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:

http://sports.yahoo.com/golf/blog/devil_ball_golf/post/J-P-Hayes-is-as-honest-as-we-like-to-think-we-a?urn=golf,123304

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.

Yesterday Senator Ted Stevens of Alaska was found guilty on seven felony counts. He failed to disclose gifts and services of approximately $250,000 largely used to renovate his home.

Like most Americans I hate the fact that senators, congressmen (and women???), governors, state representatives, alderman—politicians in every conceivable role and both parties—take things they shouldn’t. Or at least don’t disclose things they should.

But since the focus of ELG is on organizational ethics and compliance, let’s look at the other half of the equation. What about the people who provided the gifts and services?

The most valuable gifts and services provided to Senator Stevens involved remodeling and furnishing his Alaskan home. The remodeling was largely done by employees of VECO Corporation. According to the charges, this remodeling occurred over six years, and included:

• building a new first floor
• installing a new electrical system
• installing a new roof
• adding a wraparound deck
• installing a rope lighting system
• installing kitchen appliances
• repairing many parts of the home.

This renovation work, as well as other gifts, was approved by the then Chairman of VECO, Bill Allen. Both Mr. Allen and a VP have pleaded guilty to bribing Alaska state legislators but have not yet been sentenced. Their testimony in the Stevens case may help them reduce their sentences, but they almost certainly face time in prison, as does Senator Stevens.

Always hoping for innocent mistakes rather than calculated wrong-doing, I looked up more information on VECO in hopes that Allen and his VP perhaps were naïve and did not know what they were doing was wrong. Unlikely. VECO was a sophisticated global company with over 4,000 employees. They knew the rules, and thought it would be in their best interest to violate them, at least with Alaskan government officials and Senator Stevens.

Could anything have stopped them—or at least ended their bribery earlier? Sometimes bribery is hard to discover. It is usually conducted in secret. Bribers and recipients try not to leave trails.

In this case, however, a number of VECO employees conducted the work on the Senator’s house. It is impossible that they did not know whose home it was. It is improbable that the neighbors’ eyesight failed. It is extraordinarily unlikely that a firm like VECO—whose main business was oil field services—would be doing commercial home renovations.

Yet these renovations started in 2000—and lasted until 2006. Where were the whistleblowers?

This exposes one of the biggest risks that privately held, family-managed companies face. When the wrongdoing is directed or approved by a member of the family that owns the place, where are you going to report an issue? Who is going to make that call?

One would like to think it is different in publicly held companies, but in our focus groups we have heard the same concern. “Why should I make a report when I believe the people at the top already know?”

An active Board of Directors with a visible, independent profile is one key mitigating step. Many privately held companies prefer not to have one, but this is the only internal resort for employees in companies like VECO. These boards, like their publicly traded counterparts, also need to provide an anonymous reporting channel for employee concerns to go directly to them so they cannot be filtered by members of management. This does not have to be a hotline on every board member’s desk. It can be the standard helpline, with an inviolable protocol established with the provider: calls of these (defined) types or about these people go directly to Board member Y.

Would such a system of governance and reporting have saved VECO? Perhaps not. We don’t know whether employees had been trained about the issue and their reporting obligations, and we don’t know anything about the VECO culture. But it certainly might have made a difference, and can in many other organizations.

The cost of the bribery scandal is obviously high for a number of individuals. Including Mr. Allen’s family, who have had to live through this with him, and will suffer his loss when he goes to prison. And including the employees of what used to be VECO. For, as is so often the case, VECO is no more. In 2007, in the wake of the scandal involving Alaskan officials, Mr. Allen’s daughter sold VECO.

Do you think the family got as much post scandal as they would have before? Do you think employees felt as secure afterwards? At least they were acquired by a very reputable company (CH2MHill), but the change had to be painful no matter what.

I’m not crying for Senator Stevens or Bill Allen. But it is too bad that ethics and governance failures cost so many innocent people so much. I’ll revisit that theme as I explore the financial services meltdown over the next few months.

People who wouldn’t dream of stealing a CD from Best Buy have no problem downloading music illegally or making unauthorized copies.

And now a small study conducted by researchers from Rutgers and DePaul finds that people lie when they are interacting with those they don’t know on email. Maybe that’s like finding greed on Wall Street or ego in Hollywood. But the percentage is pretty astounding: 92% lie!

You can find further information in this New York Times article. But essentially, graduate students were given a fictional $89, and told they could divide it with another student. They had to communicate the amount they were dividing with the other student. Those communicating via e-mail lied more frequently and to a greater extent than those using pen and paper.

