Uncategorized

Assessing compliance incentives

A new post by Rebecca Walker and me in Corporate Compliance Insights.

We hope you find it useful.

Will working at home make us more ethical?

Research we reported on several years ago suggests it could.

In “Truth Telling: A Representative Assessment,” published in October by the Institute for the Study of Labor in Bonn, Johannes Abeler, Anke Becker and Armin Falk report on the results of two recent studies in Germany which suggest that individuals who are given an opportunity and motive to lie/cheat are unlikely to do so where the wrongdoing would take place in their home.  That is, individuals were called in their homes and asked to flip a coin – with the understanding that if they reported tails they would be paid a certain amount of money but they would get nothing if the reported heads.  In one version of the experiment, 56% reported heads, a number which presumably reflects a near zero amount of cheating (and maybe underreporting of the profit maximizing result).   The results of a second version were essentially indistinguishable from the first.

What is noteworthy here is that earlier studies on honesty that were conducted in laboratories showed a substantially higher percentage of cheating.  Thus, comparing those results to the new ones suggests that context may have a significant impact on truth telling – and perhaps other forms of ethical conduct.  This is consistent in a broad way with many other behaviorist studies showing how surprisingly malleable we are with respect to ethical conduct.

But can this information be used to promote compliance and ethics in the workplace, or is it interesting but not especially helpful?  At least as a general matter, I expect that C&E training and other communications could evoke the sense of home that seems to engender honesty, although obviously one would need to take care not to go overboard with such an approach.  (Indeed, some training I developed years ago sought to draw this connection,  and I think it was well received.)

Moreover, building on the apparently well-understood need for being truthful at home may be especially important given the relatively tepid endorsement of truthfulness in the workplace that one finds in many companies, including some with otherwise strong C&E programs.  That is, from what I’ve seen over more than twenty years in the field, one finds far less attention in codes of conduct and other C&E communications to the general importance of truthfulness than one would expect.  This shortfall may reflect the commonly held view that some degree of “bluffing” is appropriate in business, as noted in a famous article in the Harvard Business Review.

The benefit of evoking a “domestic” sensibility regarding ethics is that whatever the apparent logic of the bluffing perspective might be in the business realm (and from my perspective, it was never persuasive) on a gut level we are far less likely to accept it in our home lives, where its unsustainability is self-evident to the point of being intuitive (particularly so for parents, but presumably for any type of family member).  That is, whereas one might be aware of successful business careers built on truth bending it is simply impossible to imagine a healthy family life resting on such a foundation, and, I believe this is something that we not only understand intellectually but feel emotionally.

Of course, C&E professionals can also draw upon some very good data showing that in business honesty really is the best policy, such as this study last year by the Corporate Executive Board.   Appealing to one’s colleagues with a direct case should always be the principal approach to promoting business ethics.  But, as with many behaviorist experiments linked to above, this recent study may provide another, and somewhat less obvious, set of tools for enhancing the ethical performance of organizations.

 

Risk assessment made easy

My latest column in Compliance & Ethics Professional.

I hope you find it useful.

Marginalization of counsel … and compliance officers

Years ago, a firm I knew moved its chief compliance officer from a relatively nice office to a decidedly not nice one.  The move was intended to send a message and it was received that way. I noted at the time that this would not end well for the firm. Sadly, I turned out to be right.

In a recent post on the Harvard Corporate Governance Blog, “Bernie Ebbers and Board Oversight of the Office of Legal Affairs,”  Michael W. Peregrine, McDermott Will & Emery LLP  revisits the once-famous World Com accounting fraud scandal from the early 2000s and particularly the aspect of it that entailed the CEO (Ebbers) marginalizing corporate counsel. The details of this matter are less important (to me) than are the author’s very useful recommendations for mitigating this sort of risk.

Here are a few – of many:

1.Providing periodic board education on the nature of the general counsel’s role as counsel to both the board and management.

