Ethisphere Executive Director Alex Brigham (center) with William Ford (left) and Alan Mulally (right)

Ethisphere Executive Director Alex Brigham Presents Award to Ford Leadership Team, Citing Ford’s Innovation, Transparency, Communication and Citizenship as Key Factors in “Outpacing Competitors”

New York – June 16, 2010 – In the wake of a global economic crisis and increasing scrutiny on the automotive industry from the government and public, executives from the Ethisphere Institute, a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics and compliance, presented the executive leadership team of Ford Motor Company with their trophy for being one of the World’s Most Ethical Companies for 2010. Ford, the only automaker to receive the honor in 2010, is among 100 global companies chosen for the designation from a field of thousands of companies in more than 100 countries and 36 industries.

Alan Mulally, Ford President and CEO, and William Clay Ford, Jr., Ford Executive Chairman, were on hand to accept the award, and were joined by executives from Ford’s compliance, sustainability and communications departments.

“Ford ‘gets it.’ Ford scored extremely well on virtually all of our measurement criteria,” Ethisphere Executive Director Alex Brigham cited in prepared remarks during the presentation of the award. “As we all know…our country and world has been suffering from a global economic shock. The auto industry, without question, has been near the epicenter of this crisis. However…we see that Ford is not shirking its ethical commitments and emphases on being a responsible corporate citizen. Instead, Ford remains morally strong and thoroughly communicates that to employees and the public.”

“We were honored to be recognized [as one of the World's Most Ethical Companies] and remain humbled to serve such a large and far-reaching organization,” said David Leitch, Group Vice President and General Counsel for Ford, who was also in attendance. “We remain firmly committed to doing all we can to do business in an ethical, compliant, and sustainable manner. [This] recognition of our efforts…will inspire greater success.”

While citing the importance of tone from the top and constant communication with employees in establishing and maintaining a culture of ethics, Mr. Mulally lead a tour of a conference room in which he hosts weekly meetings with division executives with a goal of promoting the solicitation of honest and valuable feedback from employees throughout the organization. The group also toured Ford’s famous Rouge facility, among others, on a Ford Hydrogen-powered V-10 E-450 shuttle bus.

For more information on the 2010 World’s Most Ethical Companies Ranking or to subscribe to Ethisphere Magazine, please visit www.ethisphere.com.

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About Ethisphere Institute
The research-based Ethisphere Institute is a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability. The Institute’s associated membership groups, the Ethisphere Council and Business Ethics Leadership Alliance, are forums for business ethics that includes over 200 leading corporations, universities and institutions. These groups are dedicated to the development and advancement of members through increased efficiency, innovation, tools, mentoring, advice, and unique career opportunities. Ethisphere Magazine, which publishes the globally recognized World’s Most Ethical Companies Ranking™, is the quarterly publication of the Institute. Ethisphere provides the only third-party verifications of compliance programs and ethical cultures, Ethics Inside Certification® and Compliance Leader Verification. More information on the Ethisphere Institute, including ranking projects and membership, can be found at http://www.ethisphere.com.

Media Contact
Erin Fullerton
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So where should they be focusing for the next twelve to eighteen months?

Four areas:

1. creating monitoring activities that determine whether promotional activities are staying on course;
2. developing appropriate and effective compliance activities in the clinical space;
3. renewing and revamping efforts around the Foreign Corrupt Practices Act; and
4. staying involved in areas where new transactions or strategies are being developed.

Of course, none of these topics are new, but it may be time for a fresh, renewed, and innovative compliance approach.

First, pharmaceutical companies have invested a significant amount of time, money, and effort in ensuring promotional activities are beyond reproach. These activities have created terrific focus on “getting it right.” Compliance organizations should now be focusing on monitoring the results of these activities, not the activities themselves. A risk-based approach, using a combination of data analysis and observation should be utilized. The traditional data should be used, such as the potential for off label. Traditional observations should be made through such action as field ride alongs. However, as payments to physicians become increasingly public, some area of the organization should be incorporating this data into its analyses on a proactive and routine basis. They should be looking for interesting and/or unintended correlations. This information should be incorporated into every risk analysis.

