Creating an Ethical Culture and Prtecting Yur Bttm Line: Best Practices fr Crprate Cdes f Cnduct Nte: The infrmatin belw and all infrmatin n this website is nt meant t be taken as legal advice. Please cnsult yur attrney when establishing yur cde f cnduct and business ethics plan. Overview In the wake f a number f well-publicized crprate failures amng U.S. cmpanies, the U.S. Cngress, U.S. Securities and Exchange Cmmissin, New Yrk Stck Exchange and NASDAQ Stck Market all issued new standards fr crprate gvernance. In each instance, ethics and cmpliance training figured prminently and a new gal creating an ethical culture became the rder f the day. A cde f cnduct is a vital tl fr educating directrs, fficers and emplyees abut the crprate values, ethical standards, cmpany plicies, laws and regulatins that they must cmply with as members f the crprate cmmunity. It s the first step tward creating a culture where ethical lapses and legal and regulatry vilatins ccur rarely and are crrected swiftly and effectively. Prtect Yur Cmpany s Reputatin and Bttm Line When ethical lapses cme t light, damage t the cmpany s reputatin is all but inevitable and business lss, and smetimes business failure, ften fllws. When cmpany directrs, fficers r emplyees receive effective cde f cnduct training, they are mre likely t behave in ways that prtect their cmpany s reputatin and bttm line. Prevent Lawsuits and Investigatins An effective cde f cnduct helps reduce the number and severity f cmpliance-related claims, lawsuits and investigatins by prviding directrs, fficers and emplyees with the practical guidance they need t cmply with cmpany plicies, laws and regulatry requirements. A cde f cnduct shuld prvide guidance n such tpics as: Cre Values Financial recrdkeeping and reprting Cpyright Inspired elearning, Inc. All Rights Reserved. Page: 1
Unlawful harassment and discriminatin Antitrust, als knwn as fair cmpetitin Anti-Crruptin (Freign Crrupt Practices Act) Reprting (htline) Exprt Cntrls Insider trading Prper use f intellectual prperty Privacy Cnfidentiality Cnflicts f interest Gifts and entertainment Whistleblwer prtectin / nn-retaliatin plicies Cnsequences f vilating the cde r law Recrds retentin and management Nte that the aim f a gd cde f cnduct is t prvide a gd general educatin n a brad range f tpics. Yur cmpany may wish t prvide additinal, tpic-specific training as a means f prviding emplyees with additinal knwledge f these and ther imprtant tpics. In sme cases, additinal training will als up the level f liability prtectin that yur cmpany enjys. Cmply With Mandates fr Cde f Cnduct Training The Bar Has Been Raised. The Sarbanes-Oxley Act f 2002 (SOX), The Federal Sentencing Guidelines fr Organizatins, as amended in 2004, and the NASDAQ and NYSE listing standards, adpted in 2003, set new standards fr ethics and cmpliance training fr directrs, fficers and emplyees. Cmpanies withut effective cde f cnduct training in place can expect higher incidents f ethical, legal and regulatry vilatins and can expect t be expsed t greater legal liability in the event that their directrs, executives r emplyees vilate the law. Sarbanes-Oxley The Sarbanes-Oxley Act f 2002 (SOX) directed the Securities and Exchange Cmmissin (SEC) t issue new rules requiring public cmpanies t disclse whether they have adpted a cde f ethics (r cde f cnduct) that applies t key fficers. The law requires cmpanies that have nt adpted a cde t explain why nt. The SEC s rules tk effect in January 2003. They defined a cde f ethics as written standards that are reasnably designed t deter wrngding and t prmte: Hnest and ethical cnduct, including the ethical handling f actual r apparent cnflicts f interest between persnal and prfessinal relatinships; Full, fair, accurate, timely, and understandable disclsure in reprts and dcuments that a cmpany files with, r submits t, the Cmmissin and in ther public cmmunicatins made by the registrant; Cmpliance with applicable gvernmental laws, rules and regulatins; The prmpt internal reprting t an apprpriate persn r persns identified in the cde f vilatins f the cde; and Accuntability fr adherence t the cde. Cpyright Inspired elearning, Inc. All Rights Reserved. Page: 2
Althugh SOX des nt specifically require cmpanies t prvide a cde f ethics, its intentins in requiring cmpanies t disclse their failure t d s are clear: t set a new standard in which having an effective cde f ethics is a business basic and nrm. The Federal Sentencing Guidelines fr Organizatins (FSGO) The Federal Sentencing Guidelines fr Organizatins f 1991 (FSGO) picks up where Sarbanes-Oxley leaves ff, prviding additinal incentives fr cmpanies t adpt an effective cde f cnduct. The FSGO establishes guidelines that federal judges must fllw when sentencing rganizatinal defendants. The guidelines prvide fr substantial fines and ther harsh penalties fr rganizatins whse emplyees r ther agents have cmmitted federal crimes. On Nvember 1, 2004, the FSGO were amended t prvide fr reduced penalties fr cmpanies that have effective prgrams t prevent and detect vilatins f law. T have an effective cmpliance and ethics prgram, an rganizatin must exercise due diligence t prevent and detect criminal cnduct and therwise prmte an rganizatinal culture that encurages ethical cnduct and a cmmitment t cmpliance with the law. Under the guidelines, an rganizatin with an effective cmpliance and ethics prgram will: 1. Establish standards and prcedures t prevent and detect criminal cnduct; 2. Prvide leadership and versight f the cmpliance and ethics prgram at the highest levels f the