In a recent Op-Ed column in the New York Times on proposed Supreme Court Justice Sonia Sotomayor, David Brooks writes about the myth of the objective judge, suggesting that empathy is just as important to an individual on the bench as cold facts and reason, if not more so. I believe a similar argument could be made in the case of corporate compliance, ethics, and culture. It’s important to have codes and rules and laws in place for your employees, but if your employees aren’t able to rely on their own moral compasses, your organizational culture will suffer. And when your culture is sick, it affects morale, productivity, behavior, and pretty much everything else within an organization.
That’s what we try to emphasize at ELG. Yes, you need laws and rules, but to think that that’s all you need is to make a fundamental mistake. You also need a common purpose, a gut-level understanding of the fact that there’s a right and wrong way to do things. You need every employee to understand that no set of rules could possibly cover every eventuality, and that when the rules fail to clearly define the path they must make good decisions based on what they know is right. You also need your employees to understand that occasionally the rules allow behavior that will hurt the organization and its reputation in the long run, as we’ve all seen in the last 12 months, and that they must do the rules one better and behave not only legally, but ethically.
I understand that there’s an element of naiveté in my personal approach to business ethics – my background is in physics and theater, I don’t have an MBA and I haven’t spent 20 years in the corporate world. But the current thinking in neurology is that emotion is an essential part of the decision-making process. When you remove emotion from the picture, you don’t automatically arrive at the best and most logical result. Rather you most often get stuck in an endless loop as no result feels better to you than any other. Emotions help us find the right answer. Antonio Damasio, the prominent neurologist, discovered in his work with patients whose brains’ emotional centers had been damaged that such individuals, while they could logically discuss the decision-making process, were often unable to come to any conclusions when making basic choices, such as what to eat or what pen to write with.
As noted psychiatrist John J. Ratey points out in his book A User’s Guide to the Brain, “emotions tap into areas of our brains that judge situations effectively without our having conscious access to them.” Comply with all the laws. Make your code as good as it can be. Draw your policies clearly and make them thorough. Just don’t forget to make sure your employees know that they’ve got the best fraud- and waste-prevention tool at their disposal at all times – their gut.
Imagine your firm is under fire. Lawsuits threaten your business and profitability. NGOs and other do-gooders criticize your business practices. The media is circling. Employees are confused: “We are a good company. We provide something important for society. Why are we being vilified?”
Our great American story of expansion ever westward tells us what to do when under attack. Circle the wagons. Bring everybody inside. And fire when the attackers get too close.
Smart companies now realize that this is a perilous strategy.
Last night I attended a dinner conversation hosted by the Center for Audit Quality, a nonprofit organization largely sponsored by leading audit firms. Audit firms have been besieged in recent years. But instead of withdrawing inward, they convened a series of off the record meetings with leaders from academia, the press, investor advocates, F500 audit committee members, heads of internal audit, generals counsel and me.
Last night’s topic was what external auditors can do to more effectively prevent fraud—or at least reduce it. Several representatives from leading audit firms were there to listen. They didn’t attempt to pontificate nor to deny responsibility. (Although one made a vigorous case for a legal reform that doesn’t have a chance of passing in this climate where only 12% of Americans in a recent Gallup Poll believe business leaders are honest and ethical.) They engaged.
Will this improve the perception of audit firms? Maybe. Will anything concrete happen as a result? Hard to say. But it might.
Look at Wal-Mart. For years Wal-Mart was under attack. For years they circled the wagons and vigorously defended with a one idea mantra “Lower prices help Americans.” And it didn’t work. So they engaged with their critics. Nothing happened at first. But the Wal-Mart of today is far different from the Wal-Mart of five years ago. They have made significant strides in environmental practices, supplier standards, and even in areas like health care for employees.
Engagement is a good public relations strategy. But more importantly, it is a good corporate responsibility strategy, and a good business strategy. The engagement benefits all sides. Firms can change. An ancient Bedouin saying says “Once the nose of the camel is under the tent, it is hard to keep the camel out.” And either Sun Tzu, Machiavelli or Michael Corleone said “Keep your friends close and your enemies closer.”