3.Incorporating in the general counsel’s job description the role of promoting compliance with the law and ethical standards.

10.Giving the general counsel access to, and collaboration with, other corporate executives with risk, audit and compliance portfolios.

12.Providing for general counsel participation in periodic executive session meetings with independent directors.

13.Establishing effective reporting relationships between general counsel and the in-house counsel assigned to corporate subsidiaries.

14.Assuring participation by appropriately senior in-house counsel in board, committee and management meetings relating to risk, legal or compliance matters.

15.Identifying members of the internal legal team to whom employees may confidentially address concerns.

16.Confirming that compensation of the general counsel is not determined in a way that might reasonably be considered to compromise the independence of its legal advice.

Of course, most of these questions can – with some modification – be asked about a company’s chief compliance officer, as well as its general counsel. And in conducting program assessments one should consider identifying and addressing marginalization in both roles.

Strengthening your C&E program through behavioral ethics

A new post in the FCPA Blog.

I hope you find it useful.

Expanding Compliance Liability for Directors?

A post a few weeks ago discussed the issuance of an important recent judicial decision in Delaware regarding board liability for compliance failures, and specifically the fact that the claim against the directors had survived a motion to dismiss.  Given how few decisions  support claims such as this – what are generally called Caremark cases – it is worth noting that  a second such decision  has been issued only a few weeks later.

As noted in a post this week in the Harvard Law School corporate governance blog by attorneys from the Wachtell Lipton law firm:  Further extending the practical reach of the Caremark doctrine, the Delaware Court of Chancery this week upheld claims against directors of a life sciences firm for failing to ensure accurate reporting of drug trial results. In re Clovis Oncology, Inc. Derivative Litig., C.A. No. 2017-0222-JRS (Del. Ch. Oct. 1, 2019)…. The Clovis directors argued, and the court accepted, that duty-to-monitor claims require a showing of scienter—that is, evidence that the directors knew they were violating their duties. But the court did not require the plaintiff to allege particular facts showing such knowledge. Instead, reasoning that Clovis had a board “comprised of experts” and “operates in a highly regulated industry,” the court concluded that the directors “should have understood” the problem and intervened to fix….Clovis thus highlights the widening risk to boards of directors of fiduciary litigation when bad news can be tied to an alleged compliance failure. …A compliance program is no longer enough. Courts now look for engaged board oversight, and directors should consider implementing procedures to ensure that the board itself monitors “mission critical” corporate risks.

Of course, while such procedures are themselves important, equally key is having a boardroom culture that encourages robust monitoring of compliance risks. For this reason (as well as others) board members should have strong relationships with their respective companies’ chief compliance officers, as CCOs  can – by word and deed – help develop and maintain a culture that is up to this task.

 

The big compliance news of 2019

In my latest column in Compliance & Ethics Professional I discuss the Department of Justice’s new policy of rewarding antitrust compliance programs.

I hope you find it interesting.

CECO reporting relationships

Here is a just-published article from Compliance Week on compliance & ethics officer reporting relationships.

I hope you find it useful.

Come to the Advanced Compliance & Ethics Workshop

I am honored to have been selected to chair the Practising Law Institute’s Advanced Compliance & Ethics Workshop in NYC on October 28 and 29.

Information about program topics and our stellar faculty is available here.

I hope to see you then and there.

See you at SCCE?

Later this month I’ll be speaking at the SCCE  18th annual Compliance & Ethics Institute in National Harbor Maryland.  I’ll be presenting in sessions on 100 + Years of Business Ethics: Learn About the Future from Masters of the Profession (together with my long-time colleagues Steve Priest, Carrie Penman and Ed Petry – Sunday morning, session P7) and on Leverage Legal Developments to Advance Your Program (together with my law partner Rebecca Walker – Tuesday afternoon, session 705).

Readers of the COI Blog attending the conference  are encouraged to use the occasion to say hello.