As cited in the Times: “E-mail communication decreases the amount of trust and cooperation we see in professional group work, and increases the negativity in performance evaluations,” said co-author Terri Kurtzberg of Rutgers. “People seem to feel more justified in acting in self-serving ways when typing as opposed to writing.”
Let’s leave it to the social psychologists to unpack the reasons for this. But what does it mean for our corporate cultures? And what does it mean for many of the main tools of ethics and compliance programs these days: online Codes of Conduct with online certifications; online training with online assessments; and online surveys?

I’m not lying to you—these findings trouble me. Of course, since this is an electronic communication, am I telling the truth?

What are your thoughts?

The financial markets are in chaos. Employees at every level of almost every organization are anxious about their savings, worried that they might never be able to retire, and fearful that they might lose their jobs.

In short, we feel out of control. And unfortunately human beings who feel anxious, fearful, and out of control are prone to do stupid things. No matter how demonized CEOs have become as we rush to apportion blame, they need to step up and communicate to their people in this high stress time.

Click here to visit the Compliance Communicator page of our website, which includes a link to a free special edition of the newsletter with a sample message from the CEO containing the message employees need to hear in these difficult times.

In the darkness, light a candle. Come on CEOs, there is good work to do.

I don’t usually advertise products or services on this blog—even our own great training and video products. But my good friend Jeff Kaplan has alerted me to a must see television program that is sure to be a major topic of conversation in your workplaces—at least with your colleagues.

The segment of “The Office” this Thursday is entitled “Business Ethics.” Dunder Mifflin employees take an ethics quiz and attend ethics training, among other delights.

http://www.hulu.com/watch/36734/the-office-sneak-peek-business-ethics

No, it won’t make any of us in the field look good. But if we can’t laugh at ourselves . . . .

Lynn Turner, former chief accountant at the SEC, believes that effective ethics and compliance programs need to ensure that their whistleblower program has sufficient independence. Mr. Turner’s idea of independence departs from current practice by most major firms. In a September 2008 keynote speech to over 500 ethics and compliance professionals gathered at the annual meeting of the Ethics and Compliance Officer Association, Lynn Turner said flat out that “the whistleblower system cannot report to the General Counsel. It needs to be independent—and report directly to the Audit Committee.”

Our research indicates that about half of the ethics/compliance programs in corporate America report up through the Law Department to the General Counsel. This includes the whistleblower/hotline/helpline component. Yet Mr. Turner said “Employees don’t trust it (whistleblower line) if it goes to the General Counsel.” He continued “If it (whistleblower line) doesn’t report to the Audit Committee, it is worthless.”

Lynn Turner is not the first to make this argument. It was probably made most colorfully by Senator Charles Grassley in 2003 when he was corresponding with the CEO of Tenet Healthcare about an investigation his Senate panel was about to launch. “As general counsel, Ms. Sulzbach zealously defended Tenet against claims of ethical and legal non-compliance, e.g., the April 2001 qui tam suit, while as chief compliance officer, she supposedly ensured compliance by Tenet's officers, directors and employees. It doesn't take a pig farmer from Iowa to smell the stench of conflict in that arrangement.”

It is a curious fact. Five years after Grassley, in the wake of unprecedented scrutiny on conflicts of interest within corporations, half of our top companies leave themselves open to the criticism of people like Charles Grassley and Lynn Turner.

Are you open to this criticism? Do the benefits of having legal oversee ethics and compliance outweigh the risks? If you and senior management have not had this discussion, perhaps now is the time.

If you would like my assistance or that of another experienced professional at ELG to help you assess the pros and cons in structuring your ethics and compliance program, please let me know.

In his keynote address to the Ethics and Compliance Officer Association in September 2008, Lynn Turner constructed his own “Seven Steps” to an effective ethics and compliance program. Lynn is worth listening to because he’s not an ethics and compliance “insider,” nor is he an attorney. In these times of financial turmoil, many in Washington and Wall Street pay attention to what he has to say.

One would think his accounting expertise might lead to seven steps quite different from the hallowed US Sentencing Guidelines elements. Yet most of his seven steps are unsurprising—indeed quite traditional.

1. Leadership matters. Watch what people do, not what they say.
2. The Code of Conduct should be high quality, including compliance, enforcement, and accountability for those who observe wrongdoing to do something about it. It should also be certified annually.
3. Establish accountability by having real enforcement and sufficient punishment for wrongdoers.
4. Train everybody—including the Board of Directors and senior leadership.
5. Ensure the whistleblower program has sufficient independence.
6. Engage the Board of Directors in the program.
7. Make sure the program includes incentives and compensation in its work—it should help employees avoid temptation.