In this world when regulations and expectations are evolving at lightning speed, engaging with critics is better than circling the wagons.
A debate has emerged in the news around the behavior of banking regulators and Bank of America (BofA) officials over the recent BofA/Merrill Lynch merger. Between the time of the merger announcement last September and the actual BofA shareholder vote to ratify the merger late last year, Merrill’s financial condition deteriorated substantially. Several BofA shareholders are now alleging that BofA chairman Ken Lewis, by failing to disclose the worsening condition of Merrill Lynch, violated his fiduciary duty and thus broke securities laws.
Lewis, in testimony to the New York Attorney General’s office, defended his actions by saying that Federal regulators told him completion of the deal was essential to preserving the stability of the financial system. Importantly, he says he was threatened with the loss of his job if he disclosed Merrill’s poor results, as this would jeopardize approval of the merger. Effectively, he implies that regulators told him to break the law.
This is troubling for several reasons. Is it acceptable to break a law or fiduciary duty if the government is pressuring one to do so in the name of “national interest” or “economic stability?” Is fear of losing one’s job an acceptable reason to violate the law?
Clearly this was a high stress, high stakes time. But a great deal of ink has been expended since the Enron and WorldCom scandals about the importance of having moral courage in ethically difficult environments, of being willing to stand up and risk one’s career to “do the right thing.” While I applaud this line of thinking, employees find it a difficult standard when faced with loved ones to support, mortgages and college bills to pay and healthcare needs to be met.
This is all the more reason why someone of Ken Lewis’ stature and resources needs to send the message that doing the right thing (for the nation’s economy) was the reason he acted as he did. Bank of America employees and stakeholders need to know that it is not expedience of job security that guides BoA’s leaders, but strong, sound principles.
“Here’s the dirty little secret. Most of the stuff that got us into trouble was perfectly legal.” Thus spoke President Barack Obama on The Tonight Show, March 19, 2009.
The President was speaking of the crisis in the financial services sector; and he was right. The firms that got themselves, our nation and the world into trouble had, for the most part, well developed regulatory compliance programs. Compliance officers tried to make sure that employees did not violate laws and regulations that applied to their companies. And these compliance officers were successful.
But while these compliance officers were busy avoiding speeding tickets, they missed seeing the fog bank ahead that was hiding a twenty car pile up.
And that is the all-too-common problem of compliance programs in all industries. We are so focused on legal and regulatory compliance that we miss the much greater reputational risks that our companies face.
In 2009, we face a public even more cynical about business than they were in 2001 in the wake of Enron, Andersen, Tyco and WorldCom. This cynicism may not be deserved, as JP Morgan Chase CEO Jamie Dimon pointed out: “When I hear the constant vilification of corporate America, I personally don’t understand it.” But the cynicism is real, and the mark of great businesses is rapid adjustment to changed environments.
So what should great businesses do in this unprecedented time? Here are some action items to consider:
1. Put compliance in its proper place—as one element of good business practices. Ban “compliance” from the name of your office or function. Call it “Integrity” or “Business Practices” or anything else.
2. Have senior management and the Board discuss where your Business Practices Office should reside. We have worked with many great General Counsels who are able to nurture a true Business Practices function—one that transcends compliance—in their reporting structures. But too often the reporting structure determines the job’s scope.
3. Think about whether your function has necessary clout. If your company is engaged in providing a product or service that is lucrative in the short term (think originating liar’s loans) but has a very strong likelihood of causing damage to the company in the future, will your Business Practices Officer get a fair hearing?
4. Review your Code of Conduct, training and other communications messages. Are they about “doing the right thing” and providing guidance in making reputation enhancing decisions, or are they primarily about complying with the law.
I have been studying business ethics for 24 years, and working in the field for 19. I have never been so frightened about the ability of our private sector to continue to do the good work that it does. The public that provides us with the permission to do business is virulently angry. If we don’t start now to place trust building at the forefront of our corporate agendas, we face the ugliest business environment in decades. And that won’t be good for any of us.
]]>I have been trying to make sense of the financial meltdown for the past six months.
