Understanding Your Ethics & Code of Conduct Training Requirements. May 29, 2008

Transcription

1 Understanding Your Ethics & Code of Conduct Training Requirements May 29, 2008

2 Shanti Atkins, Esq. President & CEO of ELT. Specialist in online ethics and legal compliance training. Advises clients across multiple industries and of all sizes about strategic risk management and compliance initiatives.

3 Our Roadmap What is a Code of Conduct? Legal Requirements for Training The Central Role of HR & Employment Law Issues Training Methodologies Best Practices & Strategies for Success

4 A Poll Question for You My organization has a published Code of Conduct or Code of Ethics. Yes No

5 What is a Code of Conduct?

6 Defining the Code Universal set of written standards for governance of behavior, designed to: Deter wrongdoing. Promote honest and ethical conduct, as well as accountability. Promote compliance with applicable government laws, rules and regulations Promote accurate and timely reporting and disclosures. Promote prompt internal reporting of violations of the Code and/or the law. (SEC Definition)

7 Defining the Code Critical Issues to Consider: The employer-driven nature of the Code. The Code as a living set of guidelines and values. The growing trend of Code adoption and education.

8 What Does the Code Typically Address? Antitrust Asset Protection Competing & Dealing Ethically Confidentiality Conflicts of Interest Corporate Opportunity Diversity Document & Records Protection Environmental Standards Ethical Values, Culture & Behavior FCPA Gift Giving & Receiving Harassment & Discrimination Insider Trading Privacy Reporting Safety Wage and Hour

9 Reality Check Most US workers would not report misconduct: More than 1/3 of US adults surveyed have witnessed unethical conduct in the workplace; only 47% are likely to actually report it. (Spherion Workplace Snapshot Survey, 2006) Employees in organizations with a strong ethical culture are more likely to report misconduct (79%) than those with a weak ethical culture (48%). (Ethics Resource Center, 2005)

10 Reality Check Fewer than half of employees have trust or confidence in their senior leaders Watson Wyatt Work USA Survey of Nearly 13,000 Employees, 2002

11 Leading to

12 A Poll Question for You Sarbanes-Oxley mandates Ethics & Code of Conduct training for all types of employers. True False

13 Legal Requirements for Training Legal Requirements for Training

14 The Laws that Mandate Training Code distribution is not enough Three key drivers for training: 1. The Sarbanes-Oxley Act of 2002 (SOX) 2. The 2004 Federal Sentencing Guidelines Amendments (FSGs) amendments to the Federal Acquisition Regulations (FAR)

15 Understanding SOX Applies to publicly traded companies. Outlines requirements for Code disclosure. Does not actually mandate ethics and Code of Conduct training. Strongly encourages education.

16 Section 406 of SOX Code Requirements Directed the SEC to issue rules requiring each public company to disclose whether or not it has adopted a Code. If a Code has not been adopted, a company must disclose why (law of shame). Final rules adopted in January 2003.

17 NYSE & NASDAQ Governance Standards Expanding on the SOX section 406 concept, SEC approved new NYSE and NASDAQ Governance Standards. Both exchanges require a Code covering all employees, officers and directors. The Code must be available to the public.

18 Section 301 of SOX Reporting Requirements Each Audit Committee must establish a procedure for the confidential, anonymous reporting of complaints about audit and financial matters. Effective procedures include training & education.

19 Anti-Retaliation Protections: Article 8 of SOX Protects the employee who provides information about acts he/she reasonably believes to be a violation of securities laws, rules of the SEC, or laws relating to fraud against shareholders. Protected employees cannot be discharged, demoted, suspended, harassed, or otherwise discriminated against.

20 The Trend in Retaliation Claims $270,000 $187,583 Average Recovery in Whistleblower Discrimination Lawsuit Average Recovery in Title VII Discrimination Lawsuit Source: Employment Practice Liability: Jury Awards Trends & Statistics, 2005, Jury Verdict Research,, Horsham, PA.

21 SOX & Private Employers? SOX standards are being widely embraced by privately held companies: Good business practice to mitigate risk & liability. Similar legislation expected for private companies. Many privately held companies become public.

