Coming Soon to the FCPA Blog – An Anti-Corruption Compliance Program Benchmarking Survey

By Jeffrey M. Kaplan and Rebecca Walker

Benchmarking has long had an important role in shaping organizational compliance programs, and over the years we have tried to play a part in this through benchmarking studies we have conducted for a variety of organizations -- such as the Ethics and Compliance Officer Association, the Society for Corporate Compliance and Ethics and the Conference Board.

In that tradition, we are very pleased to announce that we are teaming with the FCPA Blog to launch Anti-Corruption Compliance Program Benchmarks.

The need for this study is particularly strong. More so than with perhaps any other major area of law, compliance programs matter for the FCPA -- both because an ineffective program can itself be part of a violation of the internal controls provision of the Act -- such as in the recent Alcatel-Lucent case, where one of the offenses to which the company pled guilty included a failure “to establish a sufficiently empowered and competent Corporate Compliance Office” -- and because an effective program can be the cause of leniency in an enforcement decision.

Effective programs can also provide a complete defense to certain types of charges under the U.K. Bribery Act. And the OECD has, of course, established important expectations regarding anti-corruption compliance, too. However, FCPA compliance programs can be relatively complex affairs -- and for many companies the official guidance on program design and operation is no more than the starting point to achieving real success in this area. 

Anti-Corruption Compliance Program Benchmarks will, we hope, help companies bridge the gap between the limited guidance that the law offers and the practical, on-the-ground information that is needed for operational compliance program efficacy.

The study will cover the major components of anti-corruption compliance programs, including risk assessment; written policies; governance and management structures; procedures for approval of FCPA-sensitive-transactions (providing gifts, entertainment and travel to government officials; making facilitating/personal safety payments or charitable / political contributions; using third-party intermediaries; and undertaking mergers or acquisitions or joint-venture formation / investment); training / communications; auditing, monitoring and other forms of checking; program self-assessment; encouraging reports of suspected violations and otherwise seeking guidance; investigations and discipline; and compliance incentives (an area on which, the Alcatel-Lucent case suggests, the Justice Department now seems to be focused. Additionally, the survey will examine issues such as resources devoted to anti-corruption compliance programs, and also program independence, authority and “reach.”

The full report –- which will contain not only the results of the survey but also an analysis of the findings – will be made available free of charge to companies completing the survey. (All submissions will, of course, be held in strict confidence.) It will also be available at no cost to government agencies, non-profit organizations and academics, and to companies that have not completed the survey, consultants, other vendors and law firms at a modest charge.

The survey for Anti-Corruption Compliance Program Benchmarks will be rolled out soon. However, because the study is being conducted jointly with the FCPA Blog, we are announcing it now, so that readers of the Blog have a chance to suggest topics that they would like to see included in the survey instrument.

If you have any suggestions for (or questions about) the survey please contact us at either jkaplan@kaplanwalker.com or rwalker@kaplanwalker.com –- and please do so no later than March 22, when our “comment period” closes.

Jeff Kaplan and Rebecca Walker are partners in Kaplan & Walker LLP, a law firm in Princeton, New Jersey and Santa Monica, California whose practice is devoted exclusively to compliance program related legal services. In addition to having conducted numerous compliance program benchmarking studies, they have published extensively in the compliance program field, including having recently authored a chapter on FCPA compliance programs for the BNA/ACCA Compliance Manual.



An FCPA Pro Bowl

What's it take for us to have a great week? Four excellent guest posts will do it every time.

In case you missed any of them, Micheal Volkov looked at the new UK Bribery Act. He advised everyone to take a deep breath and remain calm. UK prosecutors, he said, aren't likely to go off the deep end so the rest of us shouldn't either.

Ryan McConnell and Charlotte Simon analyzed the annual crop of deferred prosecution agreements and shared some surprising results, like this: "Despite the clear benefits from an effective compliance program, statistics from the U.S. Sentencing Commission reveal that virtually every company convicted of violating federal law lacks an effective compliance program." History is unanimous, so get on board with an effective compliance program.

Jeff Kaplan's take on the Alcatel-Lucent criminal information was fresh and practical. He said that among the company’s violations of the FCPA's internal controls requirements was the failure “to provide appropriate incentives to perform in accordance with [its] compliance and ethics program.” How many companies could be making that same mistake today? Many, we think.

Finally, Tom Fox brought his usual enthusiasm to a post about a new book on the BP Deepwater Horizon disaster. Tom turned his review into a short, useful lesson on -- you guessed it -- compliance. 

