One should never think one is 'done' with what is in place but rather incorporate compliance in the day-to-day ebb and flow of the business... - Bettina Eckerle

What's the one thing missing from most corporate compliance programs?

For a legal perspective, that's the question we put to corporate attorneys writing on JD Supra, asking each to commit to just one essential element that, in their experience, they regularly see missing from corporate programs (programs that are required to address myriad regulatory issues to do with privacy and data security, insider trading, bribery and corruption, and other such matters across numerous jurisdictions.) We knew the diversity of answers would make for an interesting list - and they do. Here's what we heard back:

1. Documentation, Documentation, Documentation

From Thomas Fox: "The one thing missing from most compliance programs is the key element in all compliance programs: 'Document Document Document.' The reason is more than simply the adage that if you do not document it, you cannot study it. From a regulator’s perspective, if it is not documented it never happened. This means more than documenting your established compliance process; it means documentation of any deviation from your program. The Department of Justice has continually communicated that a well-reasoned approach will pass muster, so you must lay out in writing your reasons for granting exceptions, waiving red flags or in any other manner, deviating outside your compliance norms."

2. A Value-Based Approach (That Is Supported By The Business)

"For a compliance program to be truly effective, personnel must take ownership of their behavior and take pride in being part of the team. To achieve this, a truly effective compliance program must demonstrate that a values-based approach is relevant to the daily conduct of business..."


From Jeremy B. Zucker, Co-chair, International Trade and Government Regulation practice at Dechert LLP: "Those of us who regularly advise companies regarding their compliance programs (and defend them when things go wrong) have the opportunity to review reams of compliance documents: codes of conduct, policies and procedures, audit reports and training presentations. No matter what form they take, these documents tend to focus on the rules – here is what you can do, here is what you can’t do, and here are the bad things that could happen to you and to the company if you misbehave. In theory, such an approach should suffice. But employees are not always 'rational actors,' and the pressure to please a superior, meet a sales target, or earn a bonus or promotion can trump. In my view, such circumstances call for a values-based approach rather than one premised on rules and threats of punishment. A growing number of companies speak about their values in their compliance programs. This is a good start, but likely not enough. For a compliance program to be truly effective, personnel must take ownership of their behavior and take pride in being part of the team. To achieve this, a truly effective compliance program must demonstrate that a values-based approach is relevant to the daily conduct of business and to any and all employees’ chances for paydays and promotions.

So, for example, performance evaluations (whenever possible) should include assessment not only of contributions to the bottom line but also of actions taken to support and promote corporate values. Personnel who 'do the right thing' (perhaps at the expense of short term gains) should be celebrated as much as those who bring in the most business. At a Chinese subsidiary of a publicly-traded multinational that has implemented this sort of values-based approach, a local employee once told me, 'We have a stronger compliance culture than our competitors, and we regularly lose business to them.  But I wouldn’t trade jobs; I’m glad I work here.'  Talking about values is a first step; demonstrating that they are truly 'valued' must come next.

3. Periodic Testing and Review

"...the key question enforcement authorities ask when evaluating a company’s compliance program is 'does it work?'  The only way to answer that question proactively is to review – and test – the program on a regular basis."

From Charles F. Connolly, partner in Akin Gump’s white collar practice in Washington, D.C.: "The high profile, and high dollar, cases brought by the Department of Justice, SEC and other enforcement agencies in recent years have been successful in getting companies of all shapes and sizes to adopt compliance programs that are often well written. These programs benefit from the increased transparency by the enforcement authorities as to what constitutes a good program and by the well-publicized weaknesses in the programs of those companies who have been subject to regulatory or criminal settlements. But having a well-designed 'paper program' is not enough. In fact it is only the beginning.

