hroffice user conference 2005 creating an effective ethics and compliance program ascentis user...
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HROFFICE USER CONFERENCE 2005
Creating an Effective Ethics and Compliance Program
Ascentis User GroupSeptember, 2005
HROFFICE USER CONFERENCE 2005
Key Points
• Why Create an Ethics and Compliance Program?
• How Do I Create an Ethics and Compliance Program?
HROFFICE USER CONFERENCE 2005
Rise in Corporate Scandals
• Adelphia founder fined $715 million, hands over billion in assets to compensate investors for fraudulent behavior
• Boy Scout executive resigns after falsifying minority membership numbers to collect additional funding
HROFFICE USER CONFERENCE 2005
Rise in Corporate Scandals
• Morgan Stanley pays $54 million in sex discrimination case
• Nature Conservancy cited for unethical sales of land
• Marsh & McLennan fined $850 million for illegal practices
HROFFICE USER CONFERENCE 2005
New Government Regulations
• Sarbanes-Oxley Act of 2002• U.S. Organizational Sentencing
Guidelines
HROFFICE USER CONFERENCE 2005
Sarbanes-Oxley: Major Provisions
• Restrictions on Auditors• New responsibilities and powers for
the Audit Committee of the Board • Increased responsibilities for
Officers and Directors• Strengthened disclosure
requirements • New whistleblower protections
HROFFICE USER CONFERENCE 2005
Sarbanes-Oxley: Major Penalties
• Subjects to fine or imprisonment (up to 25 years) any person who knowingly defrauds shareholders of publicly traded companies
• Mail and wire fraud penalties increased (from 5 to 25 years in prison)
• Penalties for violations of the Employee Retirement Income Security Act of 1974 increased (up to $500,000 and 10 years in prison)
• Establishes criminal liability for failure of corporate officers to certify financial reports
• Increases penalties for violations of the Securities Exchange Act of 1934 to up to $25 million dollars and up to 20 years in prison
HROFFICE USER CONFERENCE 2005
U.S. Organizational Sentencing Guidelines
• Provides incentives for development of corporate compliance programs
• Reduction of fines for compliance• 2004 revisions require changes to
most corporate compliance programs
HROFFICE USER CONFERENCE 2005
U.S. Organizational Sentencing Guidelines
2004 Revisions: Major Provisions• Requires an effective program that
promotes an ethical culture• More specific requirements for the
Board and top management • New emphasis on training
HROFFICE USER CONFERENCE 2005
U.S. Organizational Sentencing Guidelines
2004 Revisions: Major Provisions• Encourages employees to seek
guidance, not just report wrongdoing
• Requires companies to periodically assess the risk of criminal conduct
HROFFICE USER CONFERENCE 2005
Business Benefits
• Reinforce your positive reputation and gain a competitive advantage
• Create a more productive workplace environment
• Gain loyalty from employees• Create successful relationships with
vendors and communities• Fulfill customer requirements
HROFFICE USER CONFERENCE 2005
Executive Commitment
• Buy-in at the top will create buy-in throughout the company
• CEO and Execs must be role models• Consider the ethical impacts of every
decision • Communicate publicly about ethical
decisions and commitment to ethics• Walk the Talk
HROFFICE USER CONFERENCE 2005
Ethics and Compliance Program
• Key Elements:– Ethics Committee or Ethics Officer– Code of Conduct– Reporting channels, tracking and
investigation– Training for all employees
HROFFICE USER CONFERENCE 2005
Ethics Committee/Ethics Officer
• Responsible for managing program elements
• Reports to the Audit Committee at least once a year
• Investigations coordinated and outcomes tracked
• Direct access to the Board is essential
HROFFICE USER CONFERENCE 2005
Code of Conduct
• Summary of 11 to 15 company policies, e.g. – Prevention of Harassment– Conflicts of Interest – Use of Company Resources such
as Email, and Handling of Confidential Information
• Quick reference manual• Plain language and clarifying
Q&A• References and where to
report issues
HROFFICE USER CONFERENCE 2005
Reporting Mechanism
• New regulations require reporting directly to the Audit Committee
• Generally accomplished in half year intervals (some only once per year) for routine reports
• Establish several avenues for reporting
• Ethics Office, Anonymous Helpline, Ombudsman, Web site
• Publicize them widely
HROFFICE USER CONFERENCE 2005
Investigation and Follow-Up
• Employees fail to report because they believe that “nothing will be done/change”
– Investigation and follow-up are tangible evidence that ethics issues are taken seriously
– Report to senior management about investigations and outcomes
• Audit committee must be informed
HROFFICE USER CONFERENCE 2005
Employee Training and Communication
• U.S. Sentencing Guidelines
• Minimum once per year training for all employees
• At-risk groups additionally on specific topics
• Training “as appropriate for agents”
• Sarbanes-Oxley• Companies see training and
communication as way of mitigating risk posed by Sarbanes
HROFFICE USER CONFERENCE 2005
Employee Training and Communication
Communicate. Communicate. Communicate.
HROFFICE USER CONFERENCE 2005
• Conflicts of Interest– Area of risk for profit and nonprofit
entities • Board members must be independent• Report any potential conflicts of interest
annually • Panel on Non-Profit Sector
recommendations:– nonprofit boards must disclose potential conflicts– formal training at least once per year
Employee Training and Communication
HROFFICE USER CONFERENCE 2005
Ethics and Compliance Program Benefits
• Avoid fines and jail terms• Gain a competitive advantage• Be known for “Doing the Right
Thing”
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