Our crystal ball of ethics and compliance predictions has never been cloudier than at the end of 2011. Political priorities and public perceptions of institutions are traditionally predictive of the ethics and compliance environment. This year, however, inclement weather has been coming from all corners of the globe.
In the absence of clear signals, the most reliable predictor for ethics and compliance in 2012 is what has already happened in 2011. Yesterday we recapped five of the top GRC trends. Our recap of remaining five top trends and predictions follows.
6. It is not only the crime − but also the response and cover-up that causes pain.
Much attention has been paid to the new SEC whistleblower program that provides incentives to individuals to report violations of securities laws. Whistleblower protections and incentives have been around for a long time. The bigger focus has long been on results and reputation.
The board of Olympus demonstrated one way not to handle serious allegations: dismiss the CEO who raised them even though he had documented evidence to support fraud suspicions. Renault demonstrated another kind of failing: fire and publicly denounce individuals for selling confidential information before completing a thorough investigation. And in the U.S., a football program known for its ethical probity (Penn State) and a coach legendary for his ethics (Joe Paterno) fell under dark clouds because they failed to respond quickly or effectively to allegations of sexual abuse of children by a former assistant coach of the football team.
Only the first of these (Olympus) would most likely have been addressed by the SEC whistleblower program. But all of them underline the need for companies to have a strong anti-retaliation policy, an internal program emphasizing reporting responsibilities, and a real culture of integrity.
7. Insider trading rises as an enforcement priority.
While there have been notable insider trading convictions globally, the U.S. Department of Justice has made prosecution of insider trading a major priority of late.
Over two dozen people have been convicted in the last year. A billionaire who once ran the hedge fund Galleon, Raj Rajaratnam, was sentenced to 11 years in prison and fined $10 million. Rajat Gupta, the former head of the prestigious consulting firm McKinsey and board member of Goldman Sachs, Procter & Gamble and American Airlines, has been criminally charged.
Networks of intelligence gatherers for financial institutions are under scrutiny. Expect more in the U.S. and globally as enforcement agencies learn from each other and look for low hanging fruit. And, with the recent revelations of different practices regarding insider information for our elected officials in Congress, expect some interesting headlines and new regulations from Washington that will reverberate around the globe.
8. Antitrust enforcement continues at a high level.
The U.S. DOJ has sued to block three mergers in 2011 alone (including the huge AT&T-TMobile deal), versus six deals in the previous decade. The European Union, of late the most vigorous of the competition enforcement authorities, continues to be aggressive, with Google the most recent large multinational under its microscope.
International cartels are the main priority of the EU, with one case from 2011 being a 315 million euro fine against major players in the detergent industry including Henkel, Procter & Gamble, and Unilever. Other recent cases around the globe make clear that collusion has scant refuge: Samsung, Sharp and six other LCD makers agreed to pay nearly $400 million to settle US price-fixing allegations, and Whirlpool units and Panasonic were fined over $200 million in an EU refrigerator compressor cartel case.
9. One bad apple can spoil the whole bunch.
2011 marked several more cases where one individual’s actions harm an entire organization. One rogue trader at UBS cost the firm $2.3 billion in bad trades, which led to the resignation of the CEO and loss of confidence in the firm’s ability to manage risk and compliance.
Employees of the International Monetary Fund endured months of unwanted attention in the wake of the arrest of their managing director, Dominique Strauss-Kahn, on charges that he sexually assaulted a housekeeper in a New York hotel.
10. The watchers need watching.
A vigorous marketplace needs watching. In smaller markets and days gone by, customers could simply tell one another when a company was not trustworthy. Now we have regulators and courts; the media; non-governmental organizations of all stripes; and web-enabled ratings, evaluations and diatribes to keep companies on the straight and narrow. Unfortunately, these watchers need watching as well.
Just this year, we have observed the following troubling cases involving “the watchers”:
- The U.S. SEC destroys documents against regulations.
- A federal judge throws out an FCPA conviction saying of the U.S. DOJ, “The government team committed many wrongful acts. It should not be permitted to escape the consequences of that conduct.”
- Wikileaks releases non-redacted materials, jeopardizing the lives of many innocent people.
A shadowy group of computer experts calling itself “Anonymous” pulls off massive coordinated and complex attacks on organizations around the world, including Sony, Visa and the government of Egypt. They bring defense intelligence contractor HB Gary to its knees by hacking into its state-of-the-art systems, taking over its website and publishing confidential information about the company and its CEO.
Implications
Doctors, dentists and oil change shops alike preach prevention to reduce problems later. But we continue to eat too much of the wrong things, exercise insufficiently, floss too little and defer oil changes on our cars.
Organizations are no different. Leaders know that strengthening a culture of integrity is a good investment and a high priority, but in the fast and stressful pace of other business, ethics and corporate compliance efforts often get short shrift or become check-the-box exercises.
The trends outlined above make it clear that companies that do business with governments, companies whose products or services impact public health or safety, medium or large organizations, and publicly traded companies all need to devote more attention to their cultures.
This does not mean they need to “lawyer up” or engage in costly endeavors. It does mean that strengthening a culture of integrity with a strong and credible ethics and compliance program needs to be a corporate priority. Leaders throughout an organization should to be measured and rewarded when they create an environment where “doing the right thing” is the expected day-to-day behavior. Based on current conditions, we predict a stormy 2012.
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About the Authors
Steve Priest was described by The Wall Street Journal as “one of the most sought consultants to keep companies on the straight and narrow.” For seventeen years Steve was president of the Ethical Leadership Group (ELG), a consulting firm that specializes in ethics training & communications and compliance assessments. Steve now serves as founder of ELG and senior advisor at Global Compliance, the compliance solutions firm that ELG joined in 2007. For more information about his work, visit Steve’s CCI author page.
Santiago Zorzopulos Reich is a senior consultant at the Ethical Leadership Group. Prior to joining the company, Santiago was the Dubai Ethics Resource Center’s Manager of Programs where he helped launch the new Center and create its portfolio of products and services. His work in Dubai included: founding the Corporate Directors’ Leadership Forum, conducting a high-profile research program on ethics and corporate responsibility in the Gulf region, and implementing several client-specific projects for public and private organizations.
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