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
Why 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
How To Create an Ethics and Compliance Program
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”
HROFFICE USER CONFERENCE 2005
Creating an Effective Ethics and Compliance Program
Ascentis User GroupSeptember, 2005