and processes, the division of
authority, and the most efficient and effective
operation of its constituent elements. Ethics
is comparable to “political theory” in that it
addresses the optimal approaches to political
organization, with full consideration given to
the rights and responsibilities of stakeholders.
Compliance addresses the body of rules
that emanate from and are limited by the
organization’s ethical superstructure – much as
our laws have evolved from the Constitutional
principles on which the country was founded.
A good governance system will devise and
administer these rules (and enforce compliance
with the laws to which the sovereign
entity is subject) fairly and with full respect
for the rights of all affected parties.
JT: But what about the board’s role Are
there practical ways that boards of directors
can provide oversight to the ethics and compliance
program and its activities
RB: Directors bring to their task a broad
range of expertise, not just with respect to
operational issues, but in many instances,
from their service as members of other boards.
This collective experience gives the company
the advantage of a great variety of oversight
perspectives. They ought to be the best protection
a company has against the routine design
and implementation of a cookie cutter, onesize-fits-all
approach to company ethics programs.
And, of course, directors are possibly
the most important resource a company has in
an ethics crisis.
Unfortunately, some companies don’t
bring their boards into the ethics discussion
and boards do not seek to be part of the
dialogue until a crisis stage. The Revised U.S.
Sentencing Guidelines mandate the need
for ethics discussion at all levels within the
company (including the board). It is a bit
early to be critical, but thus far, our surveys
have shown that board discussion has focused
largely on the company’s program and how it
works. At least according to our data, boards
that have had discussions about the ethical
dimension of areas where the company may
be exposed to risk are not as common as one
would like to see. And ethics and compliance
risk assessments tend to focus on program
policies, structure, and communications rather
than on the behavioral threats (e.g., employee
intent/incentives) that can actually cause ethics
problems.
JT: What about the relationship of governance
to corporate responsibility or CSR
RB: As is the case with any sovereign
entity, a company has the responsibilities of
citizenship in the community, and today (in
contrast with 30 years ago when I started with
The Conference Board), the community is for
most companies the entire world, not just the
country of incorporation. Thirty years ago,
business ethics was pretty much defined in the
four corners of the contract. A typical business
ethics formulation was the one articulated
by Shylock who said “my word is my bond.”
Throw in some charitable gifts—a few checks
presented by the CEO at high school science
fairs—and you had a pretty good definition
of an ethical company: honesty, high-quality
products, and a little bit of philanthropy.
Today companies are challenged to show
moral restraint in market failure situations
which they can, if they so choose to exploit
to their advantage. It becomes a sustainability
issue—the greatest benefit comes from the
cultivation of long-term relationships of trust.
“Sustainability” is a popular buzz word today,
but it is not a new concept. Henry Ford may
have been its earliest proponent. He said that
he paid his workers more than he had to, so
they would be able to buy his cars. The key
issue now is that the relationship between
the developed and the developing world is
one of persistent market failure, and the way
in which the developed world deals with
that problem will determine, quite likely, the
planet’s long-term sustainability.
JT: I know that The Conference Board has
been studying and surveying ethics and compliance
programs for some time. What are the
major trends that you’ve seen regarding such
programs
RB: The structural elements of a good
ethics program are now widely accepted. For
example, in the 1987 study, relatively few
companies had any kind of ethics training,
and today at least some training (in many
cases, of all employees) is nearly universal in
medium size companies and above. The question
may now be whether or not the training
is sufficiently focused on the particular ethics
exposure of individual employee groups.
In companies with revenues of more than
$500 million a year, you are likely to find a
formally designated program with a person
in charge, resources dedicated, a code of
conduct, a training program, and some sort
of whistle blowing system. So it makes less
sense than it did in the past to use these elements
as benchmarks for good practice. In
any event, my reading of the 2004 Revised
Continued on page 20
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April 2007
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Meet Ronald Berenbeim ...continued from page 19
Sentencing Guidelines is that the job is to
promote an ethical culture throughout the
company. Business ethics programs have now
reached a defining moment similar to that
of the Total Quality initiatives of the early-
and mid-1990s. Following that model, will
functional operations such as sales, marketing,
and Human Resources eventually have their
own ethics programs Arguably, much of this
has already occurred in Finance. It seems
inevitable that it will happen in this way, and
if and when it does, we may be able to subject
ethics programs to more traditional metrics
for program success, such as return on investment,
productivity, etc.
JT: How has the ethics and compliance
profession itself changed over time
RB: First we need to define what is meant
by the ethics and compliance profession. Of
course there are practitioners–company ethics
and compliance officers and the consultants
that advise them and their companies.
Academics and even journalists who have
focused on business ethics issues are also
part of what I would call the “profession.”
There are the various institutes and associations
everywhere in the world devoted to the
dissemination and exchange of information
on business ethics. And finally, there are the
global organizations like the United Nations,
OECD [Organisation for Economic Cooperation
and Development], World Bank,
and non-governmental organizations such as
Transparency International that have made
significant contributions to addressing business
ethics problems. I have had an opportunity
to work with all of these people, and
perhaps the most important change I have
seen in the last 20 years is that each of these
professional categories now knows about the
others and has an active interest in what they
are doing. In addition, there are now people
like myself who move freely throughout what
I would call the global business ethics community.
To give you just one example of how this
fellowship of interest works, several months
ago, Lori Tansey Martens, President of the
International Business Ethics Institute, sent an
e-mail to her friends and colleagues (not exactly
a small number of people) asking for comments
on the question “Has compliance killed
business ethics” The number of responses and
the variety of sources from which they came
was frankly quite surprising, even to me.
