Little Help from My Friends – Predictions for Ethics and Compliance in 2014

This article was republished with permission from Michael Volkov’s Corruption Crime & Compliance.

When it comes to predicting ethics and compliance trends and events for the new year, I admit I needed some help.  So I reached out to two leading ethics and compliance specialists in the industry, Donna Boehme (here) and Michael Scher (here), both of whom are well known and well regarded for their acumen and expertise in the ethics and compliance field.

Working together, we came up with a list of significant ethics and compliance trends.  Predicting FCPA enforcement is a lot easier that projecting what ethics and compliance issues will become significant during 2014.  Some compliance trends are reactive – meaning in response to enforcement actions or requirements imposed by the government.  A growing – and some may argue more important – influence is proactive, self-generated ethics and compliance trends.  More business leaders are getting the message: ethics and compliance is not only a defensive requirement, but an offensive tool which contributes to the bottom line, the financial health and success of the company. Based on the recent years’ trends and continuing enforcement and governance reforms, here is our list of significant ethics and compliance trends:

1.  Continuing Separation of CCO and General Counsel – For the last four years, more companies are separating the CCO from the General Counsel and empowering the CCO to report directly to the Board.  This trend, as a best practice, will continue to increase.  CCOs are demonstrating their commitment to this principle by voting with their feet; CCOs are increasingly refusing to join companies which do not guarantee them independence and empowerment or are leaving existing jobs for greener pastures and companies that embrace the independent CCO model.

2.  Increased Board Supervision – Corporate boards are concerned about their own liability for corporate misconduct.  Shareholders are seeking greater accountability and government prosecutors are itching to prosecute a corporate board member or committee for failing to act and supervise corporate conduct.  In response, corporate boards are becoming more proactive, focusing greater attention on their own activities and efficiency and seeking protection early in situations when a corporation gets in trouble. As part of this trend, more companies are conducting internal ethics and compliance assessments (as directed by the Board and/or senior management), targeting reviews and improvements and focusing more attention and resources on these issues.

3.  Focus on Compliance Analytics and Tools – CCOs know that monitoring a compliance program requires the use of appropriate metrics.  Data analysis and tools are necessary to carry out these functions.  CCOs are quickly embracing these tools to leverage their resources and get a better picture of corporate ethics and compliance.  Additionally, the compliance industry is responding to increased demand for technology.  Vendors are developing new software programs that increase a company’s ability to monitor risks – including among third parties – and collect information about third parties, vendors and customers.

4.  Increased Focus on Ethical Leadership – It has taken a while, but company leaders are slowly recognizing what everyone has known for a long time – a company dedicated to a culture of ethical leadership will see bottom-line financial improvement.  With the economy starting to pick up, corporate leaders may reduce their obsession with quarterly financial results and embrace a longer-term view of financial profitability that emphasizes long-term growth and sustainability over short-term gains.  With a long-term focus, more companies will focus on sustaining an ethical culture as part of a long-term growth strategy, using incentives and clawbacks to emphasize the point.

5.  CCOs as Rising Stars – CCOs will continue to rise in their status as superstars as leadership pays more attention to how these positions are positioned and empowered.  Companies will be less enamored with the rock star CFO or general counsels as the focus has shifted to the CCO as the hot commodity and lucrative corporate player.  Experienced CCOs with adequate independence, line of sight, a seat at the table and resources will continue to demonstrate their capability to assess risk and proactively  respond to these risks in order to protect the company.

6.  Whistleblowers – Despite some who want to ignore the growth in whistleblowers, forward-thinking companies and CCOs know that it is only a matter of time until most companies face serious threats from them.  It is imperative that companies develop proactive strategies to identify and respond to whistleblower complaints in order to protect the company from serious consequences.  Overseas jurisdictions are starting to recognize the importance of whistleblowers, as well as the need to protect them from retaliation and offer incentives to provide information to government enforcement agencies.

7.  Compliance Professionals as Monitors – Traditionally, the DOJ has appointed former prosecutors or lawyers as monitors for corporations.  The DOJ has started to recognize the ability of compliance professionals as corporate monitors – Pat Gnazzo, a leader in the compliance field, was appointed to a four-year monitorship of BP as part of the oil spill settlement with the government.

8.  Local Enforcement of Foreign Nationals – The GSK enforcement action in China demonstrated a growing risk – local government enforcement against foreign companies and foreign nationals.  China’s anti-corruption enforcement push sent a shockwave through the pharmaceutical and medical device industries.  Similarly, Brazil’s recent announcement of prosecutions of Siemens executives highlighted this growing risk.

9.  Due Diligence and Monitoring – The name of the game in anti-corruption compliance has boiled down to two significant activities: due diligence of third-party intermediaries and monitoring of the third parties based on risk.  Many companies have adopted policies and procedures for due diligence.  Companies are struggling with fine tuning these due diligence reviews.  In addition, companies have started to focus on monitoring techniques and the implementation of systematic risk monitoring programs to detect and prevent any potential problems.