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Shop Talk: Fostering a Culture of Compliance and Ethics

Jaclyn Jaeger | February 19, 2014

Let's be honest: Stating what the company's values are is easy. Integrity, quality, passion, accountability, collaboration—they're in mission statements from one coast of Corporate America to the other. CEOs and board directors rattle them off all the time, to anyone who'll listen, with all the confidence of an ad executive pitching a hot new client.

ROUNDTABLE PANELISTS - 02/4/2014
Click on attendees below for full biographies.
  Wayne Brody
  Senior Knowledge Leader,
  LRN
  Thomas Costa
  VP for U.S. Pharmaceuticals,
  Compliance & Ethics

  Bristol-Myers Squibb
  Eve Costopoulos
  Chief Ethics & Compliance Officer,
  Eisai
  Dan Dunham
  Chief Compliance Officer,
  Aptalis Pharma
  Marianne Fogarty
  Business Ethics,
  & Anti-Corruption Officer

  MasterCard
  Maria Hermida
  Chief Ethics Officer,
  Citigroup
  Mickey Kim
  Sr. Director, Compliance,
  Celgene
  Edward Kowalcyk
  Managing Director,
  Regional Head of Compliance

  Standard Chartered Bank
  Richard Lang
  Chief Ethics Officer,
  HSBC
  Charles Senatore
  Head of Corp. Compliance,
  Fidelity Investments

And nobody believes them either.

“I asked my board what our company's values were, and they gave me the three listed on our mission statement,” one ethics & compliance officer said at a recent Compliance Week executive roundtable. “Then I went and asked our employees what they thought the company's values were—and, boy, their responses were not those three values.”

Where does that disconnect come from? How can ethics and compliance officers take a board's lofty statements on values and build them into strong corporate cultures that actually, you know, work? Those were questions posed to a dozen participants at Compliance Week's roundtable, held earlier this month in New York and co-hosted by ethics and compliance advisory firm LRN.

As elusive as a strong culture can be, it's even more imperative in a hyper-connected business world, said Wayne Brody, senior leader at LRN and former chief compliance officer for Arrow Electronics. Customers, supply chains, employees, and regulators are more interconnected today than ever before. “You can't hide anything,” he said. “How you do stuff becomes so important, because there are no walls anymore.”

Many of the executives at the roundtable stressed that building a strong ethical culture can't happen in a vacuum; the compliance and ethics function has to win the support not only of the executive leadership team, but each business unit as well.  

“You have to partner with your business colleagues in everything you do, whether you're building a policy or training course, conducting an audit, monitoring an event, or conducting an investigation and determining appropriate disciplinary measures,” said Dan Dunham, former chief compliance officer for Aptalis Pharma, recently acquired by Forest Laboratories.

At biopharmaceutical company Celgene, for example, the business units play an important role in developing the company's compliance and ethics policies and processes.  Business units can approach the corporate policy committee and propose and draft a new corporate policy.  The committee has representatives from each of the business units too, who will then vet the policy, explained Michael Kim, senior director of compliance at Celgene. “Everyone has a stake and input in that process,” he said.

After committee review, each corporate policy must also be approved by the executive management team. Once a policy is approved, each of the relevant business units is responsible for its implementation, which could include developing a monitoring process to make sure they're complying with those policies. “We want the business units to be accountable for implementing our corporate policies,” said Kim.

From there, compliance has the responsibility of auditing the business units to ensure those corporate policies are being followed. “It's a good repeatable process,” Kim said.

Cultural Shift

One particular challenge many roundtable attendees admitted to struggling with is how to transform the entire global culture of a company following a major event, such as a government enforcement action.

“Culture is part of the DNA of a company,” said Dunham.  “Like other social organizations, companies tend to hire people who think the same way, act the same way, operate in the same way, and so to change a company's culture can be awfully difficult and take a very long time,” he said.

One of the challenges faced by highly ethical companies is that it “may be difficult to convince people that that's not enough, that you really do have to put processes and protocols around compliance,” said one compliance executive. “It's not enough to trust that people are always going to do the right thing. Measuring adherence is critical.”


Above: Maria Hermida, chief ethics officer at Citigroup.

 

Roundtable participants discussed the idea that values form the center of a good ethics and compliance program. “If you don't have the right values, you're not going to enable compliance throughout the organization,” said Edward Kowalcyk, head of corporate compliance at Standard Chartered Bank.

Roundtable attendees also stressed that the way in which a company's cultural values are communicated plays an important role in gaining support from both the senior management team and the business unit leaders. As one executive put it, “most people are very uncomfortable talking about ethics.”

It's much easier, roundtable attendees said, to make inroads by talking about the implementation of corporate values and risk-based decision making than it is to talk about ethical leadership and ethical decision-making. It also makes the conversation feel less like a lecture, and more like a discussion.

Valuing and Measuring Ethics

Participants in the discussion also reflected on how to measure and link positive conduct to performance, so that it can be incentivized through compensation or other measures.


Celgene's senior director of compliance, Mickey Kim, says everyone plays a part in his company's compliance and ethics process.

 

“The single factor that's most clearly associated with effective programs, as opposed to less-effective programs, is simply celebrating acts of ethical leadership in the workforce,” said Brody. It's about building an ethics and compliance program that's designed “not to just meet regulatory expectations, not to just prevent, detect, and react to malfeasance, but one that drives the company forward,” he said.

Measuring the effectiveness of ethical leadership is also at the heart of a values-driven culture. Companies can consider a variety of metrics to help measure positive conduct, including identifying the types of conduct that managers should be looking at when they're assessing an employee's performance. Such factors could include whether the employee completed all training requirements, whether they're at the center of an investigation, any results from monitoring activities in their areas, and more.

If an employee is found to be named in an investigation, the ethics and compliance department can ask the manager to look at that individual's performance review to make sure the matter has been addressed, one compliance executive suggested. “The idea is for the conduct to be reflected somewhere in the employee review."

Managers also play an important role in linking ethics to performance by instilling in employees that return-on-investment comes from building a strong compliance and ethics program. It's not enough for managers to ask, “‘did you make your number?'” said Brody. “The other half of the question should be, ‘how did you make your number?'”


Marianne Fogarty, business ethics and anti-corruption officer for MasterCard, joins the discussion.

 

One way compliance officers can measure the ethical conduct of their managers, for example, is to include elements of compliance and ethics-related questions in their employee engagement surveys to gauge how employees perceive the ethical values of their managers. The results garnered from those surveys can then help to cultivate coaching and leadership development exercises.

In the context of any type of investigation, it is crucial for a company to demonstrate a strong culture of ethics, and how that culture has been integrated throughout the business operations.  “You want to build credibility with regulators by demonstrating a strong culture and plan of action with respect to your compliance program,” said one compliance executive. It makes having conversations with regulators much easier, because they'll recognize that the company has made sincere efforts.

Still, more transparency from enforcement agencies around the benefits that can be derived from an effective compliance program—such as reductions in penalties, for example—would be instructive for companies, roundtable participants agreed.

Many roundtable attendees also agreed that cultivating ethical leadership cannot be a static process; it requires continuous revision and hard work. The more adaptable a company can be to its current circumstances, the stronger a corporate culture it will build.