Last week the long time head of audit for a TARP receiving bank crystallized my thoughts. “We lost our ethical compass” he moaned, trying to make sense of the chaos he faces.
Unfortunately, this auditor’s perspective is not yet widely shared by bank executives, by Wall Street, or by Washington DC. He described a recent risk management meeting in which executives discussed what they perceived to be the bank’s major risks. When his turn came, he told his colleagues “Our culture is our greatest risk.” They looked at him as if he were a bearded sociology professor rather than a hard nosed auditor. “We are not the bank we used to be. We care less about the institution and more about ourselves. And we are all about the short term.”
Just about every government with a major economy is about to implement a tsunami of new regulations intended to wipe out any chance of an economic crisis like we are now in from reoccurring. The problem is that these regulations will be designed by lawyers and policy makers who believe that laws and policies will fix what ails us. They won’t.
Our audit leader is right. We didn’t lose our compliance compass. (Well, ok, Bernie Madoff and Allen Stanford did.) But the mortgage brokers, bankers, credit analysts, derivatives merchants, home buyers, etc., etc., did not, for the most part, violate laws or regulations.
They lost their ethical compass. And until all of us—corporations, government officials, citizens—recognize this, the regulatory medicine we are about to receive will not cure the disease, and may make it worse.
We have been bludgeoned with bad news over the last few months. I’m betting you know all about it. You probably have the bruises to prove it. I felt compelled to contemplate the obvious after I heard an interesting news story yesterday. The owner of a local music shop was interviewed on the air. He said that his business had dropped off severely over the last few months -- until the US Airways plane landed safely in the Hudson and President Obama took office. This field sociologist, this observer of real life, attributed a subsequent, sustained uptick in his business to nothing other than people’s reaction to hearing good news after so much bad. They felt normal and positive enough to start spending money. Imagine that.
And then it hit me. His music shop experience is a microcosm for our country in general and for corporate America specifically. We in the ethics field talk constantly about the importance of open communication, respect for others, non-retaliation, consequences of non-compliance and on and on. But what about the power of positive news? I believe we have a role here. What would our workplaces be like if we, in the ethics office, used some of our communication time and tools to talk about the good things our companies have done and are doing – and link it to ethics? Chances are that you don’t know all the good things that are going on in your organization. What if you did some research and told some of those stories?
A good ethics and compliance communications plan is very similar to a good marketing campaign. It taps the minds and hearts of the audience through repetition. Case in point – didn’t you enjoy the ongoing Budweiser horse commercials during the SuperBowl? I bet you just smiled. The flood of negative national news is itself a marketing campaign – one that has wrapped the minds and hearts of our citizens with fear and paralysis. And we are sitting here feeling worse and worse.
I’m not so naïve to think that positive and uplifting messages from the ethics office will cure our economy, but what if those messages nudge your employees, just a little, away from the doom and gloom. The reason the SuperBowl commercials work is because they contain the unexpected and that’s what sticks with people. Now apply that to your communications. Do your employees expect your ethics messages to be all about “Don’t Do This or That”? Try something unexpected – say something positive. Who knows. The GNP may actually go up.
Many may remember the character Rosanne Roseannadanna from Saturday Night Live. The late Gilda Radner played the confused news reporter who always mixed up the wording of an issue. She ranted on about her confused issue until someone finally corrected her. At that point, she always ended her remarks with a quiet “Nevermind…”
Well, that is what I felt like today listening to the press conference given by the new Secretary of the Interior, Ken Salazar, at the White House daily briefing. He gave a lengthy statement about the ethics scandals that rocked his organization, the investigations he was planning to conduct, and the corrective actions that would be implemented. He stated his commitment to ethics and accountability and related these efforts to President Obama’s focus on issues of integrity and accountability in government. Then he opened the floor to questions from the media.
The first question, the second question, and then the third question were about things like the agency’s plans for offshore drilling. Huh? Even the Secretary looked confused. He was prepared to answer questions about ethics and doing the right thing. After all, he had just discussed the juicy issues the media loves to cover – sex, drugs, and inappropriate relationships with the companies the government is supposed to regulate. It wasn’t until the very last question that a member of the media finally asked him about his actual remarks.
