1-800-RET-ALI8 – The Compliance “Wrongline”

In a Jan. 4, 2012, Wall Street Journal article entitled “Olympus Hotline Didn’t Blow Whistle,” it was noted that an independent panel that investigated the cover-up had found there to be a culture at Olympus that discouraged employees from speaking up or voicing opinions contrary to upper management. Additionally, if someone did speak up using the company’s internal hotline, those who were receiving the call on the company’s end were the same people allegedly committing a huge fraud, and retaliation seemed to be assured.

The report itself is rather harsh – on the company, it’s management and others. It reads like one of those hypothetical stories that someone teaching a compliance and ethics course would fabricate in order to illustrate all the things that directly contrast with an effective compliance and ethics program. The adage of “life is stranger than fiction” certainly comes to mind.

While many good points and lessons can be drawn from this debacle, two are worth a quick mention. One, if your organization is not using an external hotline, seriously consider doing so. That alone could have had a significant impact on the way things worked out for Olympus. Second, develop a means of assuring that your organization has a process/system in place to conduct some level of independent monitoring/testing of your compliance program.

Compliance professionals monitor compliance of their organization’s employees with their compliance policies and procedures, often through audits, interviews or other testing. In a good corporate compliance program, this monitoring is tied to risks and incorporated into a compliance plan (a.k.a. “workplan”) that the board has reviewed and approved. But who is “monitoring the monitor” to assure the board that everything in the compliance plan was timely and effectively done?

Organizations vary greatly in how they do this – if they do it at all. In organizations with more resources, the internal audit function can be a very effective means of “independently” assessing the degree to which the compliance plan has been completed, as well as the effectiveness of the program in general. Other organizations may delegate someone from the legal department to do such testing, though they may lack the independent reporting associated with internal audit best practices that could be looked upon more favorably by outsiders.

For large and small organizations alike, hiring an outside compliance and ethics expert is worth consideration. Such experts are not as expensive as may be perceived and their experience and independence can add significant value, both to the board in exercising effective oversight, as well as to the compliance program, which may receive valuable ideas about ways they can improve in their function.

While we trust our compliance professionals to be dutiful, diligent, effective and honest, the key word is “trust.” Even those compliance professionals with the best intentions and highest degree of integrity may be operating compliance programs that do not measure up against governmental scrutiny as well as they believe. One need only look at the corporate settlement agreements (i.e. deferred prosecution and non-prosecution agreements) to see how many organizations with compliance programs they perceived to be extensive and robust ended up when something bad happened.

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