22 A Poll Question for You The Federal Sentencing Guidelines mandate ethics training for all types of employers. True False

23 The Federal Sentencing Guidelines Rules that set out a uniform sentencing policy for convicted defendants. Judges use these guidelines to determine punishment.. Employers can be liable for employees illegal conduct. Average used to be. 1.9 mil (shortly after FSGs) Now average total sanctions is $49 mil

24 Civil application? A long and extensive history of courts and regulatory agencies using the FSGs to establish expected standards of conduct for employers, and to determine associated fines and penalties for not meeting those standards.

25 The Federal Sentencing Guidelines Updated Amended in November 2004 to include critical training requirements. Require all employers to: (1) adopt comprehensive ethics and compliance programs, and (2) train on the fundamentals of those programs. Bottom line = Code + mandatory training. No specific deadline but impact was immediate.

26 The FSG Pay Off Potential fines and punishment can be substantially mitigated if employers can demonstrate proactive steps to prevent unethical and illegal conduct. The potential fine range for a criminal conviction can be significantly reduced in some cases up to 95 percent if an organization can demonstrate that it had put in place an effective compliance and ethics program and that the criminal violation represented an aberration within an otherwise law-abiding abiding community.

27 The Broad Scope of the FSGs The employers impacted? Everyone. Apply to all organizations, whether publicly or privately held, and of whatever nature, such as corporations, partnerships, labor unions, pension funds, trusts, nonprofit entities and government units. The training audience? Everyone. [M]embers of the governing authority, high-level personnel, substantial authority personnel, the organization s employees, and, as appropriate, the organization s s agents.

28 The Broad Scope of the FSGs The practical impact? Publicly held and privately held employers Public sector and private sector employers Boards of Directors Part time employees Seasonal employees Contractors ( as appropriate, the organization s s agents )

29 Distributing the Code is NOT Enough FSGs require employers to conduct effective training programs formally planned and implemented. Parallel to harassment and discrimination training requirements a policy is not enough. (Similar to USSC and EEOC Guidelines) Employers with <200 employees may use more informal methods.

30 Effective? Checking the Box Is Not an Option Illinois trained approximately 60,000 employees on its Code. Self-paced course included a cursory post-course quiz. Click to the Quiz design.

31 The Result? Retraining ordered for ~6,000 employees who passed the quiz, but spent less than 10 minutes in the Course. And: An Employee Lawsuit

32 The Bottom Line? Don t t waste time and resources on courses that are not: Interactive Engaging Effective Legal standards are critical, but use common sense. Check the CA harassment training standards they are the only widely acknowledged benchmark for compliance training.

33 How Often Must Training Occur? Periodically. Periodically. Same term used by USSC for harassment / discrimination prevention training. Same term used and defined by CA s s AB 1825 every 2 years. The ethics and compliance program is not a one time event.

34 A Poll Question for You I am familiar with the Federal Acquisition Regulations (FAR) Yes No

35 And One More for Government Contractors December 2007 Amendments to the FAR Apply to contracts worth $5 million or more and which require at least 120 days to perform. Develop a written Code of Ethics and Business Conduct within 30 days of the contract award; and Promote compliance within 90 days after the award by establishing an employee ethics and compliance training program.

36 And One More for Government Contractors December 2007 Amendments to the FAR Effective December 24, Requirements flow through to subcontractors. Contractors that fail to comply with the new requirements could face withheld payments, loss of fee award, or even debarment, suspension or other disciplinary action.

37 So What is Mandatory Training? It is not illegal to fail to train. (Type of training law where it is illegal? CA s AB mandatory harassment training.) FSGs: : If found liable for misconduct or convicted of a crime, however, failing to train will without doubt result in increased fines and damages. The directive in the Guidelines is clear. FAR Amendments: : Direct hit to revenue.

38 So What is Mandatory Training? Is there really a practical difference between a mandatory training guideline, and a law that states failing to train is illegal? NO. CA s s AB 1825 carries no penalties! Like the FSGs, the real risks are: Being targeted by plaintiffs / the plaintiff s s bar. The impact on damages if misconduct does occur.