Why is this? I was already amazed this week at how Illinois Governor Blagojevich became a rock star on the major networks that helped him spin his story. Good Morning America, The View, and Larry King Live gave him plenty of air time. Joy Behar even played with his hair!! Has everyone, including the media, given up any hope of ethics and accountability really happening in government or the private sector? Is it just becoming a big joke? Is the media accepting this stuff as status quo? Is it just how business is done??? Or is it, as Rosanne Roseannadanna would say, always something?
What’s all this talk about ethics? I must be mixed up. Nevermind.
]]>This is a terrific day for America. E pluribus unum indeed.
That’s enough basking. True to the spirit of President Obama’s speech, let’s get to work. No work in America—or the world—is more important right now than business ethics. We face a financial crisis in large part because of a failure by many—lenders and borrowers and those who aided and advised them—to take responsibility for making prudent choices.
And our crisis continues because now we have a lack of trust. Lenders and investors and suppliers don’t know if they can trust the person or company on the other side of the transaction. And without trust, the economy grinds to a halt.
As ethics and compliance professionals, our ultimate job is to build trust. President Obama gave us at least two lessons today on how to do so.
First—deliver the bad news. It was striking how direct our new President was about the difficult conditions we face. Many business leaders choose to give only positive messages, and when they deliver bad news, others are to blame. President Obama didn’t blame solely the greedy and irresponsible for our economic state—he assigned responsibility to all of us.
Second, he focused on the values we share as a way to bind us in pursuit of a common objective. Consider these words from the Inaugural Address. Substitute “company” or “organization” for “government.” Think about how messaging consistent with this might serve your organization—and your ethics and compliance program—in the weeks and months ahead.
"For as much as government can do and must do, it is ultimately the faith and determination of the American people upon which this nation relies. . . . Our challenges may be new. The instruments with which we meet them may be new. But those values upon which our success depends - hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism - these things are old. These things are true. They have been the quiet force of progress throughout our history. What is demanded then is a return to these truths. What is required of us now is a new era of responsibility - a recognition, on the part of every American, that we have duties to ourselves, our nation, and the world, duties that we do not grudgingly accept but rather seize gladly, firm in the knowledge that there is nothing so satisfying to the spirit, so defining of our character, than giving our all to a difficult task."
I am a movie buff. As a compliance training professional, I love films because I think they tell us much about human behavior without the boring, preachy stuff we sometimes find in formal ethics and compliance training programs.
Over the holidays, I rented the HBO mini-series “Rome,” season one, which tells the supposedly historically accurate story of the rise and fall of the Roman Empire from the perspective of two Roman soldiers. What struck me was that the wide-spread bribery, fraud, violence and general immorality portrayed in the episodes could have taken place anywhere and anytime in human history. And the bigger the kahuna, the bigger the impact of his or her actions. But also, in the midst of cultural depravity, Rome still progressed largely on the back of its disciplined army.
So how does this tie into the ethics and compliance profession? I can think of three ways. First, it points to the timeless importance of culture. People in a society or organization will behave according to the most widely accepted common denominator – modeled by those at the top. The E&C takeaway is this: we must train and communicate with our leaders ad nauseum so they get this.
Second, human behavior is motivated by the carrot and stick. Roman soldiers got paid if they followed the rules; they got executed if they did not - elegantly simple and effective. We may not be able to adopt this approach verbatim in our E&C efforts, but there is a corollary: Reward good behavior (yes, there are a number of non-monetary ways) and discipline bad behavior. Do both consistently.
Third, human nature being what it is, good controls are a must. The Roman army minimized its risks through clear rules, repeated training, and swift reinforcement with the carrot and stick. What worked in Rome can work in your organization through your E&C efforts.
Rome eventually fell, but our organizations don’t need to – as long we remember that human behavior hasn’t changed in thousands of years. This may be a little depressing, but it’s also an exciting E&C challenge for the new year.
As you all know, Governor Rod Blagojevich (D) of Illinois was recently arrested for his “political corruption crime spree.” He is captured on tape putting the US Senate seat of Barack Obama and the editorial board of the Chicago Tribune up for sale.