We thank them all for making this an outstanding week.

We also want to thank Peter Henning for mentioning us in his New York Times DealBook column this week about sovereign wealth funds and the FCPA. We owe Prof Henning a double portion of gratitude -- his inspiration helped launch the FCPA Blog.

The First Word On Compliance Incentives

By Jeffrey M. Kaplan

The criminal information recently filed against Alcatel-Lucent, S.A. provides that among that company’s violations of the FCPA internal controls requirements was the failure “to provide appropriate incentives to perform in accordance with [its] compliance and ethics program.”

Incentives are indeed widely seen as offering a strong force for impacting a company’s culture in a way that supports a compliance program. In particular, they can help transform an organization from one where compliance efforts are “pushed” out by a compliance department to one where managers seek to “pull” such efforts from that department. But, unlike more mainstream compliance program measures, such as training and auditing, incentives have often proven to be controversial in concept and difficult to implement in practice, and so I hope having a short primer on this topic will be of some use to companies seeking to avoid this aspect of Alcatel-Lucent’s failings.

First, compliance incentives run the gamut from “soft” to “hard.” The former generally consists of non-tangible encouragement/recognition – such as commendations (public or not, as appropriate) from a senior business leader for an employee’s exemplary compliance-related conduct. They can also be addressed to a group, e.g., publicizing a business’s units being the first within a company to have 100% employee completions of FCPA training. The latter generally consists of tangible rewards, often monetary (which can be very effective, but occasionally offend those who feel that doing what is right is part of everyone’s job.)

In between pure instances of soft and hard incentives are measures with elements of both, such as use of compliance criteria in personnel evaluations, which – along with other criteria – can impact an employee’s compensation. Perhaps all companies should deploy these kinds of measures. (Indeed, the UK Ministry of Justice’s initial guidance on anti-bribery programs noted “performance appraisals… can act as an effective bribery deterrent.”) But in doing so they should provide fairly detailed guidance to those (meaning managers) who are responsible for completing the evaluation, because otherwise the results will likely be unfair, unenlightening or both. 

Also, compliance provisions in personnel evaluations tend to be most effective when coupled with objectives/performance plans tailored to individual employees, the substance of which should vary by the compliance-related duties of the individuals involved. For instance, these will typically be different for a sales manager than someone in finance. Finally, some companies require consideration of compliance performance as part of succession planning – which can be a powerful compliance-related motivator for leaders. Indeed, the compliance department is, at some organizations, consulted in connection with significant personnel decisions, such as promotions to senior management positions.

Second, compliance incentives can be either general or risk-area specific. For instance, on a personnel evaluation one could ask generally whether an employee “has demonstrated an understanding of and adherence to all company policies and procedures”; or – for companies intently focused on building up their FCPA compliance program, one could ask the same question with respect to that risk area in particular.

Third, in structuring incentives it is important to be alert to the danger of unintended consequences. For instance, an objective that managers receive a totally “clean” FCPA audit result could drive problems underground.

Fourth, in addition to “positive” incentives of the kind addressed above, companies must consider “negative” ones – meaning whether their compensation approach likely pushes employees to take undue risk, e.g., promotes “do or die” attitude. There are, needless to say, countless examples of compliance failures based on this dynamic, and paying attention to it is at least as important as structuring positive incentives.  For instance, at one company, the chief compliance officer meets annually with the head of human resources officer to review incentives to assess how, if at all, such might create undue compliance risks.

Finally, and on an entirely different level than that discussed above, governments should evaluate the compliance incentives that they provide to companies. The Justice Department took a major step forward last year in this regard by beginning to publicly identifying cases where companies received credit in an enforcement action for “pre-existing” FCPA compliance programs.

But more should be done this regard, particularly in responding to the recommendation from the December 2009 report of OECD anti-bribery working group that member countries (of which the U.S. is one) “encourage…their government agencies to consider, where international business transactions are concerned, and as appropriate, internal controls, ethics, and compliance programmes or measures in their decisions to grant public advantages, including public subsidies, licences, public procurement contracts, contracts funded by official development assistance, and officially supported export credits.” One can only imagine how implementing that policy could cause many companies to enhance their internal compliance incentives and take other steps to develop strong programs.

Jeffrey M. Kaplan, a partner in the Princeton, New Jersey office of Kaplan & Walker LLP, has practiced in the compliance law field since the early 1990’s. He can be contacted here.