Conflict of Interest Blog

E-book on compliance & ethics risk assessment

I am pleased that Corporate Compliance Insights has just published a revised and expanded edition of my e-book on risk assessment: Compliance & Ethics Risk Assessment: Concepts, Methods and New Directions.

You can get a free download here.

Risk assessment expectations under DOJ C&E program evaluation criteria

A column in Corporate Compliance Insights.

I hope you find it interesting.

Preventing investigative failures

It is too soon to know how history will judge the efficacy of the Mueller special counsel investigation. But there is no shortage of clear investigative failures in the private sector, such as in the Wells Fargo debacle.

In Complex Compliance Investigations – a soon-to-be-published article in the Columbia Law Review – Professor Veronica Root Martinez of Notre Dame Law School argues that many recent compliance failures “within organizations might have been avoided if more robust processes –  meaning the actions, practices, and routines that firms can employ to communicate and analyze information  – had been in place to ensure investigations were conducted in a manner that allowed the firm to analyze information from diverse areas within the firm.” She further notes: “The task of creating effective compliance programs has been made more challenging, however, by the shift from small, discrete organizations to complex ones. The challenge for complex organizations is, quite simply, more complicated than what’s faced by those with a smaller footprint and reach.”

She makes the following recommendations for addressing these challenges:

Track Similar Unlawful Behavior within the Firm. She suggests this because “[w]hen firms focus on policing and structural components of a compliance program, they sometimes focus too heavily on particular compliance areas, when they might otherwise benefit from assessing certain types of behavior.”

Engage in Consistent Compliance Assessments. Specifically, “Complex organizations could choose to develop formal, prospective processes in an effort to ensure that members throughout their organizations engage in similar investigative methods when misconduct is detected.”

Aggregate Potential Compliance Concerns. As she notes: “sometimes a seemingly innocuous or isolated event is actually an indication of a larger problem within the firm,…”

However, she also notes that: “ The promise of process is, however, limited in that for it to be effective it requires a firm to have (i) a strong organizational structure (ii) free from a corrupt culture.”

There is far more to Professor Martinez’s very fine article than I have space to address here. I encourage you to read all of it.

Additionally, for more information about making investigations effective please see this post in the Compliance Program Assessment Blog.

False allegations of conflicts of interest

Over the course of the nearly two years that Robert Mueller served as Special Counsel, President Trump complained that Mueller had conflicts of interest that should have prevented him from being  in that role. One of these concerned Mueller’s having supposedly been turned down for a job as Trump’s FBI chief. Another was based on Mueller’s former law firm  having done legal work  for certain Trump family members. A third alleged COI arose out of a purported dispute regarding a membership fee paid by Mueller at a Trump golf club.

The specifics of each are not particularly interesting. What is noteworthy is that – for legal or factual reasons – each of them is utterly without merit, as described in this piece from FactCheck.Org.

Making false accusations of conflicts of interest is not the worst thing that Trump has done as president. Indeed, probably is not  in the top 100.

But – at least from the perspective of this blog – such accusations are particularly pernicious as they can make it difficult for companies and individuals to identify and address genuine COIs.

I should stress that I am not suggesting that companies adopt “zero tolerance” for inaccurate reports of conflict of interest. Doing so would undoubtedly discourage reporting of accurate – as well as inaccurate – COIs pursuant to companies’ compliance & ethics programs.

But when a COI accusation is made not to protect an organization and/or individuals from unethical conduct but rather as part of a campaign of falsehoods being pursued for personal and political reasons that is another matter. As Oliver Wendell Holmes Jr. famously said: “Even a dog knows the difference between being kicked and being stumbled over.”

A webcast on effective COI compliance programs

https://www.pli.edu/programs/effective-conflict-of-interest-program

Rebecca Walker and I hope you can attend.

Designing compliance incentives

A new article from SCCE’s  Compliance & Ethics Professional on an always challenging area.

I hope you find it interesting.

Shifting Perspectives on COI in the Modern Workforce

An article by Rebecca Walker and me on the Navex Global website.

We hope you find it interesting.

