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FCPA Blog Daily News

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Wednesday
Jul252018

Reoch and Barrett: Time to shift to ‘conduct from the top’

It has long been recognized that a critical principle of good governance and compliance is the implementation, promotion and communication of the right tone at the top. It is the fundamental groundwork in setting a company’s culture and is arguably the most important principle in the prevention and detection of bribery and unethical conduct.

The idea is that the board and senior management promote ethical business conduct, integrity and regularly communicate this to all employees, third parties and business partners. This is more likely to encourage support and conformity to these principles. However, if senior management is perceived to be uninterested in ethical business conduct or more concerned with financial or other performance measures, employees, third parties and business partners are more susceptible to acting unethically.

Recent anti-bribery and corruption enforcement actions and the focus on individual liability suggests that the emphasis has shifted to "conduct from the top" as opposed to the more widely used "tone at the top." Tone at the top is passive in nature, whereas conduct from the top is more active. It is emblematic of the need to ensure the ethical and cultural identity of an organization flows from the very top with the board, senior executives and middle management, playing an active part in influencing, embodying and demonstrating the culture of an organization.

Culture is certainly a hot topic for regulators, enforcement agencies and other influential organizations. In March 2018, through its discussion paper DP18/2: Transforming culture in financial services, the UK Financial Conduct Authority identified culture as a key priority and stated that “culture in financial services is widely accepted as a key root cause of the major conduct failings that have occurred within the industry in recent history."

In 2017, the Fraud Section of the U.S. Department of Justice published its Evaluation of Corporate Compliance Programs (pdf) outlining common questions that the DOJ asks when evaluating a company’s compliance program. With reference to conduct from the top, questions include:

  • How have senior leaders, through their words and actions, encouraged or discouraged the type of misconduct in question?
  • What concrete actions have they taken to demonstrate leadership in the company’s compliance and remediation efforts?
  • How does the company monitor its senior leadership’s behavior?
  • How has senior leadership modelled proper behavior to subordinates?

But what does this actually mean for businesses trying to implement an effective compliance and monitoring program? Below, we consider just a few of the many proactive things that organizations should be doing in respect of anti-bribery and corruption to ensure they are focusing on conduct from the top and not just whether the right tone at the top exists:

  • Adequately evidencing when decisions have been made that do not align with an organization’s risk appetite;
  • Senior management leading by example, being visible to all staff and demonstrating, not just communicating, ethical behavior;
  • A culture that allows employees to speak up if they witness behavior contrary to the organization’s values;
  • Regularly obtaining and reviewing timely management information to identify red flags, themes and key trends where risks may be looming;
  • Applying a degree of professional skepticism and challenging where something does not sit right;
  • Inclusion of compliance metrics within employee performance measures to ensure there is accountability;
  • Consistent and effective consequence management; and
  • Pioneering good practice and ethical conduct through proactive forward planning.

Many of the examples above are equally relevant for broader financial and economic crime compliance. These may help organizations gain a competitive advantage through securing public trust, attracting and retaining the best talent, engaging effectively with stakeholders and reducing the diversion of management time on regulatory enquiries.

What is your organization doing to ensure that conduct from the top is front and center of your compliance and monitoring program?

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Annabel Reoch, pictured above left, is a Partner and UK Head of Anti-bribery and Corruption investigation and compliance at KPMG in the UK. She's a qualified Chartered Accountant and an experienced forensic consultant with subject matter expertise in bribery and corruption. She can be contacted here.

Tom Barrett, above right, is a Manager in the Risk Consulting, Forensic and Anti-Bribery and Corruption practice at KPMG in London. He can be contacted here.