Training and Communications

Training and other forms of communication play can be essential to mitigating any major C&E risk area. In this section of the blog we will explore various COI-specific training and communication issues.

Global Challenges in Addressing Conflicts of Interest (Part Two)

By Lori Tansey Martens

In my last post, I outlined some of the challenges that global organizations face when implementing conflict of interest procedures throughout the world.  In this post, I make recommendations to help mitigate some of those challenges. 

Standards and Policies

First, many international employees will be unclear as to the definition of conflicts of interest.  Accordingly, conflict of interest standards should include a clear and precise definition of the concept.  Unfortunately many companies define conflicts of interest around the following lines: A conflict of interest occurs when you have personal interests which may conflict, or appear to conflict, with the company’s interests, or, A conflict of interest arises when we become involved, directly or indirectly, in activities that could impair, or be perceived to impair, our responsibility to act in the best interests of the company.

Sound familiar?  The problem with this type of definition is that it assumes that the employee’s and the company’s interests are at odds – the term ‘conflict’ itself is negative.  Yet, many international employees will see some of these situations not as conflicts, but as “win-wins,” both for themselves and for the company. 

If we could go back and rewrite our terminology on this topic, I would recommend that we talk about “Confluences of Interests” as opposed to “Conflicts of Interests”; however, I doubt that’s going to happen anytime soon.  But companies can certainly embed this concept into their definitions.  For example, companies can add the following to their standard conflict of interest definitions:  We may face situations where there is an overlap between our own personal interests, and the interests of the company.  Even when these situations appear to be in the best interests of both parties, they require particular care and scrutiny by your manager (or other appropriate company resource.)

The policy itself should also include “Q&As” that illustrate the nuances around some of the situations that can arise in an international context.  For example: Q.  In our region, the best supplier for a certain resource is a firm owned by our Managing Director’s wife.  To not buy from this firm will increase our costs significantly.  What should we do? A. In certain situations, the company may elect to do business with suppliers who are closely related to key personnel.  However, in all such cases, in order to promote transparency and to ensure fairness in supplier selection, the personal relationship must be disclosed to the Regional Director, who will make a determination as to the best course of action.

Another global concern is that some companies may consider employee involvement with certain non-profit organizations and charities to be a potential conflict of interest. However, companies should be aware that this is a particularly sensitive issue in Europe. Employees in Europe may view such concerns as a violation of their right to privacy. If companies include this element in the standard, the language should be very precise. For example, companies might specify that service in charities and nonprofit organizations “with aims that are overlapping or in direct conflict with the goals and aims of the Company” should be disclosed.

The standard or policy should also include a statement demonstrating respect for employees’ right to privacy for relationships that are outside the business sphere.  For example, “The Company respects the privacy of personal affairs of all employees, but employees must disclose situations that could result in real or perceived overlaps and/or conflicts between their personal interests and the interests of the Company.”

Finally, the policy should explain why managing confluences of interest are important for an organization. The rationale should extend to both potential ‘conflicts’ (e.g., an employee’s personal relationships may compromise his/her business judgment, decisions clouded by personal interests can negatively influence the long-term welfare of the organization, etc.) and ‘confluences’ (e.g., the company desires full transparency even in situations where both the company and the employee stand to benefit from the particular situation to ensure fairness, avoid misunderstandings, etc.)

Training

The same considerations for policy concerning definitions, illustrations and rationales, holds equally true for training.  Dedicated training on this topic is a must in many international locations given that, as discussed in the previous blog post, it may run counter to prevailing local culture and customs.  And similar to the formation of policy, the training needs to focus on not just the “what,” but the “why” and the “how,” using scenarios, case studies, and potentially even role-plays.

Processes

Multinational companies should avoid blanket prohibitions against all confluences of interest since situations may arise internationally that are unique and ambiguous. Likewise, there may be situations in which overlapping interests are unavoidable. If a company operates in small villages where all residents know each other, it could be difficult for staff to avoid business relationships with relatives or friends.  The conflict of interest processes can anticipate these situations and outline clear procedures for employees to follow.  For example, many companies place the focus on disclosure of these situations to management, or other appropriate company resource, either verbally or in writing, instead of forbidding such situations outright.