His behaviors indicate that he is corrupt, stupid and unrepentant.
This seems to be a pattern in Illinois politics. Governor George Ryan ® before him, now in prison, never seemed to “get” why what he did was wrong. And we have a legacy here in Illinois. In the last fifty years, two other governors were convicted—Otto Kerner (D) of bribery, conspiracy, income tax evasion, mail fraud and perjury; and Dan Walker (D) for misuse of funds.
This pattern got me to thinking about an ethics consulting service we recently launched: Ethical Leadership Coaching. Under the pressure of today’s business environment, some leaders slip. They fail to “talk the talk” or “walk the talk.” Businesses face a tough choice when this happens. They can fire the leader and lose a performer and an investment. This is often the only right course of action—and our experience is that companies often don’t fire people when they deserve it.
However, sometimes the sinning leader is slightly clueless. He or she may not be aware of what exactly he or she is doing wrong. Mary Bennett, who has been part of our team for almost ten years, is a trained coach with deep ethics, compliance and business experience. She can take leaders with the desire to overcome past bad behaviors and coach them in order to help them achieve their potential—and contribute to the firm’s profitability.
But she can’t work miracles. We are not accepting applications from any Governors of Illinois, past or present. Governor Blagojevich, we can’t help you.
I’m Steve, from Illinois, and I’m an ethics consultant
This used to be an introduction, not a laugh line.
I am almost at a loss for words. But here are a few:
“I was born and raised in Wisconsin, and that is a clean state.”
“I travel a lot.”
“I’d rather live in the mountains, where the air is clear.”
“We’re not as bad as Louisiana—yet.” (Actually, I am not sure about this last one.)
When my head clears and my amazement diminishes, I will have something more profound to say. Right now I am in the state of my son Michael, who sent an email yesterday morning as the news was breaking saying
“How could he have been so stupid?”
Right. When the voters of Illinois re-elected Rod Blagojevich, we knew he was slimy. We didn’t like him. But the alternative was worse—reminded us of the also slimy previous Governor of Illinois, George Ryan, who is now in prison for corruption. But we didn’t think he was corrupt and stupid.
The whole world has known the Governor has been under investigation for years. And yet—and yet—well, you have read the papers. You know what he said.
The feds called it a “political corruption crime spree.”
I guess I’ll call it an opportunity. The next time I am in India or China or another country with the reputation for corruption I’ll just say “I am not here to cast stones. I am an ethics consultant from the state of Illinois….”
One of the biggest questions in any sector of business and life, its the question of turning the people around us into ethical leaders. In everything we do, as business leaders, military leaders, education leaders, we must have ourselves, our own leadership, and our subordinates act in a way that is ethical and honorable. Despite the different ideas of how to turn people into ethical leaders, there is one method that will always reign supreme: setting the example ourselves.Throughout the course of our history, there are hundreds upon thousands of example of situations in which a good example of ethical leadership could have avoided disaster. In business we look to corporate corruption such as Enron or Adelphia and wonder how someone could lack ethics so badly, in professional sports the ethics of players and coaches is called into question constantly, and in government our leaders are questioned on ethics almost routinely. But how do we learn the ethics ourselves? While we sit and wonder how the leaders of Enron or the Iran-Contra affair could behave so unethically, there is an easy explanation- they learned from someone else who lacked ethical strength. The number one place that we learn our moral-ethical code is from the people we observe, be it our parents who we see almost every day in our youth a random businessman we may see once in our lifetimes, we learn much of how we behave as ethical adults from them. This is the first key to not only becoming an ethical leader ourselves, but turning our subordinates into the ethical people that we desire them to be. If we realize that setting examples will teach people around us to behave in the same way we do, then by acting ethically, we will teach them to act ethically also. This is easier said than done, however, as doing the right thing is often a hard choice to make. While it can sometimes be as simple as giving the cashier at Starbuck’s the correct change when he rings up your morning coffee incorrectly, it can also be as complex as turning in a partner who has violated several company policies or broken trade and commerce laws. The latter is what will stick with those we aim to set the example for, having the intestinal fortitude to stand up for what is right even if it means reproach from others. This is especially true given the nature of the bystander effect, which states that in a situation no one will act because everyone assumes someone else will. If we cannot fall victim to the bystander effect, then we have created the beginnings of healthy ethical environment in our workplace, whether it be Wall Street, Main Street, USA, or the battlefields of Iraq.
