Ranks of compliance and ethics professionals have grown 25 percent.
Roy Snell has a simple message for anyone who really wants to put a stop to Wall Street corruption – or business corruption of any kind, for that matter: join the compliance and ethics movement.
‘There is a surge of interest in this country to implement compliance and ethics programs,’ says Snell, CEO of the Society of Corporate Compliance and Ethics. Greater attention to regulations like the Foreign Corrupt Practices Act, the new and improved UK Bribery Act and the Dodd-Frank whistleblower provisions has forced corporations to become more aware of the connections between ethical behavior and corporate policy.
Snell maintains that efforts to strengthen compliance and ethics programs are building momentum because the business community has come to realize that ethical lapses and conflicts of interest played a significant role in creating the 2008 economic collapse and subsequent recession. He is using his organization to educate professionals and corporations about how they can improve operations and derive financial benefits by developing better compliance systems and ethical practices.
After his group’s annual meeting in September, Snell reported that his organization’s membership of 6,000 compliance and ethics professionals had grown 25 percent, and his organization’s annual meeting saw a 20 percent increase in attendance over last year. He also says compliance jobs are among the fastest-growing in the country, which means more people are seeing the industry as a meaningful career track. The makings of a movement are taking shape.
‘If we are successful,’ says Snell, ‘we’ll restore trust in business and improve the business culture, and the regulators and enforcement community will be able to go away and do something else for this country.’
Conflict resolution
An easygoing and soft-spoken fellow, Snell, who also heads the Health Care Compliance Association, is very optimistic about America’s ability to make a wholesale shift to a more ethical business culture. However, he believes the biggest challenge to transitioning US businesses to higher ethical standards will be the ability of each corporation to effectively deal with conflicts of interest in the workplace.
For Snell, a former administrator, consultant and compliance officer for the Mayo Clinic, conflicts of interest represent ‘a simple case where someone can’t fix a problem because it will hurt their reputation, affect expenses negatively, affect revenue negatively or affect their personal income negatively.’ For example, a banker might make a questionable loan or trade because not making that loan or trade would affect his commission income negatively. Leading up to the economic crisis, many employees were making business decisions that were motivated by personal gain, not by a desire to adhere to sound business principles.
Even prior to the 2008 crash, top management at companies such as Enron, Tyco and WorldCom made questionable profit-motivated decisions that led to some of the largest accounting scandals in history. In the case of Enron, when unethical behavior was revealed to some of the executives, nothing was done to stop it because of conflicts of interest. Unsurprisingly, totally eliminating such behavior in a corporation is difficult because the biggest conflicts of interest always revolve around personal financial gain. However, experts say conflicts of interest can be managed effectively (see, How to manage conflicts of interest, left).
The corporate payoff
Successful compliance programs require auditing, monitoring, investigations, discipline, reporting to the board, establishing a hotline to report problems and educating everyone from employees to top executives. The problem is, many corporations don’t know they have a flawed compliance program until a problem arises – and by then, it may be too late.
In an environment where financial opportunities appear to be contracting rather than expanding, Snell suggests that companies need to upgrade their compliance programs to attack conflict of interest problems aggressively. ‘You have to go out and look for, find and fix the problems,’ he says.
For companies that are able to develop a successful compliance and ethics program to deal with conflicts of interest, Snell says the benefits include:
Reduced burdens on employees – knowing that compliance controls are in place and will be enforced should reduce employee stress levels because there will no longer be positive outcomes associated with unethical behavior.
Improved corporate culture – eliminating conflicts of interest will improve employees’ respect for integrity and ethics at the company. When employees feel they are working with an ethical company, ‘they will stay longer and work harder, and you will be able to attract better people,’ says Snell.
Enhanced business relationships – building a strong ethical culture will improve a company’s ability to attract new partners. Most firms will prefer a company that touts an ethical reputation over a company with a dubious one.
Strengthened customer loyalty – ethical culture is something that can be felt by customers. Customers value dealing with an ethical company.
Rewards outweigh costs
Snell emphasizes that creating an effective system to manage conflicts of interest shouldn’t bankrupt a company – indeed, most of the resources needed to implement an effective program are already available at most firms.
‘You can pull existing resources out of the compliance team from audit, legal, risk, safety or privacy,’ he says. ‘It’s a matter of coordinating resources that already exist and giving them the responsibility and authority to find and fix the problems.’
