Patricia Harned on Ethics Compliance and Corporate Conflicts

Reporting of suspected wrongdoing in organizations nationally has reached a historic high, while rates of retaliation for reporting of suspected wrongdoing have doubled in the last two years.

Patricia Harned
Ethics & Compliance Initiative

That’s according to the Global Business Ethics Survey (GBES) of the Ethics & Compliance Initiative (ECI).

The survey found that sixty-nine percent of employees said they reported the misconduct they observed – a 19 percent increase and all-time high since the inception of ECI’s research.

When asked if employees had experienced retaliation for reporting, 44 percent of respondents unveiled that they had been retaliated against, compared to 22 percent in 2013.

Historically, ECI has demonstrated that reporting and retaliation rise and fall together –   however, this year retaliation rose significantly higher than reporting.

While the survey found that rates of observed misconduct have declined 15 percent since 2013, close to an historic low, sixteen percent of employees experienced pressure to compromise ethical standards, a 23 percent increase since 2013.

And 84 percent of these employees also observed misconduct.

The survey also found that only one in five employees say their company has a strong ethical culture – “indicating that little progress has been made to implement the most important strategy for mitigating wrongdoing.”

Forty percent of employees believe that their company has a weak or weak leaning ethical culture –  a trend that has not notably changed since 2000.

ECI is funded by major American corporations.

ECI is basically admitting – we are not making any progress over the last twenty years or so.

“It is a sobering statistic,” ECI CEO Patricia Harned told Corporate Crime Reporter in an interview last week. “I wouldn’t be so quick to say that it is fully the responsibility of the ethics and compliance profession. And here’s why. When an organization has a good ethics and compliance program, it has an impact. It’s real purpose is to help people be aware of what the standards are within an organization, to know where they can report wrongdoing, and to have systems in place to actually receive and respond to reports effectively.”

“But culture is the end result of the actions of senior leadership and the actions of immediate supervisors to employees. Generally speaking, you are right. We often look to the ethics and compliance profession to be the champions of culture in a corporation.”

“The questions here are – is my top manager talking about the importance of ethics? Does that person model ethical conduct? Does that person hold people accountable?”

“They are answering the same questions about their supervisors. I would argue that the best of all ethics and compliance programs will be very limited in changing a culture unless senior leaders and managers understand their role in growing cultures.”

Do ethics and compliance officers sit in the C-Suite?

“Often no.”

You say little progress has been made to implement the most important strategy for mitigating wrongdoing.

What is the most important strategy?

“The most important strategy is to have leaders and managers focus on building a strong ethical culture.”

“When you have an organization that has a strong ethical culture, they have about fifty percent less misconduct, increased reporting, much less retaliation than an organization where there is not strong culture.”

“Program and culture are connected. Show me an organization with a strong culture and about 98 percent of them have good ethics programs. But the culture is the commitment of leaders.”

There has to be a lot of tension between ethics and compliance officers and the executive suite. The most important strategy is to get the C-Suite on board. And I guess it is not happening in many organizations. Ethics and compliance officers are dependent on these managers. The managers can fire them if they step out of line.

“There has historically been a tension between the ethics and compliance function and the C-Suite. Even when the ethics and compliance officer is in the C-Suite and on the management team, when matters come up there is always tension. If the officer is making accusations against a manager in the C-Suite, there is real tension there.”

“I’m not so sure it’s a matter of tension as it is a matter of business leaders accepting responsibility for their role in building a culture. I would also say that most business leaders if you ask them will be quick to say — I care about this business having integrity. And absolutely, I’m doing everything I can to build a strong culture. And the reality is, most employees don’t see it. And if they don’t see it regularly, they assume it’s not important.”

“This culture measure is a measure of employees saying – I don’t perceive that my leadership really cares about integrity, or I don’t perceive that my managers care about integrity. That’s not a measure of the manager’s personal commitment. It’s a measure of how much they are really demonstrating it.”

“If there is tension between the ethics officer and the C-Suite, it’s probably about getting the C-Suite to buy in. And I do know that ethics officers who beat that drum regularly and constantly are being turned away. It’s a frustrating thing.”

Your organization is primarily funded by major corporations?

“Yes. It is a representation of organizations across all different kinds of sectors. We do have government agencies that are active with us, but we are not funded by federal funds.”

Who are the major donors to your organization?

“A couple of corporations have been faithful to us. Northrop Grumman Foundation. Boeing has been a faithful funder. KPMG and the Deloitte Foundation. AT&T. The Center for Audit Quality.”

You put out a Blue Ribbon Panel report that identifies principles and practices of high level ethics compliance programs. What was the involvement of the U.S. Chamber of Commerce Institute for Legal Reform?

“They do contribute to us. The reason we created that Blue Ribbon panel is that the Chamber was interested in how organizations could receive credit if they are in an enforcement situation. They were frequently asked – how do you define a gold standard program? They asked us if we would be interested in providing an answer to that. Our answer was – ECI staff should not provide the answer to that question.”

“We are sitting in Arlington. People out in the field might have different answers to that. The Chamber provided us some funding. We have to have funding to take on projects like this. We agreed that when the Chamber did that, that anything we furnished was wholly independent of whatever their views would be. We convened this blue ribbon panel. We made sure we represented the enforcement community, practitioners from organizations of all sizes and sectors, some academics.”

