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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
by François VinckeMember of the Brussels Bar, Former Secretary General and General Counsel of PetroFina
There are a plethora of documents and guidelines on ethics and compliance but only a few are designed for those responsible for making sure that integrity standards trickle down to all parts of the ‘body corporate’. The tone set by upper management is important, but it is equally essential that the ethics and compliance message reach the bottom of the company without distortion. It will be the ethics and compliance officer’s task to ensure that this message becomes part and parcel of the company’s daily life. In the first chapter of this Ethics and Compliance Training Handbook, written by one of its editors, we shed light on the educational purpose of the Handbook and offer some insights on the ethics and compliance officer’s role and place in the corporate organization.
This Ethics and Compliance Training Handbook is especially dedicated to you who are involved in compliance or will be in the near future.
You may be working part time on compliance in a small structure or full time in a larger organization. Your company is headquartered in an OECD country (where compliance is becoming embedded in corporate practice) or in an emerging economy (where compliance is still only beginning). You may be the only person tasked with compliance in your company or you are part of a larger team. You are a member of your company’s legal department or you belong to a newly created compliance department. You are directly involved in compliance or you are closely associated with it, for instance through a control function in internal or external audit.
To all of you, this Handbook offers practical guidance and useful suggestions based on the expertise and experience of some of your most respected colleagues. Many of them are long serving (and particularly active) members of the ICC Commission on Corporate Responsibility and Anti-corruption. We have called upon these recognized compliance practitioners to review, item per item, the challenges and pitfalls that you will encounter in your daily practice.
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This Handbook is essentially a training tool, not another treatise on anti-corruption and fair competition. We will not dwell on theoretical considerations regarding the need for companies to be compliant with legal and ethical rules.
ICC and other prominent voices have devoted significant effort to making company executives more aware of the need to implement both Codes of Conduct and corporate compliance programmes. Chief Executive Officers and Boards of Directors of leading companies have issued bold statements condemning corruption and other illicit business practices. But the time has come to delve deeper into the corporate organization and reach the ‘working level’, where you, in the ethics and compliance function, have to overcome concrete dilemmas and make difficult judgment calls.
What is expected from you is to translate the directive from the top of your company into day-to-day reality regarding its business activities. Ultimately, your company’s success in reaching high ethical standards will depend (largely but not exclusively) on your sustained efforts to help foster an effective culture of integrity. Your role is to instil in the organization a new set of reflexes, allowing your colleagues to act spontaneously in the right way. In the end, companies are judged on their deeds, not on their words. As always, what counts in business is the result.
The guidance provided in this Handbook is not only destined for large multinational companies (many of which have already established robust anti-corruption and antitrust systems) but also to the vast universe of smaller enterprises which often find themselves at the beginning of the journey. These companies are frequently exposed to fraud and corruption, but only scant efforts have been made to address their specific circumstances.
Yours is a daunting task. But, once you will have used this Training Handbook, we hope that you will also find it fascinating. Helping your colleagues adopt new integrity practices is one of the biggest and most exciting challenges for businesses today.
New compliance attitudes should permeate throughout the whole ‘body corporate’. Those who have been trained should in turn train their (present and future) colleagues and assistants. This Training Handbook is conceived in such a way that today’s trainees can become the trainers of tomorrow.
With this in mind, ICC has embarked on the development of a Global Training Programme, based on this Ethics and Compliance Training Handbook. This Global Training Programme, which will count on the support of ICC national committees around the world, will be designed to help you build your own compliance and training activities in your company. A team of specialists in corporate compliance will stand ready to assist you in planning your own corporate training programme.
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As a person entrusted with a compliance function, you should have an adequate knowledge of your company’s products, services, processes, and procedures. You may retort that anybody working in a company is expected to have a fair knowledge of its functioning. However, in your compliance capacity, you should be able to speak with the highest degree of credibility to everyone in the company, from top to bottom. To be in a position to advise, encourage, warn, admonish, forbid, or even blame or sanction, you should be recognized by your colleagues as being ‘one of them’, and not viewed as somebody parachuted in from the outside.
Colleagues will come find you with the following sorts of questions: “Should I approve this payment?”, “Should I go along with the appointment of this intermediary?”, “Should I report this circumstance?” To be fully credible in your answers, you must be able to demonstrate that you have a full grasp of the situation at hand, in both its ethical and business aspects.
It will therefore be crucial that you keep abreast of your company’s industrial, commercial and financial developments. Don’t lock yourself up in your new function. Keep an eye on the company’s new products and services, and be aware of its expansion into new countries. Stay informed about its new marketing channels, and watch out for changes to the company’s governance model.
There is no uniform or even preferred pattern for plotting the compliance function on the organizational chart. Compliance may be located within the legal department or it can be established as a new department, standing on its own – thereby emphasizing its specific and often novel mission. Compliance can also be integrated as part of the internal audit function or attached to the finance department. In reality, the place of the compliance function in the organization will often be pragmatically dictated by the size of company, its management style (which can be centralized or decentralized), and the nature of its activities.
