Standards and Procedures

Setting meaningful but also feasible standards of conduct can be among the most challenging aspects of COI compliance efforts, as is the related area of COI processes (regarding, e.g., disclosure and approval), both of whch will be explored in the sub-categories to this section of the blog.

“Those are my principles, and if you don’t like them… well, I have others,…”

So famously said frequent contributor to this blog, Groucho Marx.  Well, we know that’s not right, but should we go all the way in the opposite direction, and agree with Einstein that “Relativity applies to physics, not ethics”?  At least when it comes to COIs the answer is a clear Sometimes (or Maybe).

Certainly the underlying principle of being faithful to those to whom one owes a duty of trust seems to leave no room for compromise. But in practice it often is not that simple, given that loyalties can… conflict. For instance, and as described in guest posts from Lori Tansey Martens, in some societies  there are sound ethical underpinnings for approaches to hiring that in the West would be considered unacceptable nepotism. More generally, what could be considered a relativist approach to COIs is embodied in the law – specifically the Securities and Exchange Commission’s rules regarding codes of conduct for senior financial executives and CEOs of public companies.  That is, rather than banning COIs outright for individuals in such positions, codes must provide for “the ethical handling of actual or apparent conflicts of interest between personal and professional relationships… .”   Finally, as we have explored in other posts, there are indeed a variety of circumstances where COIs are not in fact ethically worrisome. Still, public companies seeking to meet the Sarbanes COI code requirement and other organizations seeking to handle COIs ethically can’t rely on a Marxist (referring to Groucho) approach to this area.

One step that can be helpful in this regard is to write into the company’s relevant compliance documentation (such as an ethics committee charter) words to the effect that, “Conflicts of interest will be permitted only upon clearing showing that doing so is in the best interest of the organization.” The idea is to erect a high standard for decisions of this type – so that a close call means no go.  (Note that this should be an easy thing to do in most businesses  – but, in my experience, relatively few organizations have done it.)

Another step is to structure decision making regarding conflicts so that there is “strength in numbers” and taking other measures discussed in this post.   Building up a solid infrastructure for  dealing with COIs may help not only to ensure that COIs are handled ethically, but can deter some of them from arising in the first instance.

Conflicts of interest in the press

One of the top COI stories of the past week concerned how ESPN’s financial relationship with the NFL  may have caused it to withdraw from  collaborating on a documentary about the league’s dealing with players’ traumatic head injuries.  Earlier in the month another sports news COI  issue – whether John Henry’s purchase of the Boston Globe would impact that paper’s coverage of the Red Sox, which Henry also owns – received a fair bit of attention. So did the purchase of the another paper  – the Washington Post by Amazon’s  Jeff Bezos,  which raised somewhat weightier COI concerns than did the Globe purchase.  This therefore seems like a good moment to take a look at press conflicts.

As with many areas of business-related conflicts,  press conflicts exist on two levels: organizational and individual.  Organizational conflicts arise out of the press ownership – e.g., the concern with the Henry and Bezos acquisitions, and other financial relationships at the entity level, e.g.,   ESPN’s deal to broadcast NFL games,  including, most obviously, relationships with advertisers. Of course, the more that newspapers are part of larger business entities, the greater the likelihood of such risks will be. With individual COI’s the interest is usually at the reporter (or perhaps editor or producer) level.

Additionally, in discerning the relevant ethical framework for press COIs  it is important to consider the press’s critical role in maintaining our democratic society.  That is, given that trust in the press is essential to maintaining that role – like other “market failures” discussed in this recent post – preventing harm to that trust arguably should not be left totally to the push and pull of market forces.   This would suggest the need for a strong legal or ethical approach to addressing COIs in the press.

However, any legal response of this sort would be problematic as a form of interference with press freedom.  For this reason, the  ethical (and compliance) measures to prevent COIs in the press should be especially potent.

This is not an area about which I had much prior knowledge, but I was pleased to learn that the NY Times has what appears to be a good set of standards  regarding COIs.  For instance, regarding advertising COI, the Times’ standards provide: “Our company and our local units treat advertisers as fairly and openly as they treat our audiences and news sources. The relationship between the company and advertisers rests on the understanding that news and advertising are separate – that those who deal with either one have distinct obligations and interests, and each group respects the other’s professional responsibilities” and goes on to set forth detailed guidance regarding a number of contexts in which the paper’s advertising and news functions might need to deal with each other.  With respect to individual COIs, the same source provides guidance on a)  journalists paying their own way to and at events they cover, b) receiving of gifts and entertainment;  c) steering clear of advice giving roles; d) entering competitions and contests; e) collaborations and testimonials;  f) public speaking and the receipt of speakers fees; g) family-based conflicts; h) financial conflicts; i) free-lance work; j) dealing with competitors; and k) social media use.

