the business case for compliance: how ethics pays the ethisphere institute is the global leader in...

Copyright © 2016 NAVEX Global, Inc. All Rights Reserved. | Page 0

The Business Case for Compliance:

How Ethics Pays

November 15, 2016

Copyright © 2016 NAVEX Global, Inc. All Rights Reserved. | Page 12016 Ethics & Compliance Virtual Conference

Presenter

Chief Executive Officer, Ethisphere

Timothy Erblich


• The Global Business Landscape

• Ethisphere Research & Dataset

• Data: State of the Function & Next Practices

• Making the Business Case for Compliance Come Alive

Agenda


The Global Business Landscape

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We Find Ourselves in a Challenging Regulatory, Economic, and Cultural

Environment

Geopolitical Unrest Economic Turmoil

Increased Risk &

Accountability

Global Humanitarian

Crises

FIFA Corruption Investigation Expands to

Sponsors, Broadcasters & Banks

Ex-Olympus CCO collects $51 million

whistleblower award

Qualcomm to pay $975 million to

resolve China antitrust dispute4

Banks have paid $150B in fines since 2009

with $58B in 2014 alone


Global Organizations Face Risks Everywhere • What determines success are the processes and procedures in place to deal with these risks,

whether known or unknown.

Highly Corrupt

VeryClean

Source: Transparency International


Intangibles Have Become the Single Most Important Factor in Your Valuation

COMPONENTS OF S&P 500 MARKET VALUE

17%

32%

68%

80%84%

83% 68% 32% 20% 16%

0%

25%

50%

75%

100%

1975 1985 1995 2005 2015

Source: “Annual Study of Intangible Asset Market Value”, Ocean Tomo, LLC

= Tangible Assets

= Intangible Assets


Investors, Recognizing the Value in Quality Governance & Compliance Practices, Place a Premium on Leading Companies

+10% +10% +10% +10%

+28%

-20%

-30%-35%

-30%

-40%

-50%

-25%

0%

25%

50%

United States Canada United Kingdom Cont. Europe Asia-Pacific

= Median Valuation Premium from ‘superb’ corporate governance

= Median Valuation Discount from ‘poor’ corporate governance

IMPACT ON VALUATION OF SUPERB VERSUS POOR CORPORATE GOVERNANCE

Source: The Intelligence Council: Governance and Proxy Voting. Attitudes and Practices of the Global Buy-Side. August 2015. RIVEL. Special thanks to Brian Rivel and Brendan Sheehan.

“A culture of ethics ties long-term performance objectives to the interests of long-term stakeholders”

“As investors, we need to use our voice, through

direct engagement and

voting, to ensure that

companies are being run

to deliver sustainable

growth and returns over

the long term.”

“Aligning decision-making with ethical culture reduces long-term risk to the enterprise”

Larry Fink, CEO of Blackrock


Ethisphere Research & Dataset


Global Leader in Ethical Business Practices

The Ethisphere Institute is the global leader in advancing the standards of ethical business practices that fuel corporate character, marketplace trust, and business success

• MEASURE AGAINST STANDARDS

- Provides an independent, objective measurement tool critical to drive business decisions and stakeholder interaction

• RECOGNIZE EXCELLENCE

- Recognize World’s Most Ethical Companies; those with proven, extraordinary programs

• INSPIRE ADVANCEMENT

- Produce / host global summits, roundtables, and publications that capture leading voices in the field.


Publications and Content

1 Executives from around the world address key topics and challenges

2Dedicated magazine issues: CEO, CLO, Data & Measurement, World’s Most Ethical Companies, Governance

3Regular magazine features: Compliance and Ethics; Legally Speaking; Boards and Governance; Executive Briefing; Corporate Culture

4 Dedicated magazine inserts: Cybersecurity, Diversity, and more

5 Articles, podcasts, whitepapers, video, and more at http://insights.ethisphere.com

http://insights.ethisphere.com/


Enabling a Year-long Conversation Across Cultures, Geographies, and Functional Boundaries

Recognized Leader in Global Programs

SummitsNew York | Brazil | Singapore | Abu Dhabi

ForumsPalo Alto, CA | Toronto | Abu DhabiLondon | Paris | Tokyo | Hong Kong

RoundtablesRegionally Around the U.S. and Abroad

WebcastsEthisphere hosts 25-40 webcasts a year

World’s Most Ethical Companies®Annual recognition of those who set the standard for ethical practices now and going forward

Ethics Quotient™Analytics scorecard with high-level comparisons against WME honorees


Ethisphere’s Data Set

• Ethisphere’s Ethics Quotient Survey (EQ) objectively measures a company’s ethical

culture, compliance programs, policies and procedures, as well as other aspects of an

ethical organization

• A confidential set of data unlike any other

• Five weighted assessment areas that

provide a holistic view into the organization

• Regularly updated and refined to fit

evolving expectations and regulations

• A core component of

- The World’s Most Ethical Company selection

process

- Ethisphere’s benchmarking

- Ethisphere’s program assessments


Why Data Matters

‘In all areas – not just FCPA – this [metrics and technology] is

extremely important in my view. I think strong compliance

must be data driven... when I look at compliance programs,

the kind of data that they do and do not monitor tells me a

lot about how sophisticated their program is.’