Second, many government officials have repeatedly articulated increasing their focus on clinical activities. This is a data rich and topic rich area, and in some respects the government has access to more and better data. Areas for compliance focus might include the collection and analysis of clinical trial data, the collection and analysis of adverse events, and the publication review process. These processes are large, complex, and in some cases, very distributed across the organization. For example, prior to publication, an article may be reviewed and modified numerous times and by many parts of an organization. There should be a control to ensure that the original meaning, data, and conclusions cannot get unintentionally modified in the process. Similar examples could be made about other clinical processes.

While compliance organizations have long been focused on FCPA, or more generally, anti-bribery and anti-corruption compliance activities, it is time for a renewed and enhanced review. In other industries, the government has recently used sophisticated investigational methods; in effect, they have set up stings. This is not a new approach, and has been used in the pharmaceutical industry in the past. Compliance organizations should be ensuring that every employee is very clear on the company’s position on bribery and corruption. Every employee should clearly understand where the bright lines are, and just as importantly, how to behave in the grey areas. To accomplish this, compliance should renew and refresh training activities in this area. Case-based training is particularly effective and can create productive dialog about the grey areas. Additionally, compliance leaders should be considering how they can monitor or test to ensure employees are behaving consistent with the law and the company’s values. This is absolutely critical in a time of pressure on results and/or organizational disruption.

Finally, compliance leaders should constantly keep their fingers on the pulse of the organizational dynamics within their companies. Where are new transactions being developed? Are controls being developed to keep pace with these new transactions? Is compliance being integrated into these processes as they are being developed? Where is the greatest amount of pressure on results? Are leaders sending balanced messages? Is there a future gap in earnings? What are the strategies for filling the gaps? Is there new leadership from outside the industry in an area? Someone who might not fully understand industry regulation? Are there new compensation structures? What might be any unintended consequences of those structures? Is there organizational disruption? What type of training/retraining might be valuable? Could organization disruption create a short-term mentality? Could this lead to undesirable behaviors? Would the established monitoring techniques detect these behaviors?

The industry has invested significantly in compliance efforts over the past ten years, and compliance professionals have matured into valuable contributors and business partners. Partners that help the business think through important strategic questions, integrate solid controls into processes, and create monitoring systems that prevent or detect problems. There is so much terrific work that has been accomplished; however, there is always room for improvement and innovation. Now more than ever, we need to reinforce, refresh and innovate those activities.

Premier, Inc., one of the leading healthcare GPOs, with more than 2,300 U.S. hospitals and 64,000-plus other healthcare sites, was created by not-for-profit hospitals, in part, to protect scarce resources for patient care by helping these not-for-profit hospitals purchase their supplies collaboratively and facilitating their ability to conduct group purchasing.

In 2002, in response to on-going interest in the GPO industry, Premier’s Board of Directors adopted a comprehensive set of ethics principles, policies and practices which serves as the basis for the development of Premier’s Group Purchasing Code of Conduct and sets a new high bar in ethical conduct for the GPO industry. As an organization, Premier has “put a stake in the ground” relative to how it plans to guide and conduct its business through the use of its Code of Conduct. The Code of Conduct sets out Premier’s policies and procedures to promote contracting and supply chain arrangements that achieve both a high quality of medical care and competitive pricing.

Premier’s Code is designed to protect patients first by assuring a fair, open purchasing process and protecting the ability of not-for-profit hospitals to safely reduce the cost of care through collaborative product evaluation and purchasing. Through its Code of Conduct, Premier is focused on its commitment to help its customer hospitals and health systems improve the quality of medical care while at the same time lowering its cost. In all that it does, Premier acts ethically, accountably and fairly with respect to all participants in the healthcare marketplace. In practice, the ethical conduct of an organization is a reflection of the collective conduct of all its employees, officers, and customers of its board of directors.

Premier’s Code includes detailed provisions in the areas that are on-going compliance issues for all organizations including conflicts of interest; contracting policies; supplier diversity; breakthrough technology; and communication and reporting.