“And we put the question to them – if an organization really does it right and has the program that goes beyond the minimum standard, what does that look like? We didn’t actually care about whether or not that gives anybody credit in an enforcement situation. The reason we did it was because in our industry, there is so much conversation about an effective program – meaning compliance with a minimum standard. We found it would be helpful to put together a program for organizations that wanted to raise the bar.”

“To the extent the Chamber was involved, it was to provide funding for a project that we felt would benefit the industry and would help corporations and nonprofits and government agencies to have better programs.”

The criticism came from Taxpayers Against Fraud, a foundation set up by a group of whistleblower attorneys.

The Chamber’s political agenda is in part to limit the rights of whistleblowers. There were no whistleblowers on this blue ribbon panel. No whistleblower lawyers. And it was heavily tilted toward companies that face these kinds of fraud charges. The interests of the Chamber are diametrically opposed to the interests of whistleblowers.

Why no representation of whistleblowers?

“We did have whistleblowers on the panel. They just didn’t want to be identified as such. We allowed the panelists to represent themselves however they wanted to represent themselves. There were whistleblowers on the panel, but we didn’t feel as if we had a public obligation to identify them as such if they chose not to be.”

“That said, we didn’t have whistleblower attorneys. We did invite some whistleblower attorneys who didn’t opt to be a part of it.”

Can you say which whistleblower attorneys you asked to attend?

“I don’t think that is appropriate,” Harned said.

“Once we drafted this report, we put it out for public comment. We actually sent it specifically to people most likely to be opposed to or critical of it. Taxpayers Against Fraud was among them. There was healthy criticism that came back that we took into account before we finalized that report.”

“There was a hearing on the Hill where Larry Thompson represented our group and spoke to the Blue Ribbon principles. And actually the person who was vocally critical of the report, Patrick Burns, he also testified. And he thought this report was a very valuable contribution. I took that as a nice compliment for the quality of the work. He was opposed to it early on.”

At the time, Patrick Burns wrote this about the report – The bottom line is that this report lacks substance. There are no examples of successful compliance programs, nor are there examples of failed compliance programs.  One wonders how anyone can identify an exemplary ethics and compliance program when your team seems to have never found one? And how, in a world that is run-over with failed compliance programs, is there no analysis of where any failed company went wrong?  Surely an autopsy on common failure is called for, even if a clear photo of success remains elusive?

“We very specifically did not want to write case studies,” Harned said. “This was meant to be a framework that is a goal and mindset for an organization. Is there one company out there that demonstrates all of the practices and objectives we listed in this report? I don’t think there is. As long as there are people involved in organizations there will be challenges and misconduct. But the goal was to provide a framework, a set of objectives that companies could adopt so that they could improve their programs.”

“To the criticism that there is not a lot of substance in it, I would disagree. It is a very detailed report. A number of organizations have started to work together to develop a maturity model that speaks more specifically to stages of an organization and their growth toward these principles.”

Burns also says this:  More accurately, it is a panel almost entirely dominated by people who are being paid to defend and apologize for companies facing fraud charges.  This Blue Ribbon panel includes no whistleblowers and no False Claims Act-, SEC-, IRS-, FCPA-, or CFTA-whistleblower lawyers. None of the whistleblowers fired by companies whose representatives are on this Blue Ribbon Panel were interviewed, nor is there an analysis or appendix reviewing the amounts settled or litigated by panel-member companies.  This was pretty low-hanging fruit, as most of your panelist companies have case histories of wrongdoing of one type or another, including the company associated with one of its principal authors. Perhaps you can add a short description of these fraud stories, and an analysis of where the company went wrong, as an appendix?

This report was commissioned, and paid for, by the U.S. Chamber Institute for Legal Reform, an arm of the U.S. Chamber of Commerce, whose major donors are among the largest repeat fraudsters in the history of the United States, Burns said.

In short, this is a report, commissioned by foxes, on how to guard the chicken house. It would be a very interesting report if it discussed the use of motion sensors, shotguns, and leg-hold traps, but instead we hear a great deal about risk mitigation and nothing at all about increasing the penalties for wrongdoers, or increasing the rewards for integrity.

Why not specifically address some of the specific wrongdoing engaged in by these major companies, including by your sponsors?

“It’s an assumption that we don’t do that,” Harned said.

Where in any of your publications have you focused on a specific act of wrongdoing by one of your donor companies?

“We don’t do that in our publications. The purpose of our publications is to speak to research that we fielded and how it can be applied to any organization. The fundamental premise of our organization is that we believe that any organization, if they put into place some of the things our research has demonstrated, they will experience transformation in the organization.”

“If we start to criticize our donors – who wants to be a part of a best practice community if the risk is you are going to be the topic of the next report that ECI issues?”

“Instead, the way we address those things is to talk about them in meetings we host in our conferences. We invite companies once they have gotten through some of the turmoil, to be spokespeople to the membership about what they learned, what will they do differently, what would they not repeat again?”

“It’s always difficult to receive funds from an organization and then try to be independent. If we were to become critical of the organizations, it would have a counterproductive effect. Our goal is to help them improve. We are public about who is funding us. I would love for us to have a model where we are not dependent on any company to provide us funding. But in all of my twenty years in being in this organization, we have not been able to make that happen. Even if we were able to get federal funding and get away from corporate funding, I would suspect that would be problematic for us as well.”

“It is a difficult thing to fund a non profit to do good in the world and to have to navigate those relationships.”

[For the complete q/a format Interview with Patricia Harned, see 32 Corporate Crime Reporter 14(11), April 2, 2018, print edition only.]

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