This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.
How many among you out there are sushi fans? Conversely, how many out there consider the idea of eating raw fish right up there with going into to the dentist’s office for some long overdue remedial work? One’s love or distaste for sushi was used as an interesting metaphor for leadership in this week’s Corner Office section of the New York Times (NYT) by Adam Bryant, in an article entitled “Eat Your Sushi, and Expand Your Horizon,” where he profiled Julie Myers Wood, the Chief Executive Officer (CEO) of Guidepost Solutions, a security, compliance and risk management firm. Wood said her sushi experience relates to advice she gives college students now: “One thing I always say is “eat the sushi.” When I had just graduated from college, I went with my mom to Japan. We had a wonderful time, but I refused to eat the sushi. Later, when I moved to New York, I tried some sushi and loved it. The point is to be willing to try things that are unfamiliar.”
I thought about sushi and trying something different in the context of risk assessments recently. I think that most compliance practitioners understand the need for risk assessments. The FCPA Guidance could not have been clearer when it stated, “assessment of risk is fundamental to developing a strong compliance program and is another factor [the] DOJ and SEC evaluate when assessing a company’s compliance program.” Many compliance practitioners have difficulty getting their collective arms around what is required for a risk assessment and then how precisely to use it. The FCPA Guidance makes it clear that there is no “one size fits all” for anything in an effective compliance program.
One type of risk assessment can consist of a full-blown, worldwide exercise, where teams of lawyers and fiscal consultants travel around the globe, interviewing and auditing. However, if there is one thing that I learned as a lawyer that also applies to the compliance field, it’s that you are only limited by your imagination. So using the FCPA Guidance on that “one size fits all” proscription, I would submit that is also true for risk assessments.
As with Wood’s admonition that you might want to try sushi even if you think you may not like it, I think that there are several different types of risk assessments that can be used to help to advance your compliance regime going forward. This means that if you do not have the time, resources or support to conduct a worldwide risk assessment annually, you can take a different approach. You might try assessing other areas annually through a more limited, focused risk assessment, which a colleague of mine calls the desktop risk assessment.
A desktop risk assessment could inquire into the following areas:
- Are resources adequate to sustain a culture of compliance?
- How are the risks in the C-suite and the Boardroom being addressed?
- What are the FCPA risks related to the supply chain?
- How is risk being examined and due diligence performed at the vendor/agent level? How is such risk being managed?
- Is the documentation adequate to support the program for regulatory purposes?
- Is culture, attitude (tone from the top) and knowledge measured? If yes, can we use the information to enhance the program?
- Disciplinary guidelines – do they exist and has anyone been terminated or disciplined for a violating policy?
- Communication of information and findings – are escalation protocols appropriate?
- What are the opportunities to improve compliance?
There are a variety of materials that you can review from or at a company to facilitate such a desktop risk assessment. You can review your company’s policies and written guidelines by reviewing anti-corruption compliance policies, guidelines and procedures to ensure that compliance programs are tailored to address specific risks such as gifts, hospitality and entertainment, travel, political and charitable donations and promotional activities.
You could assess your company’s senior management support for your compliance efforts through interviews of high-level personnel such as the Chief Compliance Officer (CCO), Chief Financial Officer (CFO), General Counsel (GC), Head of Sales, CEO and Board Audit or Compliance Committee members to assess “tone from the top.” You can examine resources dedicated to compliance and also seek to understand the compliance expectations that top management is communicating to its employee base. Finally, you can gauge operational responsibilities for compliance.
Such a review would lead to the next level of assessment, which would be generally labeled communications within an organization regarding compliance. You can do this by assessing compliance policy communication to company personnel, but even more so by reviewing such materials as compliance training and certifications that employees might have in their files. If you did not yet do so, you should also take a look at statements by senior management regarding compliance, such as actions relating to terminating employees who do business in compliance but do not make their quarterly, semiannual or annual numbers set in budget projections.
A key element of any best practices compliance program is internal and anonymous reporting. This means that you need to review mechanisms on reporting suspected compliance violations and then actions taken on any internal reports, including follow-ups to the reporting employees. You should also assess whether those employees who are seeking guidance on compliance for their day-to-day business dealings are receiving not only adequate, but timely responses.
I do not think there is any dispute that third parties represent the highest risk to most companies under the FCPA, so a review of your due diligence program is certainly something that should be a part of any risk assessment. But more than simply a review of procedures for due diligence on third-party intermediaries, you should consider the compliance procedures in place for your company’s mergers and acquisitions (M&A) team, focusing on the pre-acquisition phase.
One area that I do not think gets enough play, whether in the FCPA Inc. commentary or in day-to-day practice is looking at what might be called employee commitment to your company’s compliance regime. So here you may want to review your compliance policies regarding employee incentives for compliance. But just as you look at the carrots to achieve compliance with your program, you should also look at the stick, in the form of disciplinary procedures for violations. This means you should see if there have been any disciplinary actions for employee compliance violations and then determine if such discipline has been applied uniformly. If you discipline top sales people in Brazil, you have to discipline your top sales folks in the U.S. for the same or similar violations.
This list is not intended to be a complete list of items; you can pick and choose to form some type of desktop risk assessment, but hopefully you can see some of the areas you can assess. In his article on Ms. Woods, Bryant quoted Woods on the key trait she observed in successful leaders: “they were able to identify and focus on core things. When you go into an agency or a company, there are a million things you could fix. But you can’t fix everything, so you make a decision about your priorities, and then you act on them.” A desktop risk assessment may well help you to do so.
If you aim to perform an annual desktop risk assessment with a full worldwide risk assessment every two years or so, you should be in a good position to keep abreast of compliance issues that may change and need more or greater risk management. And do not forget the that the FCPA Guidance ends its section on risk with, “When assessing a company’s compliance program, [the] DOJ and SEC take into account whether and to what degree a company analyzes and addresses the particular risks it faces.” Finally, if you never have tried sushi, I urge you to do so, as it not only tastes good but is good for you as well.
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