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P&G on Why CEO Leads Ethics, Compliance Duties

Jaclyn Jaeger | June 8, 2012

The last few years have brought much debate over the contentious question of who should lead the compliance function within a company. But during his keynote at Compliance Week 2012, Procter & Gamble CEO Bob McDonald described how “compliance by committee,” with him as the chair of that group, works for the $82 billion consumer products company.

“Tone-from-the top is really critical, in my opinion, and it starts with me as the CEO,” he said. “That's why when I became CEO, I decided to chair our ethics and compliance committee.”

“In essence, I am our chief compliance officer,” he added. Also making up the ethics and compliance committee is the chief legal officer, the chief financial officer, and the global human resource officer.

In response to whether he's felt increasing pressures from shareholders and regulators to split the roles, McDonald said, “I've talked with a lot of regulators as the CEO of the company and I have not had one pushing on this issue.”

“My point of view—and maybe it's unique—is that it's the leadership's responsibility to be the ethics and compliance officer of the company,” McDonald stressed. “I hold myself accountable; I hold my leadership team accountable; I hold the leaders of the business accountable.”

The legal function, compliance group and internal controls all play a role, “but it's the leadership's responsibility,” McDonald added. “It just seems like it needs to be built in.”

Companies today operate in a “volatile, uncertain, complex, and ambiguous” world, said McDonald. “There's a big demand for ethics and compliance, and it's greater than ever before; at the same time, the complexity of the job is ever-rising.”

At P&G, the compliance program is tied into the company's purpose, values, and principles. For example, P&G has a global business conduct manual that serves as a springboard for the company's compliance program.

“We make sure we always do the right thing, and we make sure we always do things right.”

But sometimes things can still go wrong. In April 2011, the European Commission reached a combined $457 million settlement with P&G and Unilever for illegally fixing prices of laundry detergent in eight European countries over a three-year period. The price-fixing scheme began in January 2002.

In response, P&G cooperated with regulators, took appropriate action against the wrongdoers, and revamped trust in the compliance program, said McDonald. “The point is we tried to make it right,” he said. “We learned from it and we made changes to ensure this type of behavior would never happen again.”

Trust comes from having a strong ethics and compliance culture. That, in turn, breeds trust with both employees and consumers, said McDonald. He cited results from the 2011 Edelman Trust Barometer, which found that in the last 12 months, 85 percent of global respondents reported they have bought the products or services of a company they trusted. Conversely, 73 percent say they refused to buy products or services from companies they did not trust.

Training and Hiring Practices

McDonald, who has been with the company for 32 years, said P&G also harbors ethics and compliance by promoting from within. P&G gets about one million applications per year for jobs and hires about 4,000 globally.

All applicants are first required to take an online ‘reasoning test,' a leadership questionnaire around ethics matters. “The percentage of people who get tripped up on ethics and compliance is quite high,” he said. Those few who get through that screen are then interviewed on their own principles, values, and purpose.

Once hired, employees are continuously trained. Every year the company's new general managers are brought together by McDonald to do a week-long training. “Ethics and compliance is an important part of that leadership training,” he said.  

The primary way the company measures its ethics and compliance program is through the annual company-wide survey, which the company has been doing since 2005, said McDonald. “The point is that ethics and compliance must be part of the DNA of the organization, and that creates trust.”