The Times standards make an interesting read for one who spends a lot of time reviewing C&E policies and procedures.  Indeed, it would be rare to find COI policies as detailed as these in the great majority of industries.

Needless to say, the Times is not unique in this respect. The BBC also has what seem to be a very comprehensive and rigorous set of COI standards for its journalists.   Of course, just as the map is not the territory, sound ethical policy and procedures are not the same as a full-fledged compliance and ethics program.  But they are a good foundation for one.

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For information on the larger world of ethics in journalism (beyond that of COIs) visit the website of the Center for Journalism at the University of Wisconsin’s School of Journalism.

Gifts, entertainment and “soft-core” corruption

I once asked students in an executive MBA ethics class if they thought that their employer organizations should have restrictive policies on gift receiving.  Nearly all said that such policies were unnecessary – as the students were sure that they wouldn’t be corrupted by gifts from suppliers or customers.  I then asked if the school should allow teachers to receive gifts and entertainment from students. As you can imagine, the response was very different.

The ethical challenges of dealing with gifts have been with us since at least around 1500 B.C. when, according to this piece on the Knowledge at Wharton web site, “Gimil-Ninurta — a poor citizen of the city of Nippur in Mesopotamia — tried to enlist the assistance of the mayor of Nippur by offering him a goat. The mayor accepted the goat, but rather than providing assistance ordered that Gimil-Ninurta be beaten.” However, the extraordinary focus in present times on preventing bribery has drawn unprecedented attention to more “soft-core” versions of the problem, including traditional gift giving.  (For instance, in the past week, several large companies in Malaysia adopted a “no festive gift” policy.)

Global companies addressing issues of gift giving and receiving in the current environment indeed have a lot to deal with.

First, there is a growing body of laws and rules from around the world governing gift giving that must be complied with.  (The co-publisher of this blog –  ethiXbase – maintains an extensive data base of these standards for its members.)  For many companies and individuals, what previously had been in the realm of ethics/good-to-do has moved squarely into the province of law/need-to-do.

Second, one needs to be mindful of different cultural standards relating to gift giving and other COI-related issues, as discussed in this guest post  by Lori Tansey Martens of the International Business Ethics Institute.  A gifts-and-entertainment policy that is culturally narrow-minded can be ineffective.

Third, the operational aspects of compliance/ethics in this area can be daunting. Among other things, not only global companies but also organizations in highly regulated businesses may need to use technology to promote and track compliance to a sufficient degree, as described in this guest post by Bill Sacks of HCCS.

Moreover, all companies – regardless of where they operate or what they do – should have well thought out compliance standards for gift giving and receiving. This post  describes some of the considerations that might go into such a policy and this survey conducted by the Society of Corporate Compliance and Ethics in 2012 (available to members on the organization’s web site) could be useful for policy drafting, as well. For global companies, this recent piece by Tom Fox on FCPA cases involving gifts, entertainment and travel should be a helpful resource.

Finally, one should consider the role of behavioral ethics in developing/implementing gift-related compliance measures, and particularly the fact that we tend to underestimate how much COIs can impact our judgment. For instance, last year, the Wall Street Journal  reported on a study in which different groups of professionals were asked to assess the necessity of conflict of interest standards of conduct both for other professions and their own: “Doctors participating in [in a study] tended to think [certain COI-related] strictures sounded pretty reasonable [when applied to financial planners]. However, when ‘financial planners’ was replaced by ‘doctors,’ and ‘investment companies’ by ‘pharmaceutical companies,’ the doctors started to raise objections — that the supposed conflicts were hypothetical, for example, and that no one’s views about which drugs to prescribe could ever be swayed by a coffee mug. And investment managers surveyed by the researchers reacted similarly: The rules for doctors sounded fine to them, but the ones for investment professionals seemed petty and unnecessary.”