Ultimately, the key question enforcement authorities ask when evaluating a company’s compliance program is 'does it work?'  The only way to answer that question proactively is to review – and test – the program on a regular basis. It is this proactive review and testing of how the program is actually applied within a company that is most often missing from corporate compliance programs. And it is often missing because testing and review are not subject to formulaic design or implementation, take time, sustained effort and resources, and may vary company to company and year to year based on changes in industry, customer base, the regulatory environment and even the size and complexity of the company itself. The importance of testing and review, however, should not be discounted. The DOJ and SEC list periodic testing and review as one of the ten hallmarks of a good compliance program and recent FCPA deferred prosecution agreements have required companies to review their compliance programs annually.  Beyond the focus by the enforcement authorities, it is good practice for companies to test and review their compliance programs on a regular basis because it should help the company prevent violations or discover them earlier. Furthermore, the absence of periodic testing and review may result in the company’s written program becoming a liability rather than an asset when faced with a regulatory or even criminal inquiry.

4. Crisis Management Plans

From Joe Bermudez, partner at Wilson Elser: "Crisis management policies, protocols and procedures are a necessary element for any company’s compliance program. Often overlooked because companies refuse or fail to consider the contingencies involved with catastrophic or tragic events, an effective crisis management plan may be the difference between a company surviving a crisis event and not. Whether it is a natural catastrophe, a cyber attack, a supply chain disruption or work place violence, companies must consider their vulnerabilities and develop appropriates crisis plans and procedures. Moreover, companies must practice and ensure that they are prepared for the crisis. The issue is not when a crisis will strike, the issue is whether the company is prepared to survive the event."

And related:

5. A Comprehensive Look at Available Insurance and Indemnification Protections

From Carolyn Rosenberg, partner in Reed Smith's Insurance Recovery Practice in Chicago: "Companies as well as directors and officers are concerned whether and how they may be protected if a securities or other class action claim or potential claim or FCPA, SEC or UK Bribery Act investigation were to be made or threatened or if the company were to suffer a business loss due to a hurricane or experience a theft of critical data.  As more and more companies operate globally, a review of worldwide coverage—from D&O and professional liability to business interruption and cyber/data privacy-- and available indemnification can be part of effective compliance programs and enterprise risk management."

6. Commitment (Supported By Senior Management & Internal Audits)

"Lawyers can draft the most comprehensive policy, but only management can take the policy out of the file cabinet and make it an integral part of the corporate culture..."

From Peter Menard, senior partner in the Corporate Practice Group at Sheppard Mullin: "Forms of policies, procedures and contract provisions are widely available on the Internet to ensure compliance with such diverse regulations as FCPA and other anti-bribery rules, prohibitions on insider trading, protection of confidential personal financial and health records, and import/export controls. No matter how well crafted, policies and procedures are only as effective as the company’s commitment to carrying out the letter and spirit of the underlying regulations. Senior management must ensure that this commitment is deeply embedded throughout the organization. This requires management to consistently communicate the company’s values and expectations, zero tolerance for non-compliance, and an open door policy that encourages employees to report non-compliance without fear of retaliation, all supported by a robust internal audit program that monitors, measures and enforces compliance. Lawyers can draft the most comprehensive policy, but only management can take the policy out of the file cabinet and make it an integral part of the corporate culture."

And related:

7. Unshakable Commitment To Integrity and Ethics

From Chester "Chet" Hosch, partner in the Corporate and Tax Group at Burr Forman: "The one thing lacking in most corporate compliance programs is a culture of unshakable commitment to integrity and ethics. The commitment has to be embraced and encouraged notoriously, unambiguously and completely by senior management. The commitment will manifest itself in adequate funding, effective training and consistent monitoring. In the end, the compliance officer will have absolute confidence top management will remain true to the commitment, no matter the consequences."

8. Integration With the Daily Flow of Business

From Bettina Eckerle at Eckerle Law: "In my experience, often companies do not treat their compliance program as living breathing organism that need to be tested, reviewed, changed, brought up-to-date as market conditions, business practices and the regulatory environment evolve.  One should never think one is 'done' with what is in place but rather incorporate compliance in the day-to-day ebb and flow of the business."

Additional responses will be added as the come in.
 

Topics:  Chief Compliance Officers, Compliance, Corporate Culture, Crisis Management, Documentation, DOJ, Enforcement Actions, Ethics, FCPA, Internal Controls, Legal Perspectives, Risk Management, SEC

Published In: Antitrust & Trade Regulation Updates, Business Organization Updates, General Business Updates, Criminal Law Updates, International Trade Updates

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.

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