Conflicts of interest, real or perceived, are a concern for any industry. The GPO industry pays special attention to conflict of interest as a way to ensure that contracting processes are fair and unbiased. GPOs should have a comprehensive annual conflict of interest process for all employees, officers, committee members and advisors.

How a GPO contracts with its suppliers goes a long way toward ensuring that suppliers trust the process and believe that contracts are awarded fairly. A GPO’s contracting process should promote healthy competition while encouraging new and innovative suppliers and products to enter the market. Contracts in a GPOs portfolio should be evaluated by customer peers including directors, clinicians, and physicians. For example, at Premier there are 20 different standing committees as well as several product or service-specific task forces. Each group uses an established methodology to objectively review potential contracted supplier offerings. In support of these committees, Premier has developed a unique product evaluation program that establishes consistent standards for contracted suppliers and emphasizes: quality, regulatory compliance, safety and environmental policies, delivery capacity and performance, electronic data interchange (EDI) and e-commerce capability, research and development, customer service, as well as technology and software development. In addition, the contracting process is strengthened by key initiatives that are designed to enhance customers’ access to high quality, effective products.

GPOs should establish diversity programs to encourage customers to support minority-, women-, and veteran-owned suppliers and small businesses. Supplier diversity is an integral part of the sourcing process and an important part of every contracting decision. Premier has tried to provide industry leadership in this area by helping minority, women, veteran and small businesses compete in the healthcare market while supporting customers’ efforts to encourage supplier diversity in all its forms. Diverse suppliers create jobs and enhance economic opportunities in local communities. For healthcare providers, access to diversity suppliers expands choice and offers innovative service options while strengthening the availability of quality products. Supporting minority, women and veteran-owned businesses is often cited as a tangible customer goal that demonstrates their support of the local community. .

Since its inception in 1999, the Premier Technology Breakthroughs Program has been committed to creating a fair, timely, confidential and unbiased sourcing process. Over the years, the program has helped facilitate the introduction of dozens of innovative products. Each Premier group purchasing agreement contains a technology breakthroughs clause, allowing the timely review of truly innovative products. Products that meet the program’s stringent requirements may be considered for a new agreement outside the standard contracting cycle.

Ethics and compliance programs for GPOs should mirror certain now well established processes for healthcare efforts generally. For example, GPO chief ethics and compliance officers should have ready access to the Board and its audit committee and should give periodic reports regarding the implementation of the ethics and compliance program. In addition, Premier also audits its adherence to its Code of Conduct on an ongoing basis through third-party reports to the Board Audit Committee. Included in the reports are recommendations for improving adherence to the code. Additionally, the Legal department monitors compliance with applicable federal laws.

Like any industry, GPOs must continue to adhere to strict standards and codes of conduct. Having a comprehensive ethical and compliance approach creates the necessary trust and transparency that ensures the best outcomes for patients.

1 Taken from the annual HGPII annual report at www.healthcaregpoii.com

At Medtronic we have been talking a lot lately about that fundamental trust, about whether it has eroded and if so why, what it means for us as a company and for our industry, and how we can help foster positive change.

As I reflected on various compliance challenges when asked to author this piece, several conventional challenges come to mind: how to use risk assessment to shape an ethics and compliance program to really address a company’s greatest risks, how to build processes and systems to meet and anticipate rapidly changing state and federal reporting requirements, how to structure an effective international organization, how to determine what standards to follow in countries where law and industry standards are undeveloped.

Reflecting on the issue of how we can sustain and rebuild public trust in industry, though, led me down a different path, to focus on a compliance challenge that is much more basic: how to manage collaboration with physicians and other healthcare professionals in a way that will address conflict of interest concerns while allowing the type of physician-industry collaboration that is so necessary to preserve innovation and to bring life-saving and life-enhancing products to patients who need them.

Educating the broader community about the unique role that physicians play in developing medical devices is a priority for us. Device development and commercialization relies heavily on a close collaboration with physicians.

