HROFFICE USER CONFERENCE 2005

Creating an Effective Ethics and Compliance Program

Ascentis User GroupSeptember, 2005

HROFFICE USER CONFERENCE 2005

Key Points

• Why Create an Ethics and Compliance Program?

• How Do I Create an Ethics and Compliance Program?

HROFFICE USER CONFERENCE 2005

Why Create an Ethics and Compliance Program?

HROFFICE USER CONFERENCE 2005

Rise in Corporate Scandals

• Adelphia founder fined $715 million, hands over billion in assets to compensate investors for fraudulent behavior

• Boy Scout executive resigns after falsifying minority membership numbers to collect additional funding

HROFFICE USER CONFERENCE 2005

Rise in Corporate Scandals

• Morgan Stanley pays $54 million in sex discrimination case

• Nature Conservancy cited for unethical sales of land

• Marsh & McLennan fined $850 million for illegal practices

HROFFICE USER CONFERENCE 2005

New Government Regulations

• Sarbanes-Oxley Act of 2002• U.S. Organizational Sentencing

Guidelines

HROFFICE USER CONFERENCE 2005

Sarbanes-Oxley: Major Provisions

• Restrictions on Auditors• New responsibilities and powers for

the Audit Committee of the Board • Increased responsibilities for

Officers and Directors• Strengthened disclosure

requirements • New whistleblower protections

HROFFICE USER CONFERENCE 2005

Sarbanes-Oxley: Major Penalties

• Subjects to fine or imprisonment (up to 25 years) any person who knowingly defrauds shareholders of publicly traded companies

• Mail and wire fraud penalties increased (from 5 to 25 years in prison)

• Penalties for violations of the Employee Retirement Income Security Act of 1974 increased (up to $500,000 and 10 years in prison) 

• Establishes criminal liability for failure of corporate officers to certify financial reports

• Increases penalties for violations of the Securities Exchange Act of 1934 to up to $25 million dollars and up to 20 years in prison

HROFFICE USER CONFERENCE 2005

U.S. Organizational Sentencing Guidelines

• Provides incentives for development of corporate compliance programs

• Reduction of fines for compliance• 2004 revisions require changes to

most corporate compliance programs

HROFFICE USER CONFERENCE 2005

U.S. Organizational Sentencing Guidelines

2004 Revisions: Major Provisions• Requires an effective program that

promotes an ethical culture• More specific requirements for the

Board and top management • New emphasis on training

HROFFICE USER CONFERENCE 2005

U.S. Organizational Sentencing Guidelines

2004 Revisions: Major Provisions• Encourages employees to seek

guidance, not just report wrongdoing

• Requires companies to periodically assess the risk of criminal conduct

HROFFICE USER CONFERENCE 2005

Business Benefits

• Reinforce your positive reputation and gain a competitive advantage

• Create a more productive workplace environment

• Gain loyalty from employees• Create successful relationships with

vendors and communities• Fulfill customer requirements

HROFFICE USER CONFERENCE 2005

How To Create an Ethics and Compliance Program

HROFFICE USER CONFERENCE 2005

Executive Commitment

• Buy-in at the top will create buy-in throughout the company

• CEO and Execs must be role models• Consider the ethical impacts of every

decision • Communicate publicly about ethical

decisions and commitment to ethics• Walk the Talk

HROFFICE USER CONFERENCE 2005

Ethics and Compliance Program

• Key Elements:– Ethics Committee or Ethics Officer– Code of Conduct– Reporting channels, tracking and

investigation– Training for all employees

HROFFICE USER CONFERENCE 2005

Ethics Committee/Ethics Officer

• Responsible for managing program elements

• Reports to the Audit Committee at least once a year

• Investigations coordinated and outcomes tracked

• Direct access to the Board is essential

HROFFICE USER CONFERENCE 2005

Code of Conduct

• Summary of 11 to 15 company policies, e.g. – Prevention of Harassment– Conflicts of Interest – Use of Company Resources such

as Email, and Handling of Confidential Information

• Quick reference manual• Plain language and clarifying

Q&A• References and where to

report issues

HROFFICE USER CONFERENCE 2005

Reporting Mechanism

• New regulations require reporting directly to the Audit Committee

• Generally accomplished in half year intervals (some only once per year) for routine reports

• Establish several avenues for reporting

• Ethics Office, Anonymous Helpline, Ombudsman, Web site

• Publicize them widely

HROFFICE USER CONFERENCE 2005

Investigation and Follow-Up

• Employees fail to report because they believe that “nothing will be done/change”

– Investigation and follow-up are tangible evidence that ethics issues are taken seriously

– Report to senior management about investigations and outcomes

• Audit committee must be informed

HROFFICE USER CONFERENCE 2005

Employee Training and Communication

• U.S. Sentencing Guidelines

• Minimum once per year training for all employees

• At-risk groups additionally on specific topics

• Training “as appropriate for agents”

• Sarbanes-Oxley• Companies see training and

communication as way of mitigating risk posed by Sarbanes

HROFFICE USER CONFERENCE 2005

Employee Training and Communication

Communicate. Communicate. Communicate.

HROFFICE USER CONFERENCE 2005

• Conflicts of Interest– Area of risk for profit and nonprofit

entities • Board members must be independent• Report any potential conflicts of interest

annually • Panel on Non-Profit Sector

recommendations:– nonprofit boards must disclose potential conflicts– formal training at least once per year

Employee Training and Communication

HROFFICE USER CONFERENCE 2005

Ethics and Compliance Program Benefits

• Avoid fines and jail terms• Gain a competitive advantage• Be known for “Doing the Right

Thing”

HROFFICE USER CONFERENCE 2005

Creating an Effective Ethics and Compliance Program

Ascentis User GroupSeptember, 2005