Is there a behaviorist-based cure for this aspect of “soft-core” corruption? Dan Ariely’s column in this weekend’s Wall Street Journal – although not specifically about COIs/gifts – may be instructive on that score.  He was asked the broad question, “What is the best way to inject some rationality into our decision-making?” and responded, “I am not certain of the best way, but here is one approach that might help: When we face decisions, we are trapped within our own perspective—our own special motivations and emotions, our egocentric view of the world at that moment. To make decisions that are more rational, we want to eliminate those barriers and look at the situation more objectively. One way to do this is to think not of making a decision for yourself but of recommending a decision for somebody else you like. This lets you view the situation in a colder, more detached way and make better decisions.” His piece also describes the results of a fascinating experiment that helps demonstrate this.

One can readily see how this framework could be useful for promoting ethical and law abiding behavior relating to gift giving and receiving, where our instincts might not be a reliable guide for identifying appropriate behavior.  Indeed, Ariely’s recommendation could help business people address many other areas of ethical challenge too.

Drafting or revising conflict of interest policies

G.K. Chesterton once said “There are no uninteresting things, only uninterested people,” but some would argue that that meant that he never saw a conflict of interest policy.   You can bet that series of justly famous beer commercials won’t show The Most Interesting Man in the World line editing such policies.

But being a less interesting person, they do interest me. Indeed,  more so than with most other risk areas, effective compliance here requires close attention to policy creation and maintenance, as a company must clearly define what it considers to be a COI and what its employees should do when faced with an actual, apparent or potential conflict. So, this post collects some resources and thoughts that may be useful for COI policy drafting/revising.

First, it is often helpful to start with a sample.  While codes of conduct are – at least for public companies – essentially required to be posted on the web, the same is not true for more detailed COI policies (at least in the private sector – there are, by contrast,  plenty of examples for universities and other non-profits to be found with a quick search).  But a few corporate COI policies are available on the web, such as those of Best BuyNovartis  and PG&E  (the last one is actually part of a code – but is quite detailed, and so worth including here).

Second, while it is helpful to start with a template, one also should base the policy on a COI risk assessment, as discussed in this series of prior posts.

Third, if you are part of a global company you should keep in mind cultural differences that are relevant to COIs as you draft or amend your policy.

Finally, in policy drafting/revising, consider how (if at all) you intend to “check” for COI compliance, such as through a certification regimeauditing,  and/or technology-based controls, since with each of these the capacity for checking should inform (although not necessarily dictate) the provisions of the policy.

Fascinating stuff? Certainly not!  But that’s okay, because often in the C&E realm what is most interesting is when things go wrong – and it is the mission of the C&E officer to keep work life happily boring.

Moonlighting – legal violations, ethical breaches and good compliance practices

Just in the past few months:

– A police officer was caught allegedly “moonlighting” as a pimp – and was fired.

– An IRS employee with broad supervisory authority (to decide, among other things, which taxpayers were audited) was found to have set up a private tax advisory business – and was charged with a violation of a federal conflicts of interest law.

– A business organization (which was already tainted by a high-profile COI scandal) was discovered to be allowing some of its salaried managers to “moonlight” as hourly workers for the organization – and was publicly embarrassed.

(Also worth noting – but not, in my view, as clearly wrong as the others: a judge in New Jersey is under fire for moonlighting as a stand-up comic.)

Moonlighting has been around for a long time. (For COI history-minded readers, here’s an interesting example involving a 19th century Chilean general who had a second job — as an agent for an arms contractor that sold to the Chilean military.)   But due to macroeconomic headwinds, relatively pervasive job insecurity and the expansion of telecommuting the practice seems likely to grow in the future (although this is only a guess).

While the cases we read about tend to involve intentional breaches or stunningly bad judgment, moonlighting viewed more generally  can be beneficial, and not only for the moonlighter.  Most obviously, the second employer gets the assistance of an employee that might not otherwise be available to it. Less obviously, the first employer can benefit from the employee’s experience at the second job – although this wouldn’t be a factor in all cases. Still, all involved need to be mindful of relevant C&E issues.

First, if you are employed by a governmental body, know the law, as some violations – such as in the IRS case – are punishable by criminal prosecution. (Here is an overview of relevant federal law  and here is one regarding employment with NY City.)  Similarly, if employed in the private sector, know and follow your company’s moonlighting policy – which is often found in the conflict of interest section of a company code of conduct.

Second, if you are an employer, make sure you in fact have implemented a moonlighting policy – and note that the failure to  have one could, in certain circumstances result in a violation of  state “lawful conduct” statutes.  (I don’t know about laws outside the US on this issue.)

Such policies typically include conflicts-of-interest provisions – barring/restricting employment:

–       with  a competitor company or a firm that does (or seeks to do) business with the organization – like a supplier or customer;

–        in  jobs that might entail use of the organization’s confidential information or commercial relationships; or

–       where the work  could otherwise adversely affect the organization’s image or interests.