One of the most important challenges faced by the device industry right now is preserving legitimate collaboration with physicians. The importance of this collaboration is well recognized. “Substantive, appropriate, and well-managed interactions between industry and academic medicine are vital to public health. For example, the medical device industry depends on physicians and biomedical scientists to help define needs, inform product design, and test and improve devices. Both the interests and responsibilities of each party require that the relationship be maintained in a way that is principled and upholds the public trust.”1 Without close industry physician partnership, many medical marvels that society takes for granted–the pacemaker, the implantable defibrillator and the mechanical heart valve, to name but a few–may not have been developed.

We at Medtronic characterize this innovation model as “bedside to bench to bedside.” This model both starts and ends with the physician, in an ongoing and iterative cycle that fuels rapid and essential product and procedure innovation. In this model, a physician is often the inventor who sees the “flash of light” of a new idea during an interaction with a patient. The physician provides vital clinical insight regarding the suitability of new technology to actual patients. The physician suggests improvements to existing products and to products under development. The physician devises surgical techniques necessary for safe device implantation, conducts clinical trials to support regulatory submissions, assesses long-term performance, and, often greatly under-appreciated, they teach their colleagues how to correctly utilize technological innovations for the benefit of indicated patients.2

Of course, collaboration between doctors and industry must be carefully managed, as it presents the potential for competing interests, both real and perceived. These perceived conflicts can negatively impact patient and stakeholder trust in clinicians, products, companies – and the entire industry. At Medtronic, our goal is to minimize this potential for conflict so patients can trust that treatment decisions are motivated by what is best for their health. We do this by fostering a culture of ethics and transparency, and continuously reviewing our practices and evolving them as necessary to maximize trust and preserve innovation. Historically, Medtronic, like other device companies, relied on the adherence to industry codes as the way to demonstrate the appropriateness of industry physician relationships. More recently, Medtronic has focused on the importance of transparency. Despite these efforts, however, skepticism about physician-industry relationships has increased and public trust has eroded.

As I mentioned at the beginning of this piece, Medtronic has spent considerable time recently strategizing about how to approach this challenge. Specifically, we have revisited our basic principles to ensure that we are clear internally and externally about what is important and why. We have reviewed our internal standards and controls, restating some and focusing on how others might be bolstered to drive greater confidence in those relationships. Finally, we have committed to a renewed public conversation in this area.

There are two fundamental principles that are designed to preserve physician collaboration for the benefit of patients while minimizing actual or perceived conflicts of interest. First is a focus on the relationship between a patient and his or her physician, and to always protect the integrity of that relationship. Second is a commitment to transparency around physician-industry collaboration, including transparency around policies and around payments, coupled with a commitment to appropriate disclosure of physician relationships. We want these principles to become part of the public conversation, and believe that a focus on these principles will help rebuild public trust around physician-industry collaboration.

While principles are the first step toward the type of culture change that will ultimately impact public opinion and increase trust, principles must be coupled with action steps. At Medtronic, we are in the midst of reassessing our already robust standards around physician collaboration to make sure that our practices meet the current challenges as effectively as possible. We have renewed and restated our commitment to several key approaches to physician industry collaboration, focusing on the following:

Collaborate when needed: We engage physician partners only for specific projects that match an identified business need in the areas of research and development/product development, clinical research, Advisory Services, and training and education.

Compensate fairly: We are committed to fair and appropriate compensation of physicians. We all recognize that what physicians provide during the collaborative process is unique. They make skilled contributions that can only come as a result of their hands-on practice of medicine. There should not be any controversy around the fact that this type of genuine contribution deserves fair compensation.

Be transparent in policies and payments: To provide patients and physicians with adequate information to make informed decisions, to maintain trust, and to minimize actual and perceived conflicts, we are committed to transparent and appropriate disclosure of our policies and processes with respect to physician relationships, and also to transparency and appropriate disclosure regarding payments to physicians.

Continuously improve business practices: The continuous improvement of ethical business practices regarding physician collaboration is as important to our Corporate Mission and Values as all other business-critical functions and product innovations.

Facilitate industry dialogue on best practices: Effectively managing conflicts of interest in healthcare demands a collective dialogue among all stakeholders, aimed at further evolving best practices to preserve collaboration.