While conflicts of interest can pose global challenges, companies can anticipate and mitigate many of these concerns through well thought-out standards, dedicated training and adaptable procedures. 

And I’d like to thank my good friend Jeff Kaplan for allowing me to post on his blog site.  I’m hoping that you’ll agree that this was a good example of an entirely appropriate ‘confluence’ of interest!

Lori Tansey Martens, a 20-year veteran in global business ethics, is the President of the International Business Ethics Institute. The Institute helps companies develop effective global ethics and compliance programs. For more information, please visit www.business-ethics.org

 

 

Behavioral Ethics and Management Accountability for Compliance and Ethics Failures

As discussed in the initial post in this series, behavioral ethics can help C&E officers prove important things about their programs that they already know anecdotally but which others might not accept in the absence of scientific data.  (The second post addressed what behavioral ethics teaches us about conflicts of interest and  third  described certain behavioral ethics implications for C&E communications.)  In this post we explore what behavioral ethics research can help to prove about what has long been an area of great challenge for many C&E programs: the need to hold managers responsible for the C&E transgressions of their subordinates.

A key tenet of behavioral ethics is “motivated blindness.” As described by Max Bazerman and Ann Tenbrunsel in a piece from the Harvard Business Review Blog Network : “mounting research shows that we often fail to notice others’ unethical behavior if it’s in our interest not to notice. This failure of oversight — called ‘motivated blindness’ — is unconscious and common.”  

Bazerman and Tenbrunsel recount the apparent impact of motivated blindness on what was one of the most jarring business ethics stories of 2011:  how “Warren Buffett, known for his embrace of ethical business practices, failed to understand the unethicality of [an important subordinate’s] actions when he learned of them, and intervene.”  They also argue that motivated blindness may have played a role in “the failure of major accounting firms to see the corruption in the books of the firms that they audit” and “the failure of security rating agencies to accurately gauge the riskiness of the instruments they rate…”

From the perspective of a C&E program, motivated blindness underscores the importance of the Sentencing Guidelines expectation that organizations should impose discipline on employees not only for engaging in wrongful conduct but “for failing to take reasonable steps to prevent or detect” wrongdoing by others  – something relatively few companies do well (and some don’t do at all).

To meet this important expectation, companies may wish to take the following measures:  

– build the notion of supervisory accountability into their policies – e.g., in the managers’ duties section of a code of conduct;

– speak forcefully to the issue in C&E training and other communications for managers;

– train investigators on the notion of managerial accountability and address it in the forms they use so that they are required to determine in all inquiries if a manager’s being asleep at the switch led to the violation in question;

– publicize (in an appropriate way) that managers have in fact been disciplined for supervisory lapses;

– have auditors take these requirements into account in their audits of investigative and disciplinary records.

Taken together, these steps will doubtless be seen as strong medicine – at least by some companies.  But behavioral ethics teaches that motivated blindness is a strong disease.

Our next post in this series  will be on behavioral ethics and C&E risk assessment.  And,  for a discussion of  an important book on behavioral ethics by Bazerman and Tenbrunsel – Blind Spots – please see the initial post in this series.

Behavioral Ethics and Just-in-Time Compliance Communications

This is the third in a series of postings on “behavioral ethics and compliance.”  The initial post can be viewed here.

Timing is everything.  At least, that is part of the learning from several experiments described in a recent Harvard Business School Working Paper– “When to Sign on the Dotted Line: Signing First Makes Ethics Salient and Decreases Dishonest Self Reports” – by Lisa Shu and others.

Two of the experiments found that being asked to read (and in one case, sign) an honor code shortly before being presented with the opportunity and motivation to cheat significantly decreased the incidence of such cheating.  A third experiment found that asking drivers to sign an honesty pledge just prior to their making reports to an insurance company increased the likelihood of honest reporting.  The notion connecting these (and similar) experiments is that focusing individuals’ attention on pertinent ethical standards immediately  prior to their facing a chance to engage in wrongful activity increases the salience of such standards in a way that positively impacts their behavior.