On their face, most of Lynn Turner’s seven steps are non-controversial. They echo the Guidelines elements. One, however, is interpreted in a way that departs from many in the ethics and compliance field. I’ll discuss this step—whistleblower program independence—in a blog later this week.

About Lynn Turner
He was the chief accountant at the SEC, serves on the Standards Advisory Group of the Public Companies Accounting Oversight Board (PCAOB), a member of the FASB Investor Technical Advisory Committee, and on the Treasury Committee on the Auditing Profession. He also serves on the board and audit committee of the Colorado Public Employees Retirement Association.

I’ll cover more about his presentation in an upcoming entry, but the talk of the hallways was Mr. Turner’s recollection of a meeting he attended when he was Chief Accountant for the SEC with then-Chairman of the SEC Arthur Levitt, then-Chairman of the Federal Reserve Alan Greenspan, and a number of other leaders from both institutions. Mr. Turner recounted how at the meeting he criticized inappropriate accounting practices by a number of banks. After Turner’s critique, he recalls Alan Greenspan saying “What’s the matter if the banks fudge their numbers a little bit?”

Given the magnitude of the current crisis in financial services we could hardly believe our ears. Could this really have happened? Mr. Turner seemed to have little affinity for Mr. Greenspan, calling him simply “Greenspan” while everybody else in his stories had a first name. Perhaps Greenspan made the comment ironically, and Turner failed to note or recount this important detail.

If Greenspan actually made this comment seriously, it is a stunning and important piece of the economic history unfolding daily. A tone like that reverberates throughout a culture for a long time. It is a perfect illustration of what not to do as the leader of an organization. Tone at the top is an ethics mantra for a reason. And the worst tone of all is the message that a little bit of fudging the numbers is OK. This is damning if you are the CEO of a small manufacturing firm, and even more so if you are the head of the Fed.

Yet this trust deficit has been present in the system for a while. The sub-prime mortgage problem that ignited the current meltdown well over a year ago itself grew out of a crisis of trust. Consider the sequence of events: mortgage brokers assured sub-prime borrowers that their loans could be easily repaid, rating agencies gave these loans high credit ratings based on limited data, and banks accepted these ratings even though they were counter-intuitive on their face, as high ratings made it more profitable to sell these loans into the broader market. Each party, from the initial borrower to the final purchaser of what are now referred to as “toxic” loans, made the unfortunate mistake of trusting each other and the process.

The entire episode is an excellent example of the importance of trust in the functioning of a market. While a strong economy can withstand small violations of trust, over time the costs of mistrust overwhelm the system. Additionally, trust is precious and fragile, and once broken it is difficult to recover. As a result, our economy may take a while to recover from this current trust crisis. Yet as it does (which it surely will) businesses that can demonstrate real trustworthiness will have a real advantage in the new economy.

The students who read that free will was an illusion cheated (by failing to prevent the answer from appearing) on average 14 out of 20 times, while those who read the other section only cheated an average of 9.5 times. It’s pretty clear that how we feel about our personal responsibility affects our choices. If we have a choice, if our honor and our reputation are in our own hands, we’re much more likely to behave ethically. If we feel as though it’s out of our hands, we simply don’t try as hard to do the right thing.

How do your employees feel about the choices they make at work? Do they feel empowered to make decisions? Do they know that they are personally responsible for making the right choice?

MetLife vs. Glenn
In this case, a corporation that both pays for and administers a benefit plan is found to have a conflict of interest that may weigh against the firm when deciding on the legality of benefits decisions. “The employer’s fiduciary interest may counsel in favor of granting a borderline claim while its immediate financial interest counsels to the contrary,” wrote Justice Breyer explaining the conflict. The conflict may be viewed less negatively if the firm has addressed it by “walling off claims administrators from those interested in firm finances, or imposing management checks that penalize inaccurate decision making irrespective of whom the inaccuracy benefits.”

Meacham v. Knolls Atomic Power Laboratory
The Court decided that the burden of evidence that an employment action was done for reasons other than age rests with the employer not the employee. In this case, 31 people were laid off by a federal laboratory; 30 were over the age of 40. The Court decision means that the laboratory—and other employers—must prove non-age related reasons for decisions such as this.

CBOCS West v. Humphries and Gomez-Perez v. Potter
These two cases are the most important of all for ethics and compliance officers, for they appear to recognize that U.S. civil rights legislation broadly prohibits retaliation against private and public sector employees for raising concerns about employment issues that may be viewed as discriminatory. In CBOCS, a black manager at a Cracker Barrel claimed he was fired for complaining about discriminatory treatment against other black managers. In Gomez-Pearce, an employee at a federal agency claimed he was retaliated against after she complained about age discrimination. Solid Court majorities in both instances recognized the rights of the plaintiffs.

