Both the US Sentencing Guidelines and the Organization for
Economic Co-operation and Development (OECD) Good Practice Guidance on
Internal Controls, Ethics, and Compliance consider one of the key items for
a best practices compliance program to be the appropriate "Tone at the
Top."
The US Sentencing Guidelines reads:
High-level personnel and substantial authority personnel of
the organization shall be knowledgeable about the content and operation of the
compliance and ethics program ... and shall promote an organizational culture
that encourages ethical conduct and a commitment to compliance with the
law.
The OECD Good Practices reads
1. strong, explicit and visible support and commitment from
senior management to the company's internal controls, ethics and compliance
programs or measures for preventing and detecting foreign bribery;
The Foreign Corrupt Practices Act (FCPA) world is riddled
with cases where the abject failure of any ethical "Tone at the Top" led to
enforcement actions and large monetary settlements. In the two largest monetary
settlements of enforcement actions to date, Siemens and Halliburton, for the
actions of its former subsidiary KBR, the government specifically noted the
companies' pervasive tolerance for bribery. In the Siemens case, for example,
the Securities and Exchange Commission (SEC) noted that the company's culture
"had long been at odds with the FCPA" and was one in which bribery "was
tolerated and even rewarded at the highest levels". Likewise, in the KBR case,
the government noted that "tolerance of the offense by substantial authority
personnel was pervasive" throughout the organization.
In addition to the two cases set out above, in a 2003
report, the Commission on Public Trust and Private Enterprise cited a
KPMG survey covering selected US industries; found that 37 percent of employees
had, in the previous year, observed misconduct that they believed could result
in a significant loss of public trust if it were to become known. This same
KPMG survey found that employees reported a variety of types of misconduct and
that the employees believed this misconduct is caused most often by factors
such as indifference and cynicism; pressure to meet schedules; pressure to hit
unrealistic earnings goals; a desire to succeed or advance careers; and a lack
of knowledge of standards.
So how can a company overcome these employee attitudes and
replace the types of corporate cultures which pervaded at Siemens and KBR and
re-set its "Tone at the Top"? In a 2008 speech to the State Bar of Texas Annual
Meeting, reprinted in Ethisphere, Larry Thompson, PepsiCo Senior Vice President
of Governmental Affairs, General Counsel and Secretary, discussed the work of
Professor Lynn Sharp at Harvard. From Professor Sharp's writings, Mr. Thompson
cited five factors which are critical establishing an effective integrity
program and to set the right "Tone at the Top".
1) The guiding values of a
company must make sense and be clearly communicated.
2) The company's leader must
be personally committed and willing to take action on the values.
3) A company's systems and
structures must support its guiding principles.
4) A company's values must be
integrated into normal channels of management decision making and reflected in
the company's critical decisions.
5) Managers must be empowered
to make ethically sound decisions on a day-to-day basis.
The subject of management making significant changes in the
manner in which a business is run has long been the topic of the business
press. Most recently, the current issue of the Harvard Business
Review was entitled, "Managing Change: How to do it and When to do it".
In an article entitled, "The Decision-Driven Organization", it cited the example of
Ford Motor Company and its recent business turn around, in explicitly setting
out a company's decision to change a company's business tone. When Allan Mulally
became Chief Executive Officer (CEO) in 2006, he found the company in dire need
of a change in business direction. Rather than change the company's structure
and then consider the change which would come thereafter, he made the decision
to change the direction of the company and then put the structure in place to
facilitate that change.
In large part the change led by Mulally was based upon the
five steps noted above with. Mulally substituting 'a different way of business'
for ethics, however the message is clear. Just like the change at Ford Motor
Company being led by the CEO, the transformation in ethics and compliance must
be led by the CEO. Employees take their lead from the very top management of a
company. If the CEO takes the opportunity to discuss ethics and compliance at
every town hall meeting, in newsletters, posters and other types of
communications this message is constantly reinforced.
It is clear from the Harvard Business Review article
that management change can occur. If your company does not have the correct
"Tone at the Top" it can make the change. The five points set out by Thompson
give a clear path to achieving the right tone to move forward with a FCPA
compliance policy. Both the US Sentencing Guidelines and the OECD Good Practices
are looking to top management to set a company's tone for the values of ethics
and compliance. But more importantly your employees are too.
Visit the FCPA Compliance and Ethics Blog, hosted by
Thomas Fox, for more commentary on FCPA compliance, indemnities and other forms
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This publication contains general information only and is
based on the experiences and research of the author. The author is not, by
means of this publication, rendering business, legal advice, or other
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the author. The author can be reached at tfox@tfoxlaw.com. © Thomas
R. Fox, 2010