39 A Poll Question for You On average, what percentage of ethics hotline complaints are related to HR / employment law issues? A. 25% B. 45% C. 65%

40 The Central Role of HR and Employment Law Issues The Central Role of HR and Employment Law Issues

41 The Central Role of HR / Employment Issues Largest impact on the largest number of employees. Hotline statistics are telling: 61% of initial allegation reports in 2004 were HR related (Global Compliance Services) 62% of complaints were comprised of: harassment / discrimination, wage and hour, workplace violence, workplace policy violation and workplace safety (EthicsPoint) 70% of hotline reports measured over a one year period were employment law related (The Network)

42 Misconduct Most Commonly Observed by Employees Ethics Resource Center 2005 Survey 21% - abusive or intimidating behavior toward employees. 19% - lying to employees, customers, vendors or the public. 18% - a situation that placed employee interests over organizational interests. 16% - safety regulation violations. 16% - misreporting of time worked. 12% - discrimination on the basis of race, color, gender, age or other categories. 11% - theft. 9% - sexual harassment. Majority are classic employment law issues.

43 A Case Study: Boeing Harry Stonecipher (CEO) resigns over a consensual sexual relationship with a female subordinate. Board requests his resignation because of the violation of the Code. Stonecipher initiated the Code s creation, which bore his signature. Ethics and Code of Conduct training should include a healthy dose of HR / employment issues.

44 Fast Forward: Paul Wolfowitz World Bank President Paul Wolfowitz is accused of securing a raise and transfer for his long time companion. The issue arose because Wolfowitz would have been a direct supervisor. Not just about sex in the workplace. About ethics, appearance and the Code.

45 What Does the Code Training Typically Address? Antitrust Asset Protection Competing & Dealing Ethically Confidentiality Conflicts of Interest Corporate Opportunity Diversity Document & Records Protection Environmental Standards Ethical Values, Culture & Behavior FCPA Gift Giving & Receiving Harassment & Discrimination Insider Trading Privacy Reporting Safety Wage and Hour

46 What Does Code of Conduct Training Typically Address? Training cannot cover every aspect of the Code. Training should map to the most important components of the Code for your organization, and for your industry. At the same time, do not over think customization and industry specific needs. Training should highlight reporting channels. Training should set a tone.

47 A Poll Question for You My organization trains on ethics and the Code of Conduct. Yes No

48 A Poll Question for You How is training conducted? A. Classroom sessions B. Online C. Informally (i.e.( during staff meetings)

49 Training Methodologies Training Methodologies

50 How Can We Conduct Training? In the classroom Online, self-paced Webinar Informal means Under the FSGs, only for employers with <200 employees (i.e.( staff meetings)

51 Understanding the Online Option Available 24/7 from the desktop. Fully automated tracking and reporting capabilities. Scrutinize the quality engaging, contextual and interactive. Customize to your Code.

52 A Poll Question for You How should successful training be measured? A. Completion rates B. Employee feedback C. Reduced claims & liability D. Behavioral change E. All of the above

53 Best Practices: Strategies for Success Best Practices Strategies for Success

54 First, the Good News Executive leadership does care about Code of Conduct training. Survey of 165 Multinational s confirms that training isn t viewed as a knee jerk reaction to liability. Source: : 2006 Ethics and Compliance Officer Association (ECOA) Survey It is about creating a culture of compliance.

55 Strategies for Success Secure high level sponsorship: : HR, Legal, Employee Relations, Risk Management, IT. Carefully manage the buy in process; designate a clear project owner. Mandate the training with a top down directive.

56 Strategies for Success Carefully manage the customization process balancing the wish list against time, expense and viability. Establish clear goals and metrics for: Completion rates Employee feedback Reduced claims & liability Behavioral change

57 A Case Study: Be Practical and Stay Focused Client purchased 25+ courses from library / full solution vendor. 3 years later, only 5 courses had been used and just 2 accounted for 95% of usage (harassment and ethics). Takeaways: Training isn t t effective if it isn t t used. A library of poor courses is not a program. program. Invest in a focused set of quality courses you can really use.

58 Finding Out More About ELT I am interested in learning more about online ethics and compliance training resources: 1. Yes 2. No

59 Questions? Resources? Interested in our solutions? Additional substantive questions?