In conclusion, Medtronic hopes to raise the level of conversation and to work together with all stakeholders to agree on how to manage collaboration with physicians and other healthcare professionals in a way that will address conflict of interest concerns while allowing the type of physician-industry collaboration that is so necessary to preserve innovation and to bring life-saving and life-enhancing products to patients who need them. Education and conversation in this area can only serve to positively impact overall public trust in the healthcare arena

1 Association of American Medical Colleges. Industry Funding of Medical Education: Report of an AAMC Task Force. Washington D.C.: AAMC; June 2008. Available at: https://services.aamc.org/Publications/index.cfm?fuseaction=Product.displayForm&prd_id=232&prv_id=281 Accessed February 12, 2010.

2 The device industry relies heavily on practicing physicians to train other physicians on the safe and effective use of our products. We have strict standards and policies around this training to ensure it is balanced and ‘on label’. Absent this training, many patients may not have the access to these therapies or may be provided these therapies by under-trained and/or inexperienced physicians. It is totally in patients’, physicians’ and industries’ best interests to ensure these forms of legitimate collaboration is preserved.

On top of the cost and quality issues that are at the core of what hospitals do, some estimate that the two principal government healthcare programs – Medicare and Medicaid – are governed by more than 200,000 pages of complex, confusing and sometimes counterintuitive laws, regulations, standards and instructions. This is by far the most comprehensive and complex regulatory scheme in the United States. The majority of this regulation is focused on hospitals. On top of it all, hospitals are subject to most of the myriad of other federal, state and local laws that apply to business organizations generally, such as antitrust, employment, environmental, tax and wage & hour laws to name a few. While most of the laws and regulations are well intended, there is no question that regulatory burdens play a significant role in escalating healthcare costs.

So what are the primary compliance risks faced by hospitals? My experience tells me these risks fall into four broad categories: patient care (quality), cost (or expense management), human capital and regulatory compliance. While we will briefly discuss all of these items, the principal focus will be on regulatory compliance matters.

The most significant hurdle facing hospitals is clearly the quality issue. With preventable infections and injuries killing more Americans than HIV, breast cancer and traffic accidents combined, hospitals – and the many independent physicians who order and direct the care in the hospitals – must be focused on improving quality. In addition to the human toll, the failure to improve quality will impact the hospital’s revenue stream as more and more insurance companies and the government move to pay-for-performance standards.

The second major hurdle for hospitals is the cost challenge. Hospitals must find ways to reduce the cost of care, but previous efforts have not been effective in significantly changing the cost curve. Achieving needed cost savings will require new ways of thinking, the application of new approaches to old problems, and relaxation of certain federal and state laws that currently tell providers how they must operate instead of setting outcomes standards. Unfortunately, when people who have never delivered healthcare tell providers how they must operate (nurse staffing ratios, supervision requirements, etc) rather than prescribing expected outcomes, they almost always add cost and constrain the ability of providers to achieve meaningful cost savings. Moreover, pressures to control costs (ensure a profit or sustainable margin for a non-profit) frequently lead to bad decisions.

A third issue for hospitals is burgeoning shortage of health care professionals that will be needed to care for the increasing numbers of elderly patients. Barring some cataclysmic change, the combination of an aging population and fewer doctors, nurses and other providers is going to have a significant impact on the delivery of healthcare. Competition for doctors and nurses will increase and the impact of this demand for professionals is likely to mean that those in rural and poorer areas will lose out.

The final major challenge for healthcare providers is dealing with the plethora of complicated laws and regulations. While understanding the rules poses a challenge, the bigger challenges are the constant changes to the rules and ensuring that employees and physicians follow the rules.

Non-compliance is most frequently the result of the complexity of the rules. For example, one of the industry’s major challenges is the complicated coding and billing requirements. These rules run tens of thousands of pages and are changed so often that it is almost impossible to keep up. CHW has tracked changes for years. For the Medicare program alone, those changes (as reflected in program memorandum or transmittals) have averaged close to 2 per day, every day of the year. This does not count those changes that occur in the coding rules or the fact that moving from ICD-9CM to ICD-10CM over the next 3 years will move us from roughly 30,000 to more than 200,000 codes.