The next key to turning ourselves and our subordinates into ethical people is to understand the thick and thin of ethical behavior. While it is impossible to say that ethical behavior is purely black and white, we must define to ourselves the line as best as we can. This will help us to know our own limits, and provide ourselves with a starting point for further development. If we go into any situation with a rough idea of where to draw the line in the sand, it will become more instinctual that we act in a certain way. On the contrary, if we go into a situation where we do not have a predetermined idea of what we find right or wrong, we will hesitate, and there is a greater chance that we act in a way that we could later regret. This will also be seen by your subordinates and supervisor’s alike. If they witness you act quickly in a manner that is consistent with ethical behavior, then you are also teaching them to be confident in their ethical behavior, as well as showing them what is ethical. Another key to understanding the line between ethical and unethical is to educate our subordinates about the difference. This can be as simple as publishing a code of conduct for the people you work with, or simply discussing your views on ethics with your co-workers. The lesson to learn from all of this is that while there is no simple black and white, there are shades of gray that we must define by ourselves, because each person will have a different view upon which end of the spectrum the gray areas fall into.
On the whole, there is no better way to train the people around you to act ethically than to act ethically yourself. The greatest influence that people can have is to witness the behavior of people around them, especially those in leadership positions. If we strive to become more ethical individuals, then those around us will follow suit. And if we can set an example within our own group, or business, or whatever setting you may be in, then perhaps we can influence an even broader scope of people to become more ethical themselves.
It hasn’t happened yet. I don’t know of any company that has completely outsourced its Ethics and Compliance function, but there are certainly signs indicating that it is becoming a viable option. Now is a good time for the all of us to give it some serious thought, to weigh the pros and cons and to prepare.
Before you dismiss the idea as preposterous, remember originally the job of Ethics Officer was not thought of as a permanent position. Many of the original Ethics Officers in the late 1980s thought of their positions as a temporary stop to be filled on a rotating basis by up and coming managers. It was only later that an emphasis was placed on the benefits of long-term Ethics Officers who would bring continuity and institutional memory to the job. But, especially in difficult economic times, it wouldn’t be surprising for companies to reconsider the value of what amounts to “tenured” positions. Change, flexibility and cost reductions are powerful arguments against the status quo.
In an earlier blog we also discussed the weight that is often given to independence. One could easily imagine the “independence argument” being used in this context: “It is critical for our employees, regulators and all of our stakeholders to trust that we are objectively assessing our own internal business conduct. For this reason, effective immediately, the Board has agreed to hire the firm of Arms, Length and Howe to oversee and manage our Ethics and Compliance function.”
The ground work has already been laid. Not too many years ago the wisdom of outsourcing a helpline was hotly debated. On the one side, there were those who argued that only an in-house helpline could have the expertise to handle calls and probe for details. Outsourcing, they claimed, would be an admission that employees were correct not to trust management. On the other hand, the outsourced helpline was clearly more cost effective, translation and 24/7 services could be provided, professional intake specialists could offset the advantage that might come from being in-house and “knowing the business,” and third parties could guarantee confidentiality and independence to a degree that would be otherwise impossible. Today, the argument is over. While some companies still choose to handle calls in-house, few argue that outsourcing the helpline is a mistake.
It’s also important to note that over the last decade or so, expertise has migrated outside the organization. Today there are plenty of knowledgeable individuals, many with years of hands-on experience running ethics programs, who are consultants. This wasn’t the case in the early nineties.
The outsourcing of the Ethics and Compliance function is already well underway in the area of communications and training. In some companies computer-based training has relegated the Ethics Officer to the role of a coordinator who provides some content but is largely responsible only for designating who is required to take specificed courses, and following up to assure attendance. At the other and of the spectrum, in many best practice companies, communications and training has been successfully handed off to managers. In either case fewer and fewer Ethics Officers are delivering training. How long before someone wonders if the Ethics Officer role in these matters could be handled by Communications, HR or an external vendor?