Behavioral ethics training for managers

In “Companies Need to Pay More Attention to Everyday Unethical Behavior” – published last month in the Harvard Business Review  – Yuval Feldman, Professor of Legal Research at Bar Ilan University, argues:

Many large scandals have sounded the alarm on the need to monitor corporate corruption. The typical response from policy makers is to propose a patchwork of reforms to address various corporate transgressions. But by and large, these reforms focus on preventing gross and blatant violations of the law – and they ignore the more banal, ordinary acts of unethicality that are far more common in organizations. Numerous studies have documented the prevalence of practices such as stealing office supplies, inflating business expenditures reports, and engaging in behaviors that raise conflicts of interest. While these may sound negligible, these violations reduce trust over time and alter prevailing business and legal norms. Their aggregated effect can be quite harmful. Behavioral ethics research suggests that this type of misconduct occurs not because people are unethical or deliberately choose to act unethically, but because they fail to understand that their behavior is indeed unethical and can have harmful consequences. Thus, sanctioning rule breaking and looking for “smoking guns” will not prevent most employees from acting unethically. If organizations want to do a better job at preventing misconduct, they need to adopt a two-stage approach. The first stage focuses on increasing people’s awareness of the illegality and unethicality of their behavior. The second stage is about ensuring that employees clearly recognize that misconduct will be penalized.

Achieving what is contemplated by both of these stages could sound daunting – particularly the first. However, for companies that already have compliance and ethics (“C&E”) training for managers and supervisors there may be an opportunity to use that training to increase employees’ awareness of the sort of risks described by Professor Feldman.

That is, such training can be expanded to include:

– A brief explanation of the findings of the above-referenced behavioral ethics research.

– An explanation that managers’ C&E duties include identifying seemingly negligible risks in their respective parts of the organization that could over time adversely affect trust there.

– An expectation that these risks will be addressed by managers when speaking to the workforce (e.g., in townhalls, staff meetings, etc.) and through written communications.

Note that I am proposing a more or less “local” approach to this issue, as opposed to a top-down one, as I believe that having managers of various ranks involved in the process is necessary to make the effort risk based. Also, hopefully being given this role will lead managers to reflect on their own ethical performance.

Note that there is much more that can be done in communications and training to use behavioral ethics information and ideas to prevent and detect  wrongdoing. See prior posts collected in this index.

There is also more to be said about slippery slopes, some of which can be found in this prior post.

Finally, here is an article on drafting managers’ C&E duties.

Essential ingredients of an effective conflict of interest policy

In today’s edition of the FCPA Blog.

I hope you find it useful.

Conflicts of interest for “the little people”

The conclusion of the Mueller investigation does little to resolve the much broader set of concerns regarding President Trump’s conflicts of interest. These are too numerous to be chronicled on this site, but are being tracked on a weekly basis by the Sunlight Foundation, which even offers a searchable data base of Trump COIs. Additionally, a study recently conducted by USA Today showed that by failing to divest his various investments before taking office, Trump has created more than 1400 COIs.

The late Leona Helmsley is reported to have said that “only the little people pay taxes.” Trump’s view of COIs –  that the President can’t have one – while  similar in spirit to Helmsley’s timeless quip, is correct as a strictly legal matter.

As noted by USA Today: “There is no specific law that directly prohibits the president from owning any assets — whether real estate or anything else — that conflict with his official duties.” But the analysis is very different from an ethical perspective.

First, the foreseeable negative impact of a COI by a President is great. This is less a matter of the specific economic harm arising from an individual conflicted transaction as it is one of setting a bad example.

Justice Louis Brandeis famously said: “Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example.” While Brandeis was speaking about violations of law the point seems just as applicable to ethics.

Indeed, I believe that the negative impact of presidential impunity regarding COIs is particularly worrisome in a way that is unique in our history.  In the coming years we will be compelled to make sacrifices to address increasingly urgent needs regarding climate change and public debt. If government’s motives on these and other subjects are subject to question due to COI’s then the (already small) likelihood of sufficient sacrifice being made is diminished. (For more on the link between morality-based sacrifice and the success of human societies see Jonathan Haidt’s The Righteous Mind.)

Second, the likelihood of a president having a COI  is – at least as a general matter —  very high. That is a function of the near-infinite breadth and depth of a president’s power to help or hinder various interests – which, in turn, can reward him for his action/inaction.

Several weeks ago the House of Representatives passed a wide-ranging bill that – among other things – would encourage presidents and vice presidents to divest assets or create of blind trusts, but the Republican leadership has pronounced the legislation “dead on arrival.” Given how many of the other provisions of this bill are controversial, maybe Congress should be focused more narrowly on what is truly an ethics no brainer.