Hui ChenDepartment of Justice

Consultant on Compliance


Data: State of the Function & Next Practices


State of the Function

GRC Executive

RegulatorsBoard of Directors

Third Party Vetting

DOJ Yates Memo

Hui ChenOperational ROI Sophistication of

E&C Programs

ACTIVITY METRICS

Key Initiatives

Hotline Reports

Investigations

Training Statistics

COI Reports

Code Updates

PERFORMANCE METRICS

Culture Surveys

Risk Assessments

Peer Benchmarking

Substantiated Investigations

3rd Party Audit Results

Employee Proficiency

CHANGING EXPECTATIONS


Nascent Programs Mature Programs

SELF-ASSESSMENT

Refine your program

through the insights

gleaned from identifying

your peer’s best

practices.

IMPROVEMENT & BENCHMARKING RECOGNITION

Identify program baseline and

help drive budget priorities by

evaluating highest value

areas and program elements.

Celebrate exemplary

programs and companies

by applying for the WME

designation

Program Maturity Scale


Compliance Has Greater Reach & Role


Expanding Authority of Compliance Leaders


Growing Trends


Responsibilities in Risk Assessments


C&E Risk Assessments


Methods in Formal Distribution


Increased Board Engagement

Increased Board Engagement Reflects Heightened Interest / Importance of Compliance Efforts at Leading Companies

Source: Unverified responses from 2014, 2015 and 2016 World’s Most Ethical Companies application data, Ethisphere

77%

80%

83%

85%

80%

85%

84%

83%

78%

82%

84%

97%

97%

95%

98%

92%

98%

95%

93%

89%

86%

95%

99%

98%

99%

100%

95%

97%

96%

95%

90%

92%

93%

Hotline and misconduct reporting statistics

Significant regulatory and legal updates

Program assessment and benchmarking findings

Overall C&E program performance

Misconduct investigations and resolutions

Overview of key initiatives

C&E training initiatives and results

C&E risk assessment findings

C&E trends and best practices updates

Culture of ethics assessment or survey findings

C&E communication initiatives

What Information Do You Report to Your Board?

2014 2015 2016


C&E Program Responsibility


53%

39%

14%

7%

12%

10%

10%

9%

Company Gain

Personal Gain

Permissive Culture

Operational Burden

Poor Process Design

Employee Made Mistake

Employee Unaware of Policy

Other (e.g. External Actor)

The average cost of compliance failures caused by a poor culture is

more than $40 million

ROOT CAUSE OF COMPLIANCE SETTLEMENTS

69% of settlements were

identified as culture-related

Source: CEB Analysisn = 209 settlements

Note: total does not equal 100% as multiple root causes were identified for each compliance failure

Culture Breakdowns Are the Leading Cause of Misconduct


Ethical Leadership Is Needed Most During Challenging Times

COMPLIANCE RISK OF SPECIFIC CAREER MOMENTS

Source: ”Why Career Moments Matter...And What You Can Do About Them”, CEB 2014


Measuring Culture


Greater Breadth of Topics & Insights


Internal Trends


Making Connections


How to Use This Information

Share findings with senior leadership

More tightly integrate the

Ethics & Compliance

role with other business roles

Compare your company to

other leading companies

Help focus your

investment in program and

resources

Elevate compliance

and integrity to a business imperative


Making the Business Case for Compliance Come Alive


Ethisphere’s Eight Pillars of Corporate Culture

What Should Be Measured?

1AWARENESS OF PROGRAM & RESOURCESFamiliarity with the assets and efforts of the compliance and ethics function

ORGANIZATIONAL JUSTICEPerceptions of whether the company holds wrongdoers accountable and the awareness of discipline

MANAGER PERCEPTIONSPerceptions of supervisor’s conduct, communication, comfort approaching with concerns

PERCEPTIONS OF LEADERSHIPEvaluates employees’ perceptions of the conduct, values and communications of senior leaders

PERCEPTIONS OF PEERS & ENVIRONMENTPerceived priorities of co-workers, the values of their organization and willingness to share opinions

PERCEPTIONS OF THE FUNCTIONPerceived quality and effectiveness of the function’s efforts in communicating, training, and support

2OBSERVING AND REPORTING MISCONDUCTComfort in reporting perceived misconduct, the reasons for doing so, potential reporting barriers

3PRESSUREStrength, source of pressure employees may be experiencing to compromise standards to hit goals

4

5 6 7 8


The Ethical Culture and Perceptions Assessment

• Expand from your current employee engagement survey to a true culture survey

• Supplement the questions used over time to retain your trend data

• Leverage our library built with the BELA Community

• Use our reporting tool without the need for outside assistance

• Analyze results in order to differentiate between needed blanket vs. targeted remedial steps

• Review Ethisphere’s accompanying qualitative analysis to help you address weak areas and gaps

Ethics Quotient Benchmarking

Program Assessment

Ethical Culture & Ethics Assessment

Data & Services


Ten Years of Celebrating Those That Excel • Internal experts, supported by our Methodology Advisory Panel, regularly refine the survey framework and

methodology

• Ethisphere’s data set of best practices provides the industry’s most meaningful and actionable analysis and recommendations


Thank You!

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