How To Demonstrate Ethics and Compliance – Earn It, Re-Earn It and Re-Evaluate It

What should your company do if it finds itself in a situation where some of its senior leadership has engaged in conduct which violates its own ethical standards or external legal standard such as the Foreign Corrupt Practices Act (FCPA)? Assume your company is now in McNulty Maxim No. 3 of “What did you do about it?” as you have investigated the conduct and disciplined the senior management in question. However, you want to go further and try to take steps that will detect and prevent the conduct in the future.

A current example of this is going on in the US military. In reaction to recent scandals involving lapses of personal character, the US military has instituted a series of changes to help military commanders to focus on ethical standards. In an article in the New York Times (NYT), entitled “Conduct at Issue as Military Officers Face a New Review”, Thom Shanker discussed a range of responses that the military will pursue. He reported that “The new effort is being led by Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, as part of a broad overhaul of training and development programs for generals and admirals. It will include new courses to train the security detail, executive staffs and even the spouses of senior officers.” The article quoted General Dempsey as saying, “Conversely, you can have someone who is intensely competent, who is steeped in the skills of the profession, but doesn’t live a life of character. And that doesn’t do me any good.”

The military has initiated three broad responses. The first is a “regularly scheduled professional reviews would be transformed from top-down assessments to the kind of “360-degree performance evaluation” often seen in corporate settings.” A 360-degree review is one which comes from members of an employee’s immediate work circle. Most often, 360-degree feedback will include direct feedback from an employee’s subordinates, peers, and supervisor(s), as well as a self-evaluation. It can also include, in some cases, feedback from external sources, such as customers and suppliers or other interested stakeholders. The results from a 360-degree evaluation are often used by the person receiving the feedback to plan and map specific paths in their development.

While acknowledging the challenges from that comes from a subordinate review in a top-down hierarchical structure, such as the military, General Dempsey stated that “we’ve developed some bad habits” and that “It’s those bad habits we are seeking to overcome.” The article quoted Richard H. Kohn, a professor emeritus at the University of North Carolina, Chapel Hill, who specializes in military culture who said “he thought the 360-degree evaluation would have a positive effect on the leadership styles of many officers. He also stated that “It will reduce what the military calls ‘toxic leadership,’ elevating those who are highly competent but also fair and less brusque and peremptory.”

The second response was increased training on values. “General Dempsey said the demands of combat deployments in the past decade had prevented officers from attending the academic programs that historically had been integrated into an officer’s career every few years, and he pledged to rebalance that.” I found this quote very fascinating as it showed the extent that the military uses outside resources, I.E. civilian academic programs to supplement training on military values. Due to the increased deployments since 9/11, these traditional academic rotations have been less ongoing. Dr. Kohn found that these new training programs are a good enhancement to military training as “most officers need to be reminded of the rules and regulations on a routine basis.” But this training will go past simply the senior officers as “new programs will be instituted to ensure that a commander’s staff, and a spouse, are fully aware of military regulations.”

The third component will be more internal audits. The articled noted that “Under General Dempsey’s plan teams of inspectors will observe and review the procedures of commanders and their staffs. The inspections will not be punitive, but will provide a “periodic opportunity for general officers and flag officers to understand whether, from an institutional perspective, we think they are inside or outside the white lines.”” I found this component to be similar to the ‘Mock Audit’ concept that is used in the power industry that I recently wrote about in the post “In Praise of the Mock Audit”. A ‘Mock Audit’ is a mechanism by which a compliance team can go into a facility and not only try to determine what might need remediation but, equally importantly, help the employees in that facility to move towards greater compliance.

For the FCPA compliance practitioner, this response by the US military has some very interesting parallels to what the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) say should be in your FCPA compliance program. The DOJ/SEC FCPA Guidance demonstrates that a company should strengthen and supplement its compliance program on causes underlying the compliance issues which arose. The Guidance states, “An effective compliance program promotes “an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” Such a program protects a company’s reputation, ensures investor value and confidence, reduces uncertainty in business transactions, and secures a company’s assets. A well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations. [emphasis supplied] Further, in its section on Declinations, one of the six common elements which companies that received declinations engaged in was to make their compliance program more robust around the FCPA violation which arose. Clearly the DOJ and SEC believe that a company with a strong compliance system and culture will not only be in better position to comply with the FCPA but will be a better company.

General Dempsey clearly believes that the military has high ethical values. Shanker wrote that “He said the issue of understanding the military as a profession, and not just an occupation, had fascinated him since his days as a junior officer; he would be subject to the same rules, regulations and assessments he now is championing.” Shanker ended his article with the following quote from General Dempsey, “In my 39 years in the military, I have learned that you are not a profession just because you say you are,” he said. “You have to earn it and re-earn it and re-evaluate it from time to time.”

To me that sounds something like the following-you are not an ethical company because you say you are but because you do compliance by putting in the policies and procedures to do so.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013