General counsel of large global companies by nature are a self-confident bunch. But when asked to discuss their efforts to establish global codes of ethics and compliance, they often start with a disclaimer.
“It’s a humbling effort,” says Mark Ohringer, global general counsel at property management company Jones Lang LaSalle. “Out of 37,000 employees, there are going to be a few who do things unethically, no matter how hard we try.”
“When I talk about ethics, I don’t purport to have the answers,” says Kraft Foods GC Marc Firestone. “I will light a candle because I don’t want to go back to my desk and find a letter I don’t want to read.”
“One should never declare victory in this arena,” adds David Leitch, Ford Motor Co. GC.
The trepidation with which these global legal leaders approach the topic of global ethics enforcement comes in part from a steady stream of headlines about Foreign Corrupt Practices Act (FCPA) cases brought against or settled by large companies.
It’s a phenomenon Baker & McKenzie Partner Paul McNulty attributes to the watershed Siemens case, in which the German engineering company agreed in December 2008 to settle FCPA charges for a record
$800 million dollars, on top of a large settlement with German authorities.
“The number was so high, and the cost of the investigation was into the billions,” McNulty says. “Companies saw that and said, ‘We could be vulnerable. Perhaps we should self-disclose.’”
As more and more companies came forward to disclose bribery and other misdeeds, the volume of FCPA cases and settlements soared. In November 2010, Assistant Attorney General Lanny Breuer told the National Conference on the Foreign Corrupt Practices Act that in the past year, the DOJ imposed more than $1 billion worth of FCPA penalties. And legal experts predict new incentives for whistleblowers will further accelerate the trend.
“The number and scope of FCPA cases has mushroomed and will continue to do so, especially now that the DOJ and SEC both have their own units that concentrate full time on FCPA matters,” says Paul Friedman, a partner at Morrison & Foerster. “The penalties have skyrocketed, more individuals are being charged and more are going to jail. And the Dodd-Frank whistleblower provisions are going to accelerate all of this.”
Then there’s the reality of convergence, as countries around the world follow the U.S.’s lead on corruption prosecution. A new law in Britain that takes effect in April is creating concern in many companies.
“The challenge is getting it right in so many countries,” says McNulty, a former U.S. deputy attorney general. In addition to Britain’s new Bribery Act, China, Brazil and Russia are starting to investigate and prosecute corporations for corruption-related offenses, he says.
So it’s not surprising that ethics and compliance policies, practices and training are getting renewed attention across corporate America. On the following pages, general counsel from companies representing a wide range of industries share their best practices and experiences in combating corruption on a global scale.
Parsons Corp.: Trust but Verify
Parsons Corp. is one of the world’s largest engineering and construction companies with 12,000 employees throughout the U.S. and the Middle East and projects in 25 countries. So it is perhaps not surprising that the company would look for a systematic way to determine whether its ethics program was succeeding in getting the word out.
“We’re a company of engineers, and engineers like to measure things. But it’s hard to measure compliance,” says Clyde E. “Sonny” Ellis Jr., Parsons’ general counsel. “We struggled with how to do that.”
Ellis first looked outside the company, but he found few models to use from his conversations with other GCs and reading the literature.
“Everyone agreed that you should try to measure it, and everyone agreed that it’s really hard to do,” Ellis says. “But unless you find some way to quantify what you are doing, you could end up fat, dumb and happy, thinking that your program is working and finding out that it isn’t working as well as you thought.”
So the company’s three-member Ethics Committee, composed of Ellis, the head of human relations and the head of internal audit, developed a set of metrics to evaluate the ethics program. They identified leading indicators and lagging indicators, and they set some admittedly arbitrary numerical goals for each.
The leading indicators start with the number of complaints or requests for advice that come in to the ethics hotline or directly to the company’s ethics officers.
“We came up with an arbitrary baseline for each business unit to measure the actuals against,” Ellis says. “We look at those on a quarterly basis.” A low number of reports may indicate that the ethics message needs to be reinforced in a particular business unit.
