How Do You Determine the Gold Standard For Compliance Programs?

by Thomas Fox
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What is the gold standard for scientific minds? You might not do better than Albert Einstein who was born on this date in 1879. While most lay persons remember Einstein for his theory on special relativity, and his attendant mathematical calculation that mass and energy were equivalent and could be calculated with an equation, E=mc²; Einstein actually won his 1921 Nobel Prize for an earlier paper which theorized that light is made up of individual quanta (photons) that demonstrate particle-like properties while collectively behaving like a wave. The theory was an important step in the development of quantum theory.

Many compliance practitioners often wonder about how their Foreign Corrupt Practices Act (FCPA) compliance program might compare with companies which are believed to have gold-standard compliance programs. Yesterday, in an article in the FCPA Blog entitled “Is This The World’s Best Compliance Disclosure?”, Dick Cassin wrote about the recent disclosure by Baker Hughes Incorporated in its 2012 10K filing, relating to FCPA compliance. Once upon a time, way back in 2007, Baker Hughes had the largest FCPA fine in the history of the world ever, that being $44MM. It was also under a three-year Deferred Prosecution Agreement (DPA) and a corporate monitor. Baker Hughes not only made it out from under the DPA and monitor but it is now recognized as having a gold standard compliance program.

Baker Hughes bases its compliance program on three core concepts. The first is its “Core Values of Integrity, Performance, Teamwork and Learning”. The second is the standards contained in the company’s Business Code of Conduct. The third concept is the laws of the countries where it operates. The Baker Hughes compliance program is referred to within the company as “C2” or “Completely Compliant.” The “Completely Compliant” theme is intended to establish the proper Tone-at-the-Top throughout the company. Based upon this, company employees “are consistently reminded that they play a crucial role in ensuring that the Company always conducts its business ethically, legally and safely.”

The 10K went on to list some of the highlights of the Baker Hughes compliance program. They included:

  • Comprehensive internal policies over such areas as facilitating payments; travel, entertainment, gifts and charitable donations connected to non-U.S. government officials; payments to non-U.S. commercial sales representatives; and the use of non-U.S. police or military organizations for security purposes.
  • Comprehensive employee compliance training program covering substantially all employees.
  • Due diligence procedure for commercial sales, processing and professional agents, an enhanced process for classifying distributors and are creating a formal policy to guide business personnel in determining when subcontractors should be subjected to compliance due diligence.
  • A special compliance committee, which is made up of senior officers, that meets no less than once a year to review the oversight reports for all active commercial sales representatives.
  • Continued reduction of the use of commercial sales representatives and processing agents, including the reduction of customs agents.
  • Use of technology to monitor and report on compliance matters.
  • A program designed to encourage reporting of any ethics or compliance matter without fear of retaliation including a worldwide Business Helpline operated by a third party and currently available toll-free in 150 languages to ensure that our helpline is easily accessible to employees in their own language.
  • Expansion in the use and scope of our centralized finance organization including further implementation of our enterprise-wide accounting system and company-wide policies.
  • The corporate audit function has incorporated additional anti-corruption procedures in audits of certain countries.
  • Continued refinement and enhancement of procedures for FCPA risk assessments and legal audit procedures.
  • Ensuring that the company has adequate legal compliance coverage around the world, including the coordination of compliance advice and training across all regions and countries where we do business.
  • Centralization of the company’s human resources function, including creating consistent standards for pre-hire screening of employees, the screening of existing employees prior to promoting them to positions where they may be exposed to corruption-related risks, and creating a uniform policy for new hire training.

There are three areas from the Baker Hughes disclosure which I wish to highlight as components that a small to medium sized company should be able to implement at a relatively low cost. The first is the compliance oversight committee. The oversight committee puts a ‘second set of eyes’ on the compliance issues it reviews, whether it is third parties or additional compliance issues. The second is more involvement from the HR function regarding screening of potential hires and screening of employees for promotion to positions which might expose them to additional corruption related to risks. I would add that you should also use such screening to help make selections for moving employees into senior management positions, where their tone and attitudes towards compliance can grow in importance.

The third area is the company’s embracing of compliance as a key corporate culture. You can call your program “C2” or “Completely Compliant”, like Baker Hughes does, or give another name to the program. However the key is to remind employees of the crucial role that they play ensuring that your entity always conducts its business in an ethical manner. Much like reminding employees that safety is everyone’s responsibility; you can and should remind employees that doing business within the parameters of your Code of Conduct and your compliance program is something they should recognize as their responsibility as well.

If you are a small to medium size company your FCPA risk profile may not warrant the gold standard compliance program that Baker Hughes has put in place. However you should endeavor to put a program in place based upon the risks that you assess as applicable to your company. The Baker Hughes program gives you some guidance as to what the gold standard is and some solid ideas of components that you might implement.

One last thing, the Chief Compliance Officer (CCO) of Baker Hughes is Jay Martin. Jay regularly speaks at compliance conferences across the country. He has been quite generous to give his experiences in going through the compliance process at Baker Hughes. I am sure that he would be willing to speak to you as well.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

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