While the localization of the compliance function may not be of overwhelming importance, its operational autonomy and its right to access the top of the company will be decisive factors for the ultimate success of your mission.
To deploy its activities and implement company-wide initiatives, the compliance function will require an adequate degree of operational autonomy.
Note that we speak here of ‘autonomy’ and not ‘independence’. Aiming for full independence of the ethics and compliance function would lead to delusion. It is clear that individuals outside the ethics and compliance group will define the human resource parameters for ethics and compliance officers, such as their performance evaluation, their remuneration, their benefits and their career development. Other individuals, also outside the ethics and compliance group, will approve,[Page11:]reject, or amend the budget requests proposed by the ethics and compliance function.
What really matters, however, is that ethics and compliance officers and their teams enjoy a genuine freedom of action and a freedom of speech. They should be able to define their priorities (based on a risk assessment), to draft and amend the company’s Code of Conduct and compliance programme, to establish corporate policies on specific subjects, to communicate their messages efficiently throughout the organization, to control activities everywhere in the company, and to take action every time the company’s ethical standing is at stake.
These freedoms are epitomized by what can be described as an unfettered access to the top of the company: in no way should the ethics and compliance function be denied free and preferably regular access to the company’s highest authorities. Whenever a serious matter is raised, which can endanger the ethical reputation of the company, the ethics and compliance function should have the right and the duty to bring such concern to the top. If access to the top is conditioned, hampered, obstructed, or denied, compliance cannot properly function.
What do we mean by ‘access to the top’? Again, there is no uniform answer. In many cases, this will mean access to the Chief Executive Officer or to another high-level corporate executive, such as the Chief Financial Officer or General Counsel. Alternatively, this could also mean access to the Chairman of the Board of Directors, the Supervisory Board, or the Audit Committee. From a governance viewpoint, the latter option may seem preferable, as the Chairman of the Audit Committee will generally be an independent director, placing him above possible conflicts of interest. Moreover, the Audit Committee has a duty to mitigate financial, operational and compliance risks. However, not all companies have an Audit Committee and Audit Committees usually meet only a limited number of times per year.
Whatever the body chosen, ethics and compliance officers have to be in a position to give warnings at the highest corporate level, to stop or help stop misconduct, to warn against existing or potential malpractice, and to propose changes to the company’s policies and practices. Ideally, such a dialogue should take place at regular intervals by following a calendar of sessions scheduled in advance with the company’s upper management. By scheduling regular meetings, ethics and compliance officers will be able to continuously review the company’s full compliance situation. If such meetings cannot be arranged, the ethics and compliance officer will have to schedule meetings each time it is deemed necessary. The latter solution is only a second-best solution, since the ethics and compliance officer will only meet with top management in crisis situations, which is not optimal for building a long-term dialogue.
By appointing an ethics and compliance officer or creating a compliance function, the top executives of the company make a necessary and intelligent move. They want to fend off corruption and anti-competitive[Page12:]practices and install a new ethical culture in the organization. By going the route of organized and systematic compliance, they choose the best path to reach these objectives.
However, it would be a mistake to believe that the mere appointing of ethics and compliance officers relieves middle and top management of their duty to care about ethics and compliance. Compliance, even when administered by specialists, should be of continual concern to everyone. Though compliance professionals will make their best efforts to bring about new attitudes and embed new corporate practices in the company, everybody in the organization has to contribute, in his or her proportionate part, to the genuine and thorough implementation of the compliance message.
To illustrate this point, let’s make a simple comparison: a company designates a health, safety, environment and quality manager. It would be wrong to think that − from that moment on − the management of the company can turn a blind eye to environmental risks. The Board will have to vote budgets to install adequate environmental technology. Management must put in place efficient air, water, sound, ground, and raw materials controls and the workforce should learn to use the tools made available to them. Clearly, appointing a health, safety, environment, and quality specialist does not relieve anybody of their own environmental and safety duties. The same is true for ethics and compliance.
The novelty of your task, the difficulty of your mission, and the specificity of your function will require that you define – together with your company management – the terms of reference for your work. These terms of reference may differ from one organization to the other, but they usually contain explicit elements on the following three subjects:
A company will generally expect an ethics and compliance officer to accomplish the following:
The budget you will be allocated will evidently depend on the size, structure, and ethical determination of your company. To try to figure out what kind of budgetary resources would be adequate to your company’s needs, you will have to ask your management the following questions:
Your mission statement now lists the assignments to accomplish, and you know the means you will receive to realize them. The next task is to ensure that you enjoy sufficient authority to make your voice effectively heard in the organization. This may be the most sensitive issue to address in the process of establishing your mission statement. Giving authority to a new department or function in the organization will always be a delicate issue.
To measure the authority vested in you, receive clear answers to the following questions:
The answers to these questions may be verbally given to you. This does not make them less valuable, but a written statement, which can be shared with others and made known throughout the company, will add significant strength to your authority.