These experiments can be seen as part of the mainstream of behavioral economics research, but there is a difference – and one that should be of keen interest to C&E professionals.  As described by the authors: “behavioral ethics recognizes the importance of non-conscious influences on (un)ethical behavior…our experiments have a preventive focus and identify subtle ways of raising the saliency of ethical standards.”  In other words, behavioral ethics research is expanding its reach from learning how various peculiarities in human thought can play an outsized role in causing wrongful conduct to bringing the same sort of analysis to bear on the prevention of unethical behavior.  

Compliance and ethics professionals should build on this knowledge by identifying other ways that behavioral ethics insights can be operationalized using C&E program tools.  (See this recent post proposing several ways to do this with conflict-of-interest compliance measures.)

For instance, while the act of signing itself can play an important role in promoting ethics, there are other ways to raise the saliency of ethical standards with an outsized impact.  The key seems to be doing so just prior to the moment of ethical risk.  This, in turn, suggests that much can be gained by deploying “just-in-time” C&E communications.

Just-in-time C&E communications have, in some ways, been around for a long time but only to a very limited degree.  Opportunities for new or enhanced just-in-time communications exist for many C&E areas including (but definitely not limited to):  anti-corruption – before interactions with government officials and third-party intermediaries;  competition law – before meetings with competitors  (e.g., at trade association events);  insider trading/Reg FD – during key transactions, before preparing earnings reports;  protection of confidential information – when receiving such information from third parties pursuant to an NDA;  conflicts of interest – around procurement decisions;  accuracy of sales/marketing – in connection with developing advertising, making pitches; and employment law – while conducting performance reviews.

There are indeed a great many others, and I encourage readers of the Blog to post their own ideas on just-in-time C&E communications in the comments section.

In our next post – how to use behavioral ethics in C&E risk assessments.

Conflicts of Interest in the News – 012112 edition: Did Al Gore Have a COI at Apple?

Once again, conflicts of interest were much in the news this week – most prominently concerning payments to health care professionals by life science companies.     But potentially the most intriguing story for COI aficionados was entited: “Did Al Gore Violate Apple’s Business Conduct Policy?”

The piece, by Fox News, reported that “the National Center for Public Policy Research is urging Apple shareholders to vote for shareholder proposal # 4 in Apple’s 2012 proxy statement. The proposal, submitted by the National Center for Public Policy Research, asks Apple to determine if board member Al Gore violated the company’s Business Conduct Policy. At issue is whether Gore played a role in Apple’s 2009 decision to end its membership in the U.S. Chamber of Commerce as part of an effort to pressure the trade group to stop opposing greenhouse gas regulations. Several companies, including Apple, ended their relationship with the Chamber over the trade group’s aggressive opposition to the Waxman-Markey cap-and-trade bill and EPA regulation of carbon emissions. Gore’s significant personal investments in renewable energy and related technologies would have benefited from these greenhouse gas regulations.”

From another article, we also learn that  the “Apple board issued an accompanying statement recommending shareholders vote against the request, arguing such a disclosure is ‘not necessary nor a useful undertaking to foster transparency or accountability at the Board level’… Apple already has ‘a robust set a of policies’ in place to deal with any potential conflicts of interest, so the goal of the request has already been achieved in their view. ‘The decision in 2009 did not ‘harm Apple’s business interests in other policy matters’, nor does the Board believe it will in the future,’ the company said. Just a few weeks before resigning from the Chamber, Apple launched a vigorous new ‘green’ policy intended to make its product line more climate-friendly and energy efficient. It was that policy which led to the company’s decision, the board said, not ‘undue influence by any member of the board.’”

Comment: while COIs at the board level can, of course, be harmful, it is difficult (at least based on these public reports) to see the basis for the claim here, which is questionable on two levels. First, it seems to assume without any basis that Gore failed to disclose the investments in question; indeed, his investing heavily in this sector was evidently a long standing matter of public record at the time of the events in question. Second, the proposal also seems assumes that public companies may not as an ethical (and possibly legal) matter pursue socially responsible efforts; if true, this would come as a shock to the countless corporate board members and executives (of all political persuasions) who have undertaken clean energy and other socially responsible measures for their companies.