Beyond such conflicts, these policies generally provide that a second job shouldn’t interfere with performance of duties required by the first – e.g., by making an employee too tired for the latter or causing her to use time that should be spent on the latter for the benefit of the former.

Third, these policies should be promoted and enforced. They should be the subject of periodic communications – and not just buried in an employment manual that no one reads.  There should also  be a formal process to help ensure that approvals are documented and justified and, from time to time, the company should check to make sure the policies are actually being followed.

Fourth, whether as a matter of practice or policy, the “second company” (i.e., one that is hiring the moonlighting employee), should enquire of applicants if they have received any necessary permissions from their principal employer. I.e., an ethical organization will want to make sure not only that it is free of conflicts of interest internally but that it is not causing conflicts in others.

Finally, for a post on COI issues potentially arising from service on an outside board click here.


Does your compliance and ethics program have a “constitution”?

The U.S. Constitution is not,  as the poet James Russell Lowell once reminded us, “a machine that would go of itself,” and neither is a compliance and ethics program.  But, having a constitution can help a C&E program stand the test of time.

In the latest issue of Compliance and Ethics Professional I explore how a C&E program charter can serve in this role, and what such a constitution should generally entail.  If you’d like to learn more please click here and go to the second page of the PDF.

Facing up to COI Sunshine

By Bill Sacks

On February 1st, 2013, the Centers for Medicare and Medicaid Services (CMS) released the final rules implementing the “Physician Payment Sunshine” provisions of the Affordable Care Act. These provisions, originally introduced as a separate bill by Senators Charles Grassley (R – IA) and Herbert Kohl (D-WI), will require Pharmaceutical and Medical Device companies to track and report all payments or “transfers of value” to physicians and teaching hospitals that exceed $10.00 (or essentially…everything).

The “Sunshine” provisions were designed to increase transparency in industry’s formal and informal relationships with medical providers. Ever since astute observers noticed that physicians could be influenced by financial considerations there has been concern that industry largesse could unduly influence research results, continuing medical education, prescribing, and other practice patterns. The thinking is, to paraphrase Justice Brandeis, “Sunshine is the best disinfectant.”

A public database of industry payments to physicians and teaching hospitals will go online by late 2014. This forthcoming transparency, on top of new COI regulations published by the NIH and Public Health Service that took effect last August, has resulted in significant movement on the part of hospitals and academic medical centers to put in place automated systems to collect and review conflict of interest disclosures and – just as important – to manage the conflicts uncovered through the disclosure process.

Technology to Improve COI Management

Compliance Officers and General Counsels in other industries should take note. Government contractors have obligations to identify and manage conflicts of interest under the Federal Acquisition Regulations (FAR). Many such contractors have tried to manage their COI obligations with paper surveys or simple generic online survey tools. These manual processes often collapse under their own weight, filling file cabinets or Excel spreadsheets with unusable, inaccessible data.

Newer, relational database tools are becoming more popular with organizations that need the ability to provide targeted survey questions to people with different reporting obligations, to direct COI survey responses to designated project managers and reviewers, to conduct detailed analysis on survey responses across projects, to produce customized reporting, and to maintain a database of archived responses.

Organizations seeking or managing federal contracts should periodically evaluate their COI management processes and systems to assess their effectiveness and to determine whether more up-to-date technological solutions could enhance operational efficiency.

(Bill Sacks is Vice President and co-founder of HCCS Inc., which provides online compliance training and workflow tools to organizations subject to federal regulations.  He can be reached at

Breaking news: just-published study shows that COI policies can…work!

One of the sources of frustration of toiling in the C&E field is the relatively small amount of data from the workplace on the efficacy of various program measures in actually reducing wrongdoing and otherwise promoting ethical conduct.   While unfortunate, this dearth of proof is not surprising; after all, what company would allow some or all of its employee population to serve as a control group for an “ethics experiment”?

But, as suggested by this article published yesterday in Science Daily, part of this proof gap has been filled by a recent study:  “Psychiatrists who are exposed to conflict-of-interest (COI) policies during their residency are less likely to prescribe brand-name antidepressants after graduation than those who trained in residency programs without such policies, according to a new study by researchers from the Perelman School of Medicine at the University of Pennsylvania. The study is the first of its kind to show that exposure to COI policies for physicians during residency training — in this case, psychiatrists — is effective in lowering their post-graduation rates of prescriptions for brand medications, including heavily promoted and brand reformulated antidepressants.” The study will be published in the February issue of Medical Care.