The other leading indicators include the percentage of favorable responses received on a survey of employee perception of the company’s ethics; the percentage of employees who complete their slated refresher ethics training; and inclusion on the Ethisphere Institute’s list of the 100 most ethical companies–a goal Parsons attained for the first time in 2010.
The lagging indicators include the number of substantial investigations of ethics violations per quarter, the number of severe cases by business unit, and the delay in incident reporting as measured against a goal that any issue be reported within seven days of someone becoming aware of it.
Started last year, the metrics program is being evaluated to see if the right metrics are being used and whether the numerical goals need tweaking, Ellis says. “It’s a fluid exercise, but it gives us something to look at and say, ‘Maybe this group needs additional training, or there were particular issues arising, so let’s address those issues.’”
Ellis also looks beyond the standard ethics training to find other ways to get the message out. One popular tactic has been the Ethics Challenge. The Ethics Committee periodically develops a scenario that raises ethical issues tailored to the situations Parsons employees might encounter, with alternative responses. The committee posts it on the intranet where employees can vote and leave comments. The results and some comments are posted, along with the Ethics Committee’s view of the correct response.
“Two things surprised us,” Ellis says. “There is widespread participation, and we get thoughtful comments and analysis. It’s an interactive way to get people interested in the topic and to get them talking about these issues.”
Just how seriously the company takes those issues is reflected in its goal of zero deviation from its ethics policy. While some people think that is unrealistic, Ellis thinks it is motivational.
“If I were a professional baseball player playing 162 games per year and someone asked me at the beginning of the season how many games my team would win, I would say 162. At the end of the year I would not be surprised if we didn’t go 162-0, but every single day you step out on the field, you have to be prepared to win,” Ellis says. “The same applies here. Every day you have to be willing to act with integrity, and you have to commit to do it every day. At the end of the year I won’t be surprised if we have a couple of misses, but I am going to be disappointed.”
Ford Motor Co.: Top-Notch Tone
David Leitch, general counsel for Ford Motor Co., believes there is one single factor that distinguishes companies that are leaders in global ethics from those that just have an
“It’s very important to have a strong tone at the top that is disseminated throughout the organization,” Leitch says. “That’s what’s made a big difference at Ford Motor Co. It’s a place where employees are genuinely encouraged to bring forth issues they may see in the way the company is doing business or the way individuals are conducting themselves. It’s a safe environment in which to bring things forward.”
Leitch says that safe environment is achieved by having a culture that deals openly with all kinds of problems, not just those related to ethics. “It’s the way we conduct our entire business,” he says. “You have to have a safe environment for lots of kinds of issues or you will not have a safe environment at all.”
Jim Carroll, Ford’s director of compliance, adds that in a global operation, it is critical to provide multiple channels for employees to voice their concerns to accommodate cultural and language differences. So Ford offers hotlines in 24 countries where employees can speak to someone in their own language. They can submit concerns via e-mail or the company intranet. All lawyers in the Office of the General Counsel, as well as human resources personnel and internal auditors, receive training on what to do if they receive a complaint. (See “Stamp of Approval” sidebar for more information on Ford’s ethics and compliance program.)
“It’s the ability for individuals to talk to people that they trust, whether it’s the HR manager or a lawyer they routinely work with, about their concerns,” Carroll says.
The importance of ethics resonates through the widely disseminated One Ford Plan, which deals with business issues but also includes an array of behaviors–such as good corporate citizenship, courage and integrity–that are expected
“Everywhere you go in the Ford world you see the expected behaviors,” Leitch says. “You see them on the wall, on the badges employees wear.”
Annual performance reviews incorporate the expected behaviors. Employee performance is plotted on a graph with one axis representing objectives achieved and the other whether the expected behaviors were followed in the process of realizing the objectives.
“That drives home that it’s not just the ends but also the means in how you achieve them that are important,” Leitch says.
Ford also has an extensive global online ethics training program available in 13 languages. In addition to the general training, tailored courses are offered for specific issues related to certain job functions, according to Carroll.
But Leitch emphasizes that establishing an ethical culture can’t simply be done online.
