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Q&A With Chief Ethics, Compliance Officer At Abbott Labs

Matt Kelly | July 7, 2004

This profile is the latest in a series of weekly conversations with executives at U.S. public companies who are currently involved in establishing and developing compliance programs. An index of previous conversations is available here.

You’re chief ethics officer and chief compliance officer. How much of the job is “soft” ethical issues, and how much is nuts-and-bolts compliance?

It’s difficult to quantify. It’s interesting that some companies have a compliance function but no ethics function, and others have the reverse. Some companies integrate the two, and others keep them separate.

When I took this job four years ago we decided to combine them so it’s difficult to say in precise percentage terms what portion of my time is devoted to compliance or ethics. I’d say, looking back over the last four years, three-quarters of my time has been devoted to compliance. But that percentage is going down, and I’d ultimately like to see it divided half and half.

Why did Abbot decide to combine the ethics and compliance functions into one job?

It’s important to put them together for a variety of reasons. One is that it enhances the understanding of our employees to have them combined. We spend a lot of time trying to integrate our understanding of what ethical decision-making is, considering that Abbott is in a highly regulated industry.

We also spend a lot of time integrating the ethics and compliance role with other initiatives in the company such as global citizenship, diversity and so forth. There are so many of these initiatives going on that unless we integrate them and help employees understand that ultimately they’re all part of one big thing, I think there’s a lot of confusion out there.

And there is a lot of interaction between an ethics function and a compliance function. Since we do live in an incredibly regulated industry, there are lots of rules but there isn’t a rule for everything, and we wouldn’t want a rule for everything. What has to pull the whole process together must be the basic values, the ethical focus that we re-inforce with employees in the gray zones where there are no clear rules.

What are your specific responsibilities? What’s the structure around your job?

From a structural standpoint, I report to the chief executive and chairman of the board. I also have a reporting relationship with the board of directors. Abbott’s board has a public policy committee that I report to regularly, and I also report to the full board once a year on the state of the compliance program. That process takes a certain percentage of my time.

Abbott also has a business conduct committee we created almost 10 years ago. That committee reports to the CEO also, and it’s composed of 19 people including myself. The membership is really the entire senior management of the company: the CFO, the general counsel, the senior vice president of human resources, the heads of all of Abbott’s businesses. I chair the committee and we meet quarterly. Its purpose basically is to oversee the implementation of our program and help me do my job that process takes a lot of time.

We have an Office of Ethics and Compliance that was established when I took the job. At the corporate level, there are a group of what we call “subject matter experts” who report to me: a director of reimbursement and health policy; a director of corporate integrity agreements; a director of internal investigations. Each of these people has corporate-wide responsibility.

The other person who reports to me is our divisional vice president of compliance… The challenge for us is to figure out what the optimum structure is for the ethics and compliance people within each business unit. We have a total of 45 people in the Office of Ethics and Compliance; it’s a separate division of the company.

Is that still a work-in-progress, perfecting that structure?

We do have people allocated to each of those business units, but we’re continuously looking at it because it’s a fast-moving, evolving picture. I’ve been at Abbott for 30 years, and before this I was head of Abbott’s international legal group I’ve always operated under the philosophy that the lawyers and compliance people need to understand the business units almost as well as the business people do. So we spend a lot of time trying to understand the dynamics of each business.

You’ve been at this job for four years. How did life change after Sarbanes-Oxley was passed?

Well, there are a lot of elements to Sarbanes-Oxley, so I have to break it down into pieces.

It had the code-of-ethics component; for about 18 months we were already benchmarking our code of business conduct against our peer companies. Then along came Sarbanes-Oxley and shortly thereafter the New York Stock Exchange governance guidelines, so we went back to the well and looked at our code again in light of those requirements. What you see on our website today, our revised code approved by the board in February, reflects the requirements of Sarbanes and the NYSE provisions.

The provisions on the audit committee and the whole concept of the help-line with respect to internal controls and auditing issues has affected both my function and the internal audit department as well. I mentioned our director of investigations; all investigations are managed by him, but if there’s an accounting issue he will pull in internal audit and work with them to handle the issue. The internal audit vice president is responsible for communicating issues under that heading to the audit committee.

And our favorite question: how is your 404 Project coming?

The internal controls piece of the puzzle involves a large number of people, including me. We have a task force focused on that subject. We had initiated a very robust process of corporate-wide risk assessment before Sarbanes, obviously I have a piece of that.

But having been here 30 years, I’d say Abbott has always had a very strong internal controls environment. And while that provision of Sarbanes has stimulated us to take a further look at our controls environment, it hasn’t caused us to do anything significantly different.

Most people associate compliance with Sarbanes-Oxley. But Abbott is highly regulated anyway what do you see as your biggest compliance burdens? Is it necessarily Sarbanes?

The FDA regulation is a full-time job for a lot of people. For that we have a corporate regulatory and quality science group, which is very large. I’m not directly responsible for that group but we have a lot of interaction. We spend a lot of time with the requirements for federal health programs like Medicare and Medicaid. International is another major focus; we have a divisional ethics and compliance officer for international. We’re currently building up the structure for that.

What training tools do you use to teach employees about compliance?

We have a group focused on training and communication. For the U.S. and Puerto Rico, we’ve developed some very interesting e-learning tools to expand our reach of training which historically was done mostly by the legal and human resources departments. We started with Web-based training modules, and made it mandatory training for all sales and marketing staff and all managers and officials. To date, about 15,000 employees have gone through the program.

Then we took it to the next step technologically, and developed a CD-ROM program. It’s about four hours long and focuses on the code and our operating procedures. About 13,000 employees took the program last year… and it will be mandatory every year.

The other component of all this is communication. We have several people in this training and communication group who have developed a booth, an electronic game and a whole help-desk concept that they have taken to a lot of sales meetings where we get a lot of Abbott people together… The ultimate objective is to make everyone aware of who his compliance person is.

An electronic game?

It’s called “Rock & Shock,” and the sales people love it. You’re on a team, and you have to answer six questions relating to our compliance program. If you get a certain number of questions correct, you get a prize. Once you break it up into teams well, you know how competitive sales people get. They love that. We’ve used it so far in the United States, but we’ve translated it into Spanish now and we’ll use it in the Philippines in the near future. Next year we’ll take it to Germany and elsewhere.

And your priorities for the next 12 months?

I divide them into three buckets. First, aligning ourselves structurally with what the businesses are doing that really is a continuous, challenging process given the complexity of this company. And I would add not only structural alignment, but also process integration and process efficiency. I think process efficiency is very important, because it would be very easy in a job like mine to create a bureaucracy that would be a serious impediment to successful business.

Second, a big focus for the next 12 months is the globalization of our program. A number of our businesses have global charters, and what additional structure we put in place is going to take a lot of attention.

The third bucket is to march through the proposed amendments of the Sentencing Commission, around the definition of an effective compliance program. There’s a lot in there, both in terms of compliance and in what they call “promoting an ethical culture…” I think what the Sentencing Commission has written in these proposed amendments is going to have a major affect on compliance for the next decade.

Thanks, Charlie.

An index of previous Q&A Interviews is available here.

This column should not be regarded as legal advice. It is for general information and discussion only, and is not a full analysis of the matters presented.

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