Compliance work is not supposed to yield positive results overnight. Having strongly worded terms of reference, firmly delineating the ‘ground lines’ of the company’s ethics and compliance work, will help you achieve your mid-term and long-term objectives in a confident matter.
You have now taken full command of the company’s ethics and compliance function. Your mission is well defined. You know which resources are available and your level of authority. Everybody in the organization, from top to bottom, wants to preserve the company’s reputation and supports its ethics and compliance efforts.
All of a sudden, a scandal erupts. Contrary to all expectations, a rogue employee or a business partner indulged in fraudulent activities which everybody thought belonged to the past. A commercial manager, hard pressed by a diminishing order book, felt he should protect the company’s market shares and exchanged sensitive information with competitors. An intermediary, contrary to all instructions, paid to obtain illicit advantages in a heavily contested procurement contract.
All look in your direction. Were you not supposed to make such things impossible? Should you not have done everything possible to precisely avoid this? The question is asked: have you, as ethics and compliance officer, been vigilant and active enough?
This questioning brings us back to two realities.
First: no compliance system, however sophisticated, will ever guarantee a total absence of failure. There always will be a risk of a human or administrative flaw. Companies have spent years building elaborate ethics and compliance systems before being confronted with incidents of incredible misconduct. All ethics and compliance work is ‘in progress’ and nobody as manager or ethics and compliance officer should expect or guarantee that the ethics and compliance system established by the company be flawless.
Second: there is a substantive difference between being responsible for not properly fulfilling a professional duty and being liable for an offence. An ethics and compliance officer has to make his or her best efforts to prevent an offence from being committed. If he or she fails to make sufficient efforts in this endeavour, such a failure can be held as professional negligence against him or her, but (with the rare exception of gross negligence) the offence itself should not be blamed on the ethics and compliance officer.
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As for all changes in an organization, many will cooperate and welcome new practices, but there will also be resistance. For some in the company, compliance will rhyme with administrative paralysis, fussy controls and rigid reporting. New procedures will mean for them less flexibility, reduced commercial aggressiveness and protracted decision-making processes. Ambitious commercial managers will be inclined to blame their difficulties on the hurdles that you, as ethics and compliance officer, have placed on their way to success. They may see you as the one responsible for making them lose business deals, and the bonuses that come with them.
Don’t simply brush away these complaints. Instead, take the time to review and experiment with your colleagues using the control mechanisms you propose to put in place. Test every new administrative procedure and examine its compliance and commercial efficiency. In doing so, you will be able to distinguish undeserved criticism, possibly meant to cover up professional negligence on the part of your interlocutor, from more legitimate objections. If a procedure is creating unnecessary obstacles, try to find a way to make it more commercially neutral, without opening the gate for abuse. In short, try to find an adequate answer which satisfies both the commercial needs of the company and its rigorous ethics and compliance objectives. In some instances, you may have to eliminate or adapt overly cumbersome procedures. But always remind your interlocutors that it is their duty to rigorously comply with the law and the company’s ethical rules.
In your job, your first goal is not to control and punish, but to create a climate that is favourable to complying with legal and ethical standards. Such a task requires persuasion and an ability to encourage and foster progress. This will only be possible in an environment of confidence and trust, not in an atmosphere of systematic suspicion. Be more an educator than a prosecutor. Be more an advisor than a cop.
An ethics and compliance officer should take the time to explain that ethics and compliance − despite its unavoidable downsides in terms of commercial effectiveness − will be beneficial to all in the company. Some short-term business opportunities may be lost due to strict ethical constraints, but how does this compare to the huge and sometimes irreparable harm a single ethics scandal can inflict on the company?
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You are now almost set for your new assignment, but bear in mind that no genuine ethics and compliance policy can be set in motion without beginning with a risk assessment of your company, as explained in Chapter 5 of this Training Handbook. Mapping your company’s exposure to ethics and compliance risk will enable you to evaluate your company’s strengths and weaknesses and to set your priorities. As an ethics and compliance officer, you need to identify the most sensitive areas in your company, which countries or business units present the highest risk exposure, and which instances or activities have led to the highest number of incidents.
A thorough risk assessment, which is generally conducted under the authority of the Board of Directors or at the instruction of the company’s top management, will have to be regularly updated. This precious tool will enable you to direct your time and energy on your company’s most pressing needs.
It would be impossible to draw conclusions at the beginning of this Training Handbook. But it can be said with certainty that your new job as an ethics and compliance officer is a challenging one, in which you may, if you are systematic and organized, make a decisive contribution to your company’s societal position.
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About the author
François Vincke is a Member of the Brussels Bar. He worked 26 years for PetroFina, a European oil, gas and petrochemicals company, including 11 years as Secretary General and General Counsel. Since 1994, he is the Head of Anti-corruption at ICC, first as Chairman of the Anti-corruption Commission and later as Vice-Chair of the Commission on Corporate Responsibility and Anti-corruption. He has written a number of articles and led several conferences on matters related to ethics and compliance.