By the way, I do not believe that compliance
has killed business ethics and that was, I
think, a minority view. A surprising number
of corporate practitioners said that it had.
They remembered, as I did, the early days
when they and others were shaping and defining
this new field. In this regard, it is worth
noting that perhaps the most important thing
about ethics is that it consists in large measure
of arguments without end, and as long as you
have the level of concern and emotion about
ethics that Lori’s invitation generated, it is
hard to see how compliance has “killed” it.
JT: Is there value for a chief compliance
officer (CCO) to benchmark or otherwise
compare his or her program to other organizations
Are there benchmarks you recommend
RB: I don’t favor benchmarking for ethics
programs. Ethics programs should emanate
from a company’s history, long-standing policies
that have stood the test of time, and its
on-going internal discussions of what kind of
company it wants to be. Once someone from
a household-name company came up to me
at a Conference Board Ethics Conference and
said “our board used your last study to benchmark
our ethics program.” Who wouldn’t
feel flattered by such a remark But I was also
uncomfortable. As he continued, I realized
why. “The board,” he said, “was concerned
that, unlike a majority of the programs in
your survey, ours was not established by a
board resolution.” Of course, it wasn’t. The
company had one of the oldest and most
admired ethics programs in the United States.
It was established by top management, as were
most of the early initiatives, at a time when
boards did not greatly concern themselves
with such matters. By all means, read the
benchmarking studies, but focus on what the
participants have to say about what works
and what doesn’t, not what percentage of the
respondents do this or that.
JT: From your research, what have you
observed on how government actually applies
the criteria for an “effective compliance program”
from the Sentencing Guidelines, the
DOJ memos, or the SEC Seabord Report in
deciding whether to charge or give credit to a
company that’s been prosecuted
RB: I have observed very little, and it is
for that reason that The Conference Board
is launching its research group on Ethics
& Compliance Criteria in Government
Enforcement Decisions.
We are going to engage governmental
enforcement authorities (federal, state, regulatory)
in a dialogue with the Research Working
Group member companies regarding the use
of ethics and compliance criteria in enforcement
decisions. In addition, we will assemble
a database of cases, memoranda, and other
pertinent documents. Our first meeting will
be April 4-5 this year in Washington, DC. As
of this writing, nine companies have joined
and others have expressed serious interest. The
group will operate for 12-15 months and will
hold two additional live and three Webcast
meetings, and companies are welcome to join
us at any stage to help frame and direct the
research.
We are going to look at U.S. sentencing,
charging, and federal agency enforcement
decisions and engage in a similar process with
respect to state efforts. We will also look at
civil litigation and voluntary enforcement
Continued on page 23
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Meet Ronald Berenbeim ...continued from page 20
initiatives in other countries. With respect to
the global phenomenon of ethics and compliance
programs, attorney Jeff Kaplan (who will
be leading the Research Working Group) and
I have just published “The Convergence of
Principle and Rule-Based Ethics Programs:
An Emerging Global Trend” (EA 231, The
Conference Board, 2007).
In particular, we shall explore how government
assesses the efficacy of the various
compliance program functions or compliance
program attributes. Our tentative list of such
functions and attributes includes board oversight,
senior management engagement, risk
prioritization and assessment, investigations
and discipline, training/communications,
whistle-blowing systems, compensation/incentives,
application of E&C programs to new
risk areas (such as sales and marketing), and
extension to third parties (such as agents, suppliers,
and joint venture partners).
Finally, we expect to analyze government
enforcement decisions in terms of particular
areas of law that are of interest to the Research
Working Group membership (e.g., corruption,
competition).
JT: Do you think it makes a difference if
the chief compliance officer operates independently
of the in-house legal department
RB: Since the legal department is not
immune to compliance breaches, it makes
a good deal of sense for the functions to be
separated. In-house legal is not necessarily the
best department for handling problems once
they have occurred. Lawyers are trained to find
safe harbors and to make sure that their clients
do not make damaging admissions. These
are important and honorable roles, but these
methods are not always best suited to damage
control and maintaining or restoring a company’s
credibility. Were I the general counsel of a
manufacturer facing a product recall decision,
I might vigorously resist the company’s decision
to pull the product off the market. It may
have been my professional duty to do so under
the circumstances, and the company’s leadership
would have been wise to thank me for
my advice and then to ignore it.
That said, I don’t favor a one-size-fits-all
for any kind of ethics program structure or
reporting relationship. An arrangement that
functions in practice to the satisfaction of all
parties should not be abandoned because it
doesn’t work well in theory.
JT: Any insight from recent studies you can
offer a new chief compliance officer who is
trying to build a program For a CCO wanting
to enhance an existing program
RB: Much of the answer to this question
is found in the previous discussion of
how companies need to involve boards in
the company’s on-going ethics conversation.
And it really needs to be on-going. The best
programs are the ones that are constantly
retooling through discussion of code revision,
employee surveys, and training that relies on
face-to-face exchanges about real cases that
have arisen within the company. These kinds
of exercises can also serve as early warning
systems of problems that may be lurking just
below the surface.
The need for patience is at least as great as
the importance of focused board involvement
and a dynamic program that engages employees
in unending discussion. One of the common
laments that I hear at meetings of leading
company practitioners is the need for greater
respect. Of course everyone wants higher salaries
and bigger budgets, but Ethics is, much
as the Total Quality and Human Resources
programs were in past decades, still waiting
for its proper place at the table. That day will
likely come, but until it does, company practitioners
need to work especially hard at obtaining
cooperation from functional departments
(especially Human Resources) to enable their
programs accomplish their full potential. n
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