Survey Results Point To Importance Of Compliance Programs

Sunday, February 1, 2009 - 01:00

Editor: What is the background and methodology for the Integrity Survey 2008-2009? (See What prompted the original survey?

Hedley: The administration of the survey is rigorous, conducted through the use of an external provider during the summer with more than 5,000 respondents in different companies, producing a very high confidence level and allowing for a breakout by industry. We covered 16 job functions in 13 different industries of different organizational sizes. In fact, we have clients who administer this survey internally in their organizations and benchmark themselves against the aggregate findings of the survey.

Our first survey was in 2000. At that time, many organizations were just starting the process of creating robust compliance programs. Comparing the 2000 results with those in 2008, you'll see a great deal of movement in compliance programs, which over the intervening years have undergone a process of maturation. One of the reasons compliance codes and programs are working is that companies stress doing the right thing in the right way.

Editor: Do you think that percentage of employees who observed misconduct will go up as a result of the economic downturn?

Hedley: The survey results show that 74 percent of employees have observed wrongdoing in their place of work - does that mean wrongdoing is up or down? We can say that wrongdoing is a serious issue driven by greater awareness on the part of co-workers. Anecdotally, we are seeing a rise in certain types of fraud, everything from Web-based fraud to resume fraud to insurance fraud to retail fraud.

A lot of this misconduct is driven by pressure, and, as such, we may see some new frauds driven by the economic downturn. But pressure is nothing new.

In good economic times, employees who participate in misconduct or fraud may be mortgaging their future. But when the future arrives and the market turns sour, they can't do that anymore. I expect to see new evidence of wrongdoing that can no longer be covered up as a result of the recent economic changes.

A survey like this dives pretty deeply into an organization, so things that people are observing may have been festering for a long time.

Editor: What accounts for the fact that upper management is indifferent to reports of wrongdoing on the hotline while a much higher percentage of co-workers are reporting wrongdoing by this means?

Hedley: If a company has a strong, effective compliance program, the perception is that company management will respond in the correct way. Conversely, if a company does not have the right mechanism in place, the perception is that appropriate action will not be taken.

Much depends on the company, the tone at the top, and how effective the compliance program is perceived to be.

Compliance programs make a difference.

One statistic shows 57 percent of employees are comfortable using hotlines in 2008, compared with 40 percent of respondents in 2000 favoring the hotline to report misconduct.

Editor: What ameliorative influence do ethics and compliance programs bring to bear on employee perceptions and behaviors?

Hedley: If an organization has a strong compliance program, people will feel more motivated to do the right thing, and our survey supports this point. People will feel more comfortable raising their concerns to the appropriate levels of management. They will also do a better job of applying the right values to their decisions and behaviors, and of course, if you have an effective program, there's much less opportunity to engage in wrongdoing.

Editor: What types of industries report the highest percentage of misconduct?

Hedley: The automotive industry is at the top of the survey's list, but respondents in that industry see fewer incidences of really significant misconduct.

It seems that companies that are highly regulated see less misconduct, but it generally appears to be of a more serious nature when observed. The finance industries, for example, deal with sensitive issues that are of major concern to the public, so if you see misconduct in that environment, by definition it is going to be more serious.

Editor: What areas in the marketing function provide the greatest events of customer or marketplace abuse of trust?

Hedley: Marketing is an area with many opportunities for abuse involving significant loss of public trust, because marketing often represents the public face of an organization. When marketing allows for false and deceptive business practices, including bribery, corruption and lying to the public, these can be the most visible.

Editor: What areas of shareholder relations or corporate malfeasance provide the greatest areas of mistrust?

Hedley: The No. 1 thing that shareholders are interested in is the stewardship of their assets, which by way of their investment they have entrusted to management. In this context, their first area of concern is properly reported financial results.

The integrity of those financial reports is paramount. Even an investor investing in a "socially responsible company," who might be less interested in absolute returns, is still vitally interested in how accurately a company reports the results of its operations.

Editor: Another area of conduct assessed by the survey is trust among employees. In other words, how are employees deceived by one another?

Hedley: The primary cause of one employee losing faith in a co-worker would be his or her observance of that employee willfully violating the company's code of conduct. Those violations might include discrimination, harassment, or violating the privacy of another. Other areas might include violating workplace health and safety rules or employee wage, overtime and benefit rules.

Editor: What areas compromise supplier trust?

Hedley: Assuming the supplier is an ethical supplier, he would like to see a fair vendor qualification process - that the organization would deal with all suppliers equally and fairly and would not be susceptible to bribes or favoritism. A robust compliance program would include fair vendor qualification and bidding processes.

Editor: What areas relating to the public did the survey show violate public trust?

Hedley: Public trust and shareholder trust would be similar. The kinds of things that would violate public trust would be things antithetical to being a good corporate citizen, such as violating environmental or health and safety standards, lying to government officials and the press, bribery and similar sorts of things.

Editor: What did your survey show are the root causes of misconduct?

Hedley: The first root cause of misconduct is pressure - pressure to get the job done and pressure to make the numbers. This same pressure to get the job done is consistent among most surveys. Another cause is that the organization does not take corporate ethics and values seriously.

Most organizations have a code of conduct, but taking the code of conduct seriously is the differentiator. You can tell a great deal about an organization by how much effort and thought goes into developing and implementing its code of conduct.

A code of conduct is an integral part of a good compliance program, but so are good upstream reporting programs, including the use of a hotline. Looking at the survey results, it would be hard to divorce the various components of a good compliance and ethics program from each other. The survey shows more people feel motivated to do the right thing, apply the right values or feel comfortable reporting wrongdoing when an ethics program exists.

Editor: How important is tone at the top in achieving a good ethics and compliance program?

Hedley: Tone at the top remains the key factor, but this in turn comes down to an effective code of conduct. Even if a CEO is passionate about good ethics and compliance, an organization has to communicate it downstream, and the most effective way it does this is through the code of conduct and the way it is communicated to their employees. It's all tied together. All the downstream communication is only as good as the upstream reporting, and the survey bears that out. A hotline is only effective if people are willing to report misconduct. Employees represent the first line of defense for integrity issues and the fight against fraud.

Editor: What role does the supervisor play?

Hedley: Supervisors play a significant role. While a hotline is important, it's not necessarily where you want your people to go first to report wrongdoing. You want them to feel comfortable reporting to their immediate superior. It's natural for people to want to do that, but of course your supervisors have to be trained in how to receive a report or allegation and then how to deal with it.

Editor: What are the best tools for training employees about compliance? Some companies use computer-based rather than live programs. Which of these methods do you consider the best?

Hedley: A lot of companies use a combination of computer-based training and live instruction. They may do live instruction for the code of conduct for all employees and use computer-based training for selected groups, using selected modules.

Much depends on the makeup of the company and where the employees are located. Live instruction is wonderful, but employees in the field can be hard to reach. If you have an extraordinarily large company, having a CEO presentation for all employees is difficult. Computer-based training can be highly effective, since training messages from the CEO and the chief compliance officer can be included to convey the messaging to all employees.

This article represents the views of the interviewee only, and does not necessarily represent the views or professional advice of KPMG LLP.

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