In the face of these decisions, what can organizations do to protect themselves? The answer is simple, and no longer naïve: Do the right thing in the first place.

Ethics/compliance officers can and should be involved in making sure that their employer has reviewed structures for conflicts of interest, and put steps in place to reduce or eliminate them. (MetLife vs. Glenn) Ethics/compliance officers—not just employment attorneys—should be involved in thinking through large scale downsizing or layoffs, so that employees perceive fair criteria as guiding these difficult decisions. (Meacham v. Knolls Atomic Power Laboratory) And ethics/compliance officers not only have a critical role to play in fostering a culture of respect and non-discrimination, but in protecting from retaliation employees who have the courage to raise issues. (CBOCS West v. Humphries and Gomez-Perez v. Potter)

It is not every month that the Supreme Court provides so many ways for ethics and compliance professionals to demonstrate value. This is not a Midsummer Night’s Dream, it is the real thing. Take advantage of it.

Yet there are signs of hope. The New York Times of May 29, 2008 has an article called Hot Ticket in B-School: Bringing Life Values to Corporate Ethics. The Times reports that a lot of MBAs are deeply concerned with bringing their values to work. One Wharton alum who took a class with Professor Stuart Friedman is quoted saying “The course had a profound effect on me. As part of the class, you have to create a leadership vision for yourself, and he asks you to write a brief analysis of yourself 15 years from now. That exercise made me realize that what I was doing at the time — recruiting for hedge funds and venture capital firms — was not having any societal impact other than driving up compensation for people who were already grossly overpaid. I wanted to do something that was still financially rewarding, but had more of a positive impact on society.”

I had my own brush with hope last week. I was interviewed on Fox Business for a program called Fast Track—a career advice segment. (You can view the segment here.) Anna Gilligan and Christina Scotti are the two bright women responsible for this segment. They appear to be in their twenties (it would have been rude to ask)—a generation that many of us a little/lot older criticize for ethical behavior. (“How could they download that music for free?”) They have considerable latitude in choosing content. Yet these intelligent—and presumably ratings savvy—professionals have created a number of segments on ethics issues. “Is it ok to lie?” “Age in the office,” and “What do you do if you see an unethical act?”

After the interview, I asked Anna why. “We find these topics really interesting. We think others do too.”

There is hope for us yet.

But these days I can’t help looking at everything through the eyes of business ethics, and here I think Shakespeare’s insight is fundamentally flawed.

Analogizing medieval Scotland to modern day corporate life is not too difficult. King Duncan is the benevolent CEO. Macbeth is the striving corporate officer who has just received a promotion and is now one rung from the top. Except the CEO has named a new potential successor. And Macbeth’s wife is nudging (ok, manipulating—this is a sexist tale with not so subtle allusions to Adam and Eve) Macbeth to displace the CEO. She taunts him

“Do I fear thy nature; it is too full o’ th’ milk of human kindness to catch the nearest way. Thou wouldst be great, art not without ambition, but without the illness (evil) should attend it. . . . [thou] wouldst not play false.”

Lady Macbeth believes that the way to the top is achieved through ambition fueled by evil and stoked by falseness. And she urges her husband to be a man and murder Duncan in order to become King/CEO.

In one of his many self reflective moments, Macbeth reinforces this theme by accusing himself of having “vaulting ambition, which o’erleaps itself.”

The theme of corporate evil as a result of unfettered ambition has persisted through the ages. Television commentators and congressional inquisitors use this story line to explain most acts of wrong doing, real and perceived.

Perhaps some of the more egregious acts in corporate history vindicate Lady Macbeth’s cynical world view. But more are far less evil; far more banal. Most acts are rationalized as “not too bad,” “what everybody is doing,” “just a little.” Are these bad actors ambitious? Yes. But these are not the acts of individuals devoid of virtue—just devoid of the discipline or courage necessary to do the right thing. And then the “toil and trouble” the three witches of Macbeth portend fall on the individual and the company alike.

We often forget in the middle of the picnics and the sales that this is a day to remember those who honored us all with their lives. This Memorial Day, all of us—especially those of us doing work in business ethics and corporate responsibility—should add a group of individuals to the roster of those we honor.

I am thinking of the men and women who work for private enterprise in support of those who serve our country. They may be involved in wars that many object to, and may even have jobs that many find objectionable, but there are tens of thousands of people serving as cooks, clerks and drivers who do not wear a military uniform, but put themselves in harm’s way for a the opportunity to earn a living and defend our country.

Over 1,000 contractors have died in Iraq alone since the war began.

We honor and remember them, and those in uniform, for their service.