Compliance Check-up
A prescription for business health.
By Mitchell S. Ettinger
At this time of the year, many people make resolutions to improve their overall health. It makes sense for business executives to mirror that practice with respect to their company’s business health.
One action that can have far-reaching positive effects without incurring significant expense is an evaluation of your company’s compliance program. Here are several low-cost initiatives that can help ensure that your compliance program continues to develop consistent with industry best practices.
Comparative Analysis
- Make a critical comparison of your compliance program to programs in place at other similarly situated companies, taking into account relative size and industry-specific issues. This can be done by compiling publicly available materials from the Internet or by speaking to compliance officers at companies that likely are experiencing the same or similar challenges facing your company.
- Attend industry events where compliance issues are discussed and ask the attendees about elements of their respective programs. Include seminars and forums outside your company’s industry; companies that engage in international sales, irrespective of product, face many of the same compliance issues. Moreover, compliance officers in non-competing companies may be more open to sharing information and ideas.
- Review publicly available deferred-prosecution, non-prosecution and SEC settlements to determine the compliance structure and terms the government is imposing on companies in the context of enforcement actions. These agreements often reflect the government’s view on industry best practices. For example, recent agreements have required companies to establish Compliance and Disclosure committees, appoint independent senior level Chief Compliance Officers, increase Corporate Audit resources and institute ethics hotlines. The principal concept is not to become complacent with your existing compliance structure or program. New ideas and concepts are constantly being tested to address emerging issues—many of which may work well within your company.
Communication
Compile last year’s “tone at the top” communications requiring strict adherence to business and ethics policies, and evaluate whether senior management’s messages use diverse platforms, address different subject matters and are genuinely effective. Too often, the same message is sent annually by the CEO or CFO, using the same format and text, blandly encouraging ethical behavior. “Tone at the top” communications should be clear, dynamic and disseminated whenever an opportunity presents itself. For example, another company’s public problem can serve as a powerful reminder to your workforce. Similarly, industry developments can be coupled with “tone at the top” messages.
Business Ethics Hotlines
Evaluate the effectiveness of your business ethics hotline program. Is the hotline available for a sufficient number of hours daily? Do the employees know it exists? Is it being used and, if so, are patterns developing regarding the types of inquiries fielded? (If so, this may indicate either a systemic problem or that suggested remedies are not being applied broadly.) Are reports properly documented and pursued? Are the appropriate company officials made aware of the reports having significant business and/or ethics implications? Is anonymity being maintained? Are the responses tracked to ensure consistency of action? Unsatisfactory answers to these questions may signal a need for remedial action.
Contract Administration
Evaluate the effectiveness of your contract administration policies and procedures, especially in light of the government’s aggressive stance in Foreign Corrupt Practices Act cases. Do you have guidelines that can reduce the risk that your company’s subcontractors and agents are making improper payments to third parties? For example, does your company: have established commission parameters and required management approval of third-party contracts; require all consulting agreements to be in writing and to include compliance clauses; and require payments to be made only to the contracting party and in the country where it is registered to do business?
The strongest compliance programs are dynamic and flexible, changing with the challenges presented and implementing new techniques and technology. A prescription for a healthy compliance program requires self-monitoring and evaluation, as well as industry interaction, to ensure that best practices are being pursued and implemented.
Mitchell S. Ettinger is a partner in the Washington, D.C. office of Skadden, Arps, Slate, Meagher & Flom and a member of the firm's Litigation Group, specializing in Government Enforcement and White Collar Crime.