 

Effective Communications Strategies for Mitigating Conflict of Interest Risks (Part Two)

by Joel Rogers

(This is the second guest post by Joel Rogers of Kaplan EduNeering on effective conflict of interest compliance communications. His bio and contact information can be found in the first post.)

In our prior discussion about COI messaging I analogized to the practices of product advertisers, on the principle that they have already mastered the techniques necessary to mount a campaign designed to change not only minds and opinions, but behavior.  Just as a marketing campaign uses these techniques to influence how people think and act, a well designed COI communications program will, over time, help employees automatically recognize and avoid COIs; it will become second nature for them to disclose such conflicts as specified by company policy.

There are some key steps to planning such a program that can make it much more manageable than it at first would seem.

First, take the time to identify communications channels that already exist within your company.  This seems obvious but is something that, when overlooked, makes your task seem much larger than it is.  There is already a multiplicity of ways that people in your company receive communications.  These may include newsletters and/or a company magazine, Email, bulletin boards where posters are hung, internal TV Networks, online learning resources (a Learning Management System), lunch rooms and break areas where brochures and table tents can be left, intranet sites, etc.

Second, create some simple messaging around conflicts of interest.  One nice thing about this topic is that it lends itself nicely to hypothetical scenarios.  Then repurpose this message again and again in a variety of formats.  For example:

– Design a couple of simple posters depicting these conflicts scenarios.  Consider running a contest asking employees to respond to the scenarios – what is the conflict and how might it be resolved? Give awards for the best responses.

– Draft an article or two for company publications laying out in simple language the key principles of your conflicts policy, perhaps discussing again the scenarios appearing in the posters.  Consider making one these articles a fictional story.  Good stories will be much more powerful than dryer informational articles.  Republish these articles on your intranet site.

– Repurpose small amounts of key text from the articles into different types of printed media (e.g. brochures).

– Use in-company TV networks to broadcast periodic, brief messages from the CEO discussing the importance of maintaining a corporate ethical culture; use such broadcasts to call out key E&C risks, including COIs (tone-at-the-top still means a lot).

– Repurpose key points from the article text to create a Powerpoint that can be distributed to managers and have them run meetings with their staff specifically on this topic (tone-at-the-middle may mean even more).

– Have your online training provider create mini-online-learning modules, interactive games and other computer-based tools that can supplement your formal online COI training.

– Use images appearing as part of these other tools to create screen savers, intranet advertising, small format print images in the form of quarter page ads in the company magazine, etc.

Once all of your tools are ready to go, begin “dripping” them out over time.  Resist the temptation to push everything out at once, but you certainly may want to increase your exposure during disclosure periods.  Whatever you do, remember that your primary purpose is to put out a consistent message as often as you reasonably can, through as many communications channels as possible, in ways that speak to an audience that learns in very different ways from one another.

Effective Communications Strategies for Mitigating Conflict of Interest Risks (Part One)

by Joel Rogers

In this two-part series, Joel Rogers, Managing Director, EMEA for Kaplan EduNeering    (bio and contact info at the end of this post) discusses how to develop an effective conflict of interest compliance communications plan.

Compliance communications generally face two challenges – the first concerning the amount of what is communicated, the second, what might be called the communications approach.  While both apply to C&E risk areas of all kinds, COIs – which often involves risks that are particularly deep seated – are worth focusing on in particular.

First, on the issue of volume of information: the employees to whom you are attempting to convey a critical message about COIs are likely being bombarded by tons of other information that is also being presented as important to their work. Based both on the research of neuropsychologists and the common sense of it, we should expect that COI messaging will have little or no impact on them, as long as it is presented in insufficient quantities.

This phenomenon is well understood by product advertisers,  who know that most consumers will barely register information about a new product the first time they see it advertised, unless it is something so novel that it instantly catches everyone’s eye (which, in our media-saturated age, happens pretty much never).  They also know, however, that such information is lurking around in the unconscious, and that if the consumer is exposed to the advertisement a second time the impact will be an increase in recognition and believability of up to 30%.  A third exposure will increase recognition up to 100%.  Lastly, they know that a consumer needs to be exposed to the idea of a product between nine and 21 times before he or she is ready to buy the product.