“Sometimes you have to show up,” he says. “You can’t sit on the top floor [of Ford headquarters] in Dearborn, Mich., and emit a tone. You have to get out and talk to people in the field about how they are doing business and what their concerns are.”
And he adds that the task is never completed. “Continued vigilance is quite important,” he says. “We have lots of employees all over the world, and even those who try to comply fully with all the ethical standards don’t always get it right. So one can never rest where you are.”
Kraft Foods: Food for Thought
Like other general counsel, Marc Firestone grapples with the complexities of establishing and maintaining ethical standards across a global enterprise.
But Firestone has taken an unusual approach to this challenge–or, as he prefers to call it, opportunity–in his role as executive vice president of corporate and legal affairs at Kraft Foods. “The concept is, with 145,000 people in 170 countries, what can you do to get to the highest likelihood possible that all of them will act within those standards,” he says. “I find this a tremendously exciting opportunity for the corporation to take a fresh look at compliance and ethics systems.”
For Firestone, that “fresh look” comes from scholarship in fields ranging from organizational psychology to behavioral economics to marketing. “The opportunity is to look outside the field of law to other disciplines for learnings on the core premise of how you increase the likelihood of people in an organization acting within boundaries,” he says. “There is a huge body of learning that I don’t think has been even partially incorporated into the thinking of lawyers.”
Firestone points out that court cases offer insight into the legal implications of what happened to a company where something went wrong, but they don’t explore the reasons why management did what it did. So for the past two years, Firestone has worked with the vice president for compliance and the head of audit in a scholarly exploration. They’ve examined good companies that have fallen victim to legal and ethical lapses and those that haven’t, and identified patterns. The next step was exploring research that explains the patterns. Firestone cites the psychodynamics of “group think” as one useful tool in identifying potential pitfalls.
For example, just having a policy that says employees should report unethical behavior or challenge decisions they think are wrong doesn’t mean they will, a premise substantiated in aviation industry studies on whether first officers will challenge decisions made by the captain. “If we want people to say to the boss, ‘I understand what you are saying, but I think we should look at it this way,’ how do we make it happen more often than the baseline of what would have been expected?,” he says.
He also cites the concept of ethical fading–that an organization’s ability to stop ethical violations diminishes over time. “If that is a phenomenon we find as a consensus in the literature, we accept that and work from it” to build a checks and balances system to counteract ethical fading, he says. “Picking actions based on insights from the research makes them more effective and helps reduce the risk of just piling on things that could be bureaucratic.”
Firestone didn’t have to look far for expertise on how to best reach the diverse population of employees around the globe.
“Marketing is all about persuasion,” he says. “The marketing objective for compliance in ethics is to persuade people to operate in a certain way. We work hard to assess our written and other communication from a marketing perspective and to write our policies in a compelling way.”
As part of that, Firestone tests messages to determine which are most likely to be internalized by the audience. That often means presenting the information from a business perspective as opposed to summarizing the law. The same premise applies to training, which Firestone says must be tailored to cultural and demographic differences, just as Kraft’s product marketing is.
“We take the marketing department playbooks and use that as a guideline for how we do our training,” he says.
Messages can be underscored in other ways. Instead of letting executives agree to the company code of conduct electronically at their own convenience, the senior team gathered in a room to sign the code together. “That makes the act of acknowledging the code more powerful than just clicking an acknowledgement at 11 o’clock at night at home,” Firestone says.
Once such practices are developed, Firestone’s team works with other departments to implement them one at a time.
“It’s dozens of little things,” he says. “None on its own is revolutionary or on its own will make a difference. But if we adopt all these things and implement them in an organized way, we will move from the bedrock of core policy/sanction/deter to something more effective.”
Schneider Electric: Holding the Line
Emerging markets in Asia, Africa and the Middle East are at the bottom of Transparency International’s 2010 Corruption Perception Index (see “Charting Corruption”). And that’s where Schneider Electric generates 34 percent of its revenue and is rapidly acquiring new assets. Couple that with the fact that much of the business comes from state-owned utilities whose management could be considered public officials under the FCPA and you can see why the company’s global general counsel, Peter Wexler, worries about bribery and other corruption issues.