With shareholder uprisings and Wall Street protests sending a message to the business community about the need to behave more ethically, Snell believes it is only a matter of time before all companies embrace linking ethical culture to business principles. Once most companies have changed their culture for the better, he says the overall business and economic environment will improve.
‘Business in the United States is going to be more trusted in the global economy because of the compliance and ethics movement, and we are going to be more successful in the global economy because we can be trusted,’ Snell asserts. ‘Trust in business is everything.’
How to manage conflicts of interest
Roy Snell, CEO of the Society of Corporate Compliance and Ethics (pictured left), says dealing with conflicts of interest at corporations doesn’t always mean trying to eliminate them – they can be managed. This isn’t an easy task, but Snell offers five steps you can take to ensure success.
Create a conflict of interest policy. Corporations need to set rules about what constitutes a conflict of interest at their firm. What types of relationships or actions may violate existing regulations or compromise the company’s reputation?
Engage employees about conflicts. Employees should be made aware of the company policy on conflicts of interest and should be given a conflict of interest disclosure form to fill out, listing their potential conflicts or asserting that they have none.
Review conflicts. Create a report that examines the conflicts of interest that employees detail on their disclosure forms. Select a trusted group of individuals with no conflicts who must then determine whether anything further needs to be done. ‘The finance, audit or compliance committee – any of those three – can review the major conflicts of interest,’ says Snell.
Make a determination. Once you’ve had an unbiased independent group look at the conflicts that were reported, the company must make a determination as to whether the conflict should be eliminated or managed. ‘The compliance and ethics officer should put the procedure together, manage the process, get everybody to fill out the conflicts of interest forms, and get the report to the independent committee,’ says Snell. The compliance officer should team up with the audit, finance or compliance committee and go back to management with recommendations on how best to manage any conflicts of interest.
Appoint a team to fix the conflicts. The compliance and ethics officer should lead a team that will then execute any plans to manage conflicts of interest approved by management. ‘Pull from other existing talent and resources and create a team whose mission is to prevent, find and fix problems,’ says Snell, ‘and then give this team the authority to fix them.’
Summing up the process of managing conflicts, Snell says: ‘Compliance and ethics professionals need independence like an auditor needs independence. They need to be free of any conflicts of interest. They need to be able to solve any problems, anywhere, regardless of who is reluctant to address the issue. They need an avenue, preferably to the audit committee and the board, to say, I’ve got an issue here that I’m trying to solve and I need your help, or I’m trying to implement elements of a compliance program and I’m meeting with resistance and I need your help. The board can help by making sure the compliance and ethics officer is independent and has a place to go if his or her progress is being impeded.’
Building a reputation of integrity
In an October report entitled Building a corporate reputation of integrity, the Ethics Resource Center, a non-profit, non-partisan research organization, recommends that ethics and compliance officers work in collaboration with the communications team or other internal functions to implement several initiatives to build a company’s reputation of integrity.
• Conduct an assessment of stakeholder perceptions. Obtaining empirical data about the audiences the company serves is key to establishing a reputation of integrity. Establishing a benchmark of stakeholders’ existing perceptions can provide a valuable starting point for developing communications goals and strategies.
• Survey employee perceptions about the company’s ability to earn and maintain its reputation. Knowing what employees think is invaluable. Employees can be a company’s best advocate if they feel good about where they work and have confidence in the company’s commitment to integrity. Effective reputation management begins at home with the employees who know the company best.
• Conduct communications and ethics training of staff. Ethics officers can be trained in how to act as company spokespeople in appropriate circumstances and also how to communicate most effectively to external and internal audiences alike. Communications staff can be trained to understand the ethics and compliance department’s programmatic activities and the basic concepts of how people can uphold corporate values.
• Identify champions to help set a tone at the top. A strong tone at the top is key to ethical performance. Corporate reputation can be enhanced when CEOs and other senior executives are effective and aggressive external advocates. Identifying senior leaders with the right skills to become effective messengers is a way to burnish the company’s reputation and build its internal culture.
• Develop a strategy for messaging. Reputation-building requires crafting the right messages and an effective strategy for delivering them. Working together, the ethics and compliance team and the communications function can target key audiences and develop strategies to get them to think differently and more positively about the company.