Similarly, communicating effectively about COIs requires a sustained campaign of multiple communications over time.  Your annual COI training, far from constituting a sufficient COI campaign in itself is, in other words, merely the first “advertisement” to which the employees are exposed.  Your job from there is to ensure that they are subsequently exposed to that message repeatedly until they are ready to “buy” the idea that this is something about which they must be mindful.

A second challenge to COI (or other C&E) communications involves a more qualitative dimension, and concerns “learning style.” (The idea of learning styles comes out of Multiple Intelligences Theory, associated with researcher Harold Gardner and made famous in his book Frames of Mind (1983).)

The specific concern here is that the individuals who often craft C&E communications – lawyers, auditors and HR  and finance personnel –  may often be Reader/Writer type learners (one of four styles posited by Gardner), but it’s critical that they understand that not everyone learns in the same way.  Effective communications plans include tools that reach the other learning styles  – specifically that  show what conflicts are to your Visual learners, speak to the issue of conflicts for your Auditory learners, and involve your Kinesthetic learners in exploring what conflicts of interest are all about.  Advertisers get this point as well, ensuring that a holistic product marketing campaign speaks to learners of different styles – billboards and print ads for Visual learners; radio spots for Auditory learners; interactive online games for more Kinesthetic types, etc.

In our next post we’ll examine how to create an effective COI communications program that overcomes these challenges.

____________

Joel Rogers is Managing Director, EMEA for Kaplan EduNeering; he heads the London office.  He has also served as Business Leader and Senior Consultant for EduNeering’s Ethics and Corporate Responsibility practice and has authored Corporate Codes of Conduct and Ethics for several major global companies.  He has been the Director of Ethics Training & Education for the City of New York (at NYC’s Conflicts of Interest Board), has served on the Steering Committee of the Council on Governmental Ethics Laws (COGEL), and has consulted to many public agencies including US municipalities and foreign governments.  Joel was named a 2008 “Millstein Rising Star of Corporate Governance” by the Millstein Center for Corporate Governance and Performance at the Yale School of Management. He can be reached at jrogers@kaplan.com.


 

Conflicts of interest in serving on another company’s board of directors

Some codes of conduct and C&E policies and certifications identify outside board service as a potential COI.   What should an  analysis of COIs of this sort  entail?  This is a topic about which relatively little has apparently been published.  Below are links to some helpful resources on it combined with a few hopefully helpful thoughts of my own.

First, in this post on the Business Ethics Blog, Chris MacDonald notes that serving on a board typically involves significant compensation (and hence should be considered an interest for COI purposes); an individual’s board member duties could conflict with her employee duties if the entities in question did business with each other; and given the sheer time commitment expected of board service, there could be a significant time-management conflict in situations of this sort.  This is a good foundation for analyzing COIs in these types of situations, to which one might add that even where the two entities don’t do business with each other a conflict could arise if they both do business with a given third party, i.e., employee of Company A joins the board of Company B, which is seeking to do business with Company C, a supplier to Company A.  (This would not necessarily be a COI – but, depending on a variety of circumstances, might be one.)

Second, another valuable post on this topic comes from Meghan Daniels of SAI Global – who offers various questions companies might ask when considering whether to allow an employee to join the board of another entity based on: a) the employee’s role at the company; b) the time commitment involved in the contemplated board service; c) the status of the external company; and d) the relationship between the two entities.

Third, here is a useful code provision on board service from a publicly available code of conduct:

Entergy recognizes that there may be limited cases where it is in the Company’s best interest for you to hold a position on the board of directors of a for-profit entity not affiliated with Entergy. However, the position must not place you or the Company in a potential conflict of interests situation, must meet all regulatory and legal requirements, and must be appropriately disclosed to all relevant parties. There are certain laws and regulations that can impact this service and you must discuss the situation with your supervisor and receive appropriate approvals prior to taking action.