“I know we have decent people, but it does keep me up at night because of where we operate and the extent to which we get involved with quasi-government agencies like utilities,” he says.
So Wexler is excited about the French company’s new ethics and compliance program, which includes a newly formed ethics committee at the corporate level, an operating compliance committee and compliance officers in every business unit, a global ethics hotline and a training program being rolled out throughout the company’s 1,600 locations in 100 countries.
The training includes live and WebEx sessions to explain how the program will work, followed by access to an e-training module that teaches employees about the company’s ethics charter, called the Principles of Responsibility.
Still, Wexler realizes that the most important message to Schneider’s 135,000 employees comes from the company’s CEO, who has said, “We would rather lose the sale than risk the company’s reputation by doing something illegal.”
That kind of firm leadership is particularly important in a company where much of the pressure to cross the line comes from customers who say that is how you have to do business.
In the Sudan, where Schneider just signed a contract to build 22 substations for the national electric utility, which is a quasi-government agency, a third party verified the contract and completed a transparency check. Third-party agents sign contracts that include ethics and transparency requirements, including recording and reporting all interactions with foreign officials to guard against FCPA violations.
“They have to go through scrutiny, and they have to provide a lot of information or we won’t engage with them,” Wexler says.
Another source of liability comes from acquired companies. Particularly in emerging markets, the concept of due diligence in M&A needs to include looking for signs of illegal activity, Wexler adds. “Don’t just look at the revenues, but also look at where the revenue comes from. Be sure you are buying legitimate revenue.”
Jones Lang LaSalle: Holistic Approach
Jones Lang LaSalle employs 37,000 people in 60 countries. But geographic distribution isn’t the only hurdle the property management company faces in maintaining an ethical culture. Many employees work at properties that belong to the company’s clients, and their functions range from office cleaning to real estate investment banking.
“We have different things to say to different people in different languages and with different cultural norms,” Global General Counsel Mark Ohringer says.
To address this challenge, Jones Lang LaSalle adopted what Ohringer calls a “holistic” rather than a “big bang” approach to communicating ethics policies across the enterprise, finding ways to reinforce the message from the time a person is hired until he leaves the company. It starts with a prehiring background check and a paragraph in the offer letter about the ethics code everyone is required to read and sign. Ethics is included in new hire orientation. Posters in all offices printed in various languages remind employees of the ethics hotline number on a daily basis. At meetings, executives hand out wallet-sized cards with the ethics principles and hotline number. And as part of their year-end performance review, employees must recertify that they have read the code and reported all possible violations.
“It’s a soup-to-nuts kind of approach with targeted pieces,” Ohringer says. “None of it is really huge stuff, but it’s always sort of there as part of our philosophy.”
To drive home that philosophy, he constantly emphasizes the business case for ethics: “If we stay out of trouble and don’t embarrass ourselves and our clients, we will make more money, and I do think people get that,” he says.
Ohringer is excited about the new Director of Professional Standards who reports to legal. A key responsibility of that position will be to examine ethics violations.
“The director goes back to the business group to see if they could have avoided the problem with a checklist, for instance, or peer review, and then figures out how to implement the lessons learned on a global basis,” he says. “The tendency is to fix it and forget it as soon as possible. We don’t want to embarrass people and hang them in public, but we don’t want to forget these things either.”
FEI Co.: Speaking Their Language
Bradley Thies has found that the key to an effective global ethics program is avoiding the temptation to be U.S.-centric. So even with limited resources in the small legal department of FEI, a scientific-instruments company with a worldwide market, the general counsel goes to great pains to make sure his effort is truly global.
“If I do training in the Czech Republic and talk about the FCPA and U.S. law, it’s not credible to them,” he says. “So our training slides talk about global trends, and I use examples from their native country. Their ears close if they think it’s one of those U.S. public company things.”
To provide cost-effective training in six languages, Thies offered gift certificates to native speakers who work in the company headquarters in Hillsboro, Ore., to translate training scripts and record them for upload to the intranet.