cmpany; 3. Cmmunicate standards and prcedures and ther aspects f the cmpliance and ethics prgram by cnducting effective training prgrams and therwise disseminating infrmatin apprpriate t an emplyee s rle within the rganizatin; 4. Exercise due care t nt give substantial authrity within the rganizatin t individuals whm the rganizatin knws, r shuld have knwn, have brken the law r engaged in ther cnduct that is incnsistent with an effective cmpliance and ethics prgram; 5. Establish mnitring and auditing prcedures t detect criminal cnduct, peridically evaluate the effectiveness f the cmpliance and ethics prgram, and have and publicize a system fr emplyees t reprt and seek guidance abut ptential criminal cnduct withut fear f retributin; 6. Prmte and enfrce the cmpliance and ethics prgram cnsistently thrughut the rganizatin, including prviding apprpriate discipline fr engaging in r failing t take reasnable steps t prevent r detect criminal cnduct; and 7. Respnd apprpriately t criminal cnduct that s detected, and take reasnable steps t prevent similar cnduct in the future, including making any necessary mdificatins t the cmpany s cmpliance prgram. NYSE and NASDAQ Listing Standards On Nvember 4, 2003, the Securities and Exchange Cmmissin jined the discussin when it apprved significant changes t the listing standards f bth the New Yrk Stck Exchange (NYSE) and the Nasdaq Stck Market (NASDAQ). The new listing standards, which supplement the refrms set in mtin by the Sarbanes-Oxley Act, were meant t enhance crprate gvernance and blster investr cnfidence in the wake f a number f well-publicized crprate failures f U.S. public cmpanies. The NYSE listing standards require listed cmpanies t adpt a cde f business cnduct and ethics fr directrs, fficers and emplyees, t include the cde n their websites and t Cpyright Inspired elearning, Inc. All Rights Reserved. Page: 3
disclse in their annual reprt the cde s availability, n the cmpany s website and in print, t any sharehlder wh requests it. The NASDAQ listing standards require listed cmpanies t have, and make publicly available, a cde f cnduct that cmplies with the Sarbanes-Oxley cde f ethics guidelines and prvides clear and bjective cmpliance standards, a fair prcess fr determining if a vilatin has ccurred, a mechanism fr ensuring prmpt and cnsistent enfrcement f the cde and prtectin fr thse wh reprt questinable cnduct. Training Requirements All cmpanies must disclse in their annual reprt whether they have adpted a cde f ethics that applies t key fficers, including the principal executive and financial fficers and the principal accunting fficer, cntrller r persns wh perfrm similar functins. If a cmpany has nt adpted a cde it must disclse the reasns fr its failure t d s. If a cmpany is listed n the NYSE, it is required t adpt a cde f business cnduct and ethics fr its directrs, fficers and emplyees and if it s listed n the NASDAQ it s required t have a cde f cnduct that meets SOX and ther requirements that apply t directrs, executive fficers and emplyees. What t D: Checklist Ensure a member f senir management is respnsible fr cmpliance and business ethics. Adpt a cde f cnduct that applies t all directrs, fficers, and emplyees. Make sure the cde f cnduct fllws the guidelines utlined in the Sarbanes-Oxley Act by deterring wrngding and prmting: Hnest and ethical cnduct Full, fair, accurate, timely, and understandable disclsure Cmpliance with applicable gvernmental laws, rules, and regulatins Prmpt internal reprting f vilatins f the cde Accuntability fr adherence t the cde Ensure yur cde f cnduct cvers: Cre Values Financial recrdkeeping and reprting Unlawful harassment and discriminatin Antitrust, als knwn as fair cmpetitin Anti-Crruptin (Freign Crrupt Practices Act) Reprting (htline) Exprt Cntrls Insider trading Prper use f intellectual prperty Privacy Cnfidentiality Cpyright Inspired elearning, Inc. All Rights Reserved. Page: 4
Cnflicts f interest Gifts and entertainment Whistleblwer prtectin / nn-retaliatin plicies Cnsequences f vilating the cde r law Recrds retentin and management Additinal cmpany/dmain specific tpics as needed Establish a prgram t prmte an ethical culture and prevent and detect vilatins f law within yur rganizatin. The prgram shuld include the seven features that the Federal Sentencing Guidelines fr Organizatins says an effective cmpliance and ethics prgram must have, as nted abve. (1) Standards and prcedures (2) Leadership and versight (3) Cmmunicatin f standards and training (4) Due care when granting authrity (5) Mnitring and auditing (6) Cnsistent enfrcement (7) Preventin and apprpriate respnse t criminal cnduct Pst yur cde f cnduct n yur cmpany website and disclse in yur annual reprt the cde s availability t any sharehlder wh asks, particularly if yur cmpany is listed n the NYSE r NASDAQ, which require that yur cde be publicly available. Prvide an independent htline fr reprting, including annymus reprting, f suspected vilatins f the cde r law. Translate the cde and make the htline available in all lcal languages where yu have business peratins. Regularly review the cde's cntinuing relevance and mnitr and evaluate its effectiveness. Learn Mre and Get a Free 5-User License T learn mre abut hw Inspired elearning s Ethics and Cde f Cnduct training slutin can help yur rganizatin cmply with the laws, regulatins and standards mentined abve r t see if yur rganizatin qualifies fr a free 5-user license please cntact us tday. Email: inf@inspiredelearning.cm Phne: 1-800-631-2078 Cpyright Inspired elearning, Inc. All Rights Reserved. Page: 5