The increasing popularity of surveys for monitoring and assessing program effectiveness and employee opinions is another area ripe for outsourcing or at least shifting to other corporate function areas. Surely there is someone in Marketing with survey expertise and Human Resources certainly has the infrastructure to handle the administration of surveys – perhaps they already do administer your Ethics and Compliance surveys.
Of course someone might point out that much of what I’ve mentioned here is simply the fruit of integrating the program into the organization. That’s correct, and it is a move in the right direction. But what of the Ethics Office? Has integration along with outsourcing of Helplines and training already radically changed the nature of the Ethics Officer position? And what changes in this same direction are we likely to see over the next year or so?
What would you do if you made a mistake that could cost you big time—and there was a strong chance nobody would ever find out? Turns out pro golfer J.P. Hayes passed this test. He self reported a minor rule infraction that cost him exempt status for an entire year of the PGA tour.
This is a good story for your communications or training efforts with employees. For more information, check out this blog:
]]>A US Department of Justice press release this month trumpeted the $1.34 Billion it has collected in settlements and judgments in the fiscal year ended September 30, 2008. "Now, more than ever, it is crucial that taxpayer dollars aren't lost to fraud," said Gregory G. Katsas, Assistant Attorney General for the Department's Civil Division. "The billion dollars collected this year is only part of the story. By rooting out fraud and vigorously pursuing it, the Department, with the help of concerned citizens who report fraud in hotline calls and in qui tam complaints, undoubtedly saves the country many times that amount in aborted schemes and misconduct."
The government notched its belt by noting cases against Merck ($361M), Cephalon ($258M), Amerigroup ($225M), Kyphon (now Medtronic Spine LLC) ($75M), Staten Island University Hospitals ($74M), Lester E. Cox Medical Centers ($60M), Pratt & Whitney ($50M), PCC Airfoils ($2M), St. Joseph’s Hospital of Atlanta ($26M), Bechtel + PB Americas ($23M US and $40M Mass.), and CVS/Caremark ($21M). Most of these cases originated years earlier, so for those students of the field these are old news.
What is most notable about this press release, however, is the extent to which the DoJ celebrates the role of relators in these cases. Relators are the individuals, usually employees but sometimes contractors or other informed (or semi-informed) parties, who file suit on behalf of the government against those who have fraudulently claimed federal funds.
Assistant Attorney General Katsas paid tribute to Senator Charles Grassley of Iowa and Representative Howard L. Berman of California, sponsors of the 1986 amendments to the False Claims Act. "Without this important legislation strengthening the Act and, in particular, the qui tam provisions which encourage private citizens to uncover government fraud, such recoveries would not have been possible."
The DoJ highlighted the fact that almost 78 percent of this year's recoveries were associated with suits initiated by relators. They celebrated that relators received over $198 million dollars. And in most of the cases cited above, they noted the amount the relator received. (e.g., Amerigroup $56M, Merck $46M).
We don’t quarrel with the ultimate goal of the Department of Justice to minimize fraud against taxpayers. Indeed, that is one of our goals too. However, as a result of our fifteen years of work in the field, we know about the ethics and compliance efforts of some of the companies on the DoJ list. While no individual or company is perfect, some of these programs are quite good. And we wonder whether the companies involved were given the opportunity to put their own houses in order. Did these relators give the internal systems a chance? Or were they so tempted by the multi-million dollar lottery ticket offered by the government that they did not use the internal helpline or other internal systems?
That is a frightening thought for companies trying to do the right thing. Here’s one more: this press release came from the DoJ during an administration where deregulation was the animating philosophy, at least for a long while. What happens next year?
I humbly suggest that it is time to do a thorough examination of your compliance and reputational risks. A pretty small price to pay vs. the alternatives. Please contact me at steve.priest@ethicalleadershipgroup.com if you have any questions about conducting a forward looking risk assessment.