Note that while evidently precedent setting in terms of medical COIs, there is other  data – from the behavioral ethics field –  showing that well-timed exposure to a rule or ethical standard can  impact behavior in desirable ways. That research – and the ways in which its teachings might form the basis of effective C&E communications strategies – is discussed here.

Is your company ethical, or merely compliant?

According to press accounts last week, the Securities and Exchange Commission has decided not to bring insider trading charges against former Berkshire Hathaway executive David Sokol. Last year that company’s CEO, Warren Buffett,  fired Sokol for allegedly violating its internal “insider trading rules by failing to disclose his purchase of Lubrizol shares, less than four weeks after starting talks with Citigroup bankers on acquiring all the shares in the chemicals company that Berkshire Hathaway did not already own.” The value of Sokol’s investment had risen from about $10 million at the time of purchase to about $13 million when Berkshire agreed to the acquisition several months later.  However, the SEC decided that it could not prove that the information – while clearly non-public – was “material,” which is an essential element of any insider trading case.  Nonetheless, according to one story, “Berkshire followers said … the SEC’s decision is unlikely to sway Mr. Buffett, who has long held his top executives to high ethical standards.”

Many companies say that they require that their employees not only abide by the law but also maintain high ethical standards.  But what does that actually mean in practice?

Perhaps the best way to see if ethics – as opposed to narrowly focused compliance – really matters at a company is to ask (as I do when I conduct assessments of  C&E programs) if the company has ever forgone a significant business advantage that would have been legal but not ethical to pursue/maintain. (This can include discrete business  transactions, campaigns, strategies, relations with other organizations or allowing the continued employment of a star performer who has engaged in ethically dubious conduct but has not broken the  law.)  Very often the answer to this inquiry is no.

A second test of whether a company truly promotes ethical, as well as compliance-based, conduct, is checking whether its risk assessment expressly includes an ethics dimension.  For more on what this means see this article from the CCI web site.

A third such test is to see where a company sets the bar for key areas of conduct in its policies – including insider trading (a topic which, because it is mostly conflict-of- interest based, is of particular interest to this blog).  Examples include limitations on short sales, transactions involving options and “churning.”  While not necessarily involving insider trading, each of these entails actions which, when engaged in by insiders, can hurt a company’s reputation or create incentives for the insider to engage in conduct that is not in the company’s interest. And the same is true for the conduct at issue in the Berkshire Hathaway case.

Note – I’m definitely not suggesting that these three tests are the only relevant measurements of ethicality by corporations. There are indeed many others.  But hopefully they will be of use to some organizations which, like Berkshire Hathaway, seek to hold their employees (and particularly their leaders) to a higher standard.

Gifts between employees

As a matter of etiquette, there are various types of gifts that one should never give to a boss or other colleague.  Here  is a list of eight such gift types (including “adult” items and cash).

Virtually all corporate codes of conduct have limits or guidance concerning employees receiving gifts and entertainment from those doing or seeking to do business with the company.   Most (but not all) codes also seem to address employees giving gifts to third parties – particularly actual or potential customers.   But much rarer in codes are discussions of purely internal (i.e., employee-to-employee) gift giving.

Of course, the risks of a significant conflict of interest arising from this sort of gift giving are presumably less than in   either of the external contexts, at least as a general matter.  But one can readily envision situations involving actual or apparent conflicts based on internal gift giving, and one does occasionally hear of gifts in this context that clearly “cross the line,” even if no line is explicitly drawn in a company’s code.

So, as with any C&E standards, it may be best to be explicit, for instance, by providing  in a code or COI policy document that gifts between employees should:

– be consistent with the spirit of the company’s COI policy,

– be otherwise appropriate to the situation, and

– not be – or be likely to be seen as – an attempt to influence the recipient’s business judgment.

Soliciting gifts can also raise ethical issues, for instance, if a supervisor lets those in his work unit know when his birthday is, in a way that suggests that something be done for the occasion.  While I’ve seen this before (involving repeated reminders about the individual’s birthday), I don’t think it is common enough to warrant mention in a code.

Finally, in the public sector these issues can be even more significant – as evidenced by this story  from a few years back about a loan made by Chris Christie, then a prosecutor, to a colleague in his office who, by some accounts, was in a position to use her position to help his campaign for governor (although both the colleague and Christie denied this was the point of the loan).