Two points about this language: a) the need to make disclosure to “all relevant parties” is important, as disclosing to the company alone might not be enough; b) the policy appropriately focuses on the company’s interest in deciding the issue at hand.  Note, too, that the laws and regulations referenced here may be largely specific to the industry that this company is in, and being familiar with any relevant laws applicable to one’s own organization can be critically important for addressing issues of this sort.

Fourth, worth considering  (although perhaps of less immediately obvious relevance to our topic) is a judicial  decision in a case called Raley  v. Superior Court.  In Raley, the Court ordered the disqualification of a lawyer’s firm  from participation in a litigation against a corporation that was owned by a  trust, the trustee of which was a bank on whose board the lawyer sat, based, in part, upon the fact that the lawyer’s fiduciary duties to the bank and trust  “require him to make every reasonable effort to maximize” the assets of the  trust, which could lead to his acting contrary to the firm’s client in the litigation.

As relevant to the issue addressed in this posting, this language underscores  just how strong the ethical and legal duty that arises from board service is – which, in turn could support a strict approach  to determining COIs when an employee of one entity seeks to serve on the board  of another.  The case is indeed a reminder that serving on a board is serious business,  and before agreeing to such service an individual – and, if relevant, her  employer – should think through all that that entails from an ethical and legal  perspective.

Fifth, in some situations a company might decide to permit an employee to join another company’s board subject to management of any COIs flowing therefrom.  If going this route, all concerned need to consider the implicatons vis a vis the confidentiality of the latter’s information.

Finally, I  should stress that there are a host of possible advantages to an organization in  having one of its employees serving on the board of another entity (as reflected in the language from the Entergy code).  Here is a good piece identifying some of those   and my post should not be read as suggesting any presumption against  permitting such service – it is offered only to help identify what some of the  relevant COI issues might be.

Other People’s Conflicts

Samuel Johnson once famously said of some unfortunate soul, “He is not only dull himself, he is the cause of dullness in others,” and in this posting we’ll examine how companies can avoid the misfortune that sometimes comes from causing conflicts of interests in others.

To start, a brief bit of COI history.

Several years ago an advertising agency lost a highly lucrative account with Wal-Mart and – according to some press accounts at the time – part of the reason for the loss was the agency’s entertaining of a Wal-Mart executive in ways that allegedly caused her to violate that company’s code of conduct. Although the agency presumably violated no law, its loss of future revenue could be seen as costly as some of the largest criminal fines in history.

The case led many companies to add to their codes of conduct a requirement that in providing gifts, entertainment or travel to employees of third parties one must not cause those employees to violate their respective employers’ codes. But is such a provision by itself enough to mitigate risks of this kind?

For any given business organization, addressing this issue should, of course, be driven by an assessment of relevant risk. However, for all organizations it may be useful to consider the range of available C&E measures that can be taken here, and “work backwards” to determine if their respective risks warrant implementing the measure in question.

First, there is the language of the code itself. While at first blush a mandate that employees must not cause a violation seems strong, a preferable approach may be to specify that employees must ensure that they do not cause a violation. The latter sort of requirement (particularly if reinforced the right ways) suggests a higher and more meaningful burden on the employees who deal with third parties.

Second, companies can establish a practice of periodically collecting customers’ and other relevant third parties’ codes and disseminating gifts and entertainment language to at-risk employees and their respective managers. Even if it is not possible to do this for all third parties, the effort can be useful if codes for major customers are obtained.

Third, COI training can emphasize the importance of identifying and following relevant third-party standards. Fourth, companies can deploy “just-in-time” communications to at-risk employees around these issues.

Fifth, for organizations with relatively high risks in this area, managers can be required to monitor for compliance with third-party codes. Sixth, auditors might be tasked with including third-party standards in their audits.

Finally, note that this post deals with the topic of other people’s conflicts only at a very high level. There are many other aspects to this area. Indeed, the whole field of corruption by definition involves “causing conflicts in others,” and many of the largest criminal fines in history (specifically in the FCPA and health care fraud-and-abuse areas) have been precisely about that. The point of this post is to suggest that even without significant corruption risks, all organizations should consider whether they do enough to avoid creating third-party COIs.