“Every time I visit a site where the training is available in their language, they thank me for it,” he says.
Thies prefers the in-person approach to training, and he makes it a top priority, conducting code of training himself and sending his senior counsel to conduct FCPA training. During the recession, budget cutbacks necessitated moving all the training online, but Thies again intends to bring in-person training to every major site in the 20 countries in which FEI operates directly.
It won’t be a one-shot effort, either. Thies is an advocate of continuous training and retraining to cut through cultural barriers that impede compliance in countries where customary business practices violate FEI’s ethics standards. “Just because it is established custom doesn’t mean it’s legal,” Thies says. “To change attitudes, we have to repeat training again and again.”
Daiichi Sankyo US: Connecting the Dots
As deputy general counsel of the U.S. subsidiary of Japanese-based pharmaceutical company Daiichi Sankyo, Matthew Allegrucci faces the dual challenge of communicating ethics policy to 3,000 U.S. employees while also trying to spread the message to colleagues in decentralized legal departments around the world.
It’s particularly difficult to align policies globally in the highly regulated world of pharmaceuticals, where the regulatory environment varies substantially from country to country.
“The challenge is global alignment–trying to match up how other departments are handling issues, if they are at all,” Allegrucci says. “Even when you are dealing with the legal department [in another country], you may find yourself not talking on the same page.”
Cultural and language issues also interfere. That was driven home to Allegrucci when he recently spent six weeks in the legal department in Japan.
“Even though on the surface their English is good, when you go deeper to talk about substantive issues, it’s challenging,” he says. “That’s why I believe in information sharing tools and video conferencing so you keep having interactions.”
A recent challenge is informing business units overseas of new sunshine requirements in the health care reform law that require pharmaceutical companies to report all payments to U.S. doctors.
“We can create reports for what the U.S. entity has paid to a U.S. doctor. But another part of the company may also have made payments,” Allegrucci says. “We have to go to the business [overseas] so they understand this is a new requirement and their payments to U.S. doctors have to be part of the aggregate spend we are required to report.”
One tool Allegrucci uses to spread ethics and compliance messages is a quarterly newsletter on pharmaceutical enforcement issues distributed to all U.S. employees and selected business groups around the world. The current issue’s theme is “enforcement gets personal,” focusing on the trend toward government prosecution of individuals, not
“The newsletter educates our internal customers,” Allegrucci says. “It’s about making sure the legal department is proactively connected to the business and making sure our colleagues around the world have an understanding of issues in the U.S.”
Jones Lang LaSalle hired a cleaning service to clean bank branch offices it managed. Then one of the cleaning service employees robbed the bank.
While the circumstances are unique to that business, the legal and ethical problems third-party vendors, agents and business partners can create are universal.
“Agents and contractors are the No. 1 problem,” says Alex Brigham, executive director of the Ethisphere Institute. And the problem is acute, because under the Foreign Corrupt Practices Act (FCPA), a company is liable for acts of bribery by its third-party agents.
“In some high-profile [FCPA] cases, the use of third parties is a key issue for the subject of the investigation,” says Gary Seib, a partner in Baker & McKenzie’s Hong Kong office. “Some companies have the perception that I pay my distributor, and what they do is of no concern to me. But the FCPA does not permit the principal to hide behind the agent.”
Brigham says rooting out bad actors starts with agent vetting, which can be contracted out to vendors such as Trace International, which check out, train and certify vendors and agents overseas, or can be done internally with background and credit checks. But companies still must be alert to red flags, such as a customer requiring use of a vendor who charges highly inflated prices.
“Companies have to rely on their own gut instincts, because there are 1,000 different ways to engage in corruption,” he says.
At Jones Lang LaSalle, Global GC Mark Ohringer uses background checks, software that checks names against databases of people companies should not do business with, a vendor code of conduct in multiple languages, and contracts requiring FCPA compliance. Still he agrees it often comes down to the instincts of people on the ground–the good judgment of the business person engaging the vendor and the sharp eyes of the building manager who supervises the work.
“It’s a challenge, and we don’t pretend to be perfect,” he says.