Another significant challenge is physician relationships. Relationships between hospitals and physicians are governed by complicated laws at the state level as well as the even more complicated Stark, anti-kickback and tax laws at the federal level. In addition to the complexity, these laws are frequently counterintuitive as well. For example, senior citizen discounts are ubiquitous in this country, and I have never heard a moral objection to such discounts. However, if these discounts are routinely offered by a successful physician to her elderly Medicare patients, she is probably violating a law that carries criminal penalties. Similarly, a physician who agrees to treat a patient visit as an “office visit” rather than a “routine physical exam” so that his poor patient does not need to pay as much out of her own pocket is guilty of submitting a false claim, a violation that could carry substantial civil or criminal penalties. Another example: who would expect that the fact a hospital uses a local catering company owned by the spouse of a physician’s granddaughter would trigger the application of rules that would prevent the hospital from billing for services ordered by the physician? While clearly well intended, these laws add a great deal of cost to the healthcare delivery system.

Finally, we can never ignore the fact that a major cause of non-compliance is simply bad (sloppy or, less frequently, intentional) behavior by employees. Boards, management and ethics & compliance officers need to get past the notion that they only have good employees. The data suggests that many employees, if given the opportunity and the motive, will do the wrong thing. Three-quarters of college students admit to cheating. Between half and two-thirds of graduate students cheat or believe that cheating is necessary to be successful. Half of resumes contain materially false information – and we could go on and on. Incredibly, I still hear “I would never have suspected Bernie” when it turns out Bernie stole from us. If we haven’t learned by now that the only people who can rip us off are those we trust, we probably are not management material. Succumbing to the temptation to cheat or steal is more likely when you have management that is arbitrary or believes the rules only apply to others, when we have significant weaknesses in our control processes, when we apply unreasonable pressure to meet targets or create targets that also create an incentive to cheat, when we fail to align incentives, or when we fail to recognize that problems outside of work (mortgage problems, spouse job loss, high credit card debt, compulsive gambling) can also cause bad behavior.

An organization’s effective corporate compliance program, and its robust relationship with specialty compliance counsel, are essential to operating effectively while decreasing compliance and enforcement risks. Indeed, this is true of all heavily regulated industries, whether health care, manufacturing or environmental services. Ideally, this attorney-client relationship will be proactive as an organization assesses (or reassesses) the effectiveness of its corporate compliance and ethics program, as opposed to reactive where the attorney is called in only after problems have been identified. Developing a strong relationship with counsel not only can help minimize the likelihood of problems from the outset, but will be invaluable if/when problems arise.

As specialty health care compliance counsel for numerous health systems and hospitals across the country, we have identified four areas common to our successful client partnerships.

Shared commitment to compliance and ethics. All organizations and attorneys are not created equal. Those organizations that see compliance as an obstacle to maximizing business opportunities often find themselves at a serious disadvantage when problems arise, or worse yet, when problems are brought to their attention via the government or a whistleblower. Embracing a culture of compliance and ethics—beginning with a “top down” leadership message—infuses employees with the freedom to exercise judgment and helps raise issues before they grow into enormous and costly business distractions. Partnering with counsel who values ethical approaches to business problems means a critical alignment of thinking that will serve the organization’s best interests.

Understanding of the industry. This requires not only an understanding of the laws at issue, but also how those laws are interpreted and applied throughout an industry. In essence, there is a difference between providing straight legal advice that sets forth the minimum that the law requires, and providing a more thoughtful response that not only sets forth a statement of the law, but assists a client in benchmarking its practices or reaching a practical solution that it can actually implement. This understanding comes not only from practicing in an area for years, but from being a leader in industry initiatives that influence government policy and from extensive networking with clients and colleagues. Often times the “right answer” is not in a regulation or preamble. Rather, it is in a widely-held interpretation of a regulation that may be judged only by those who know the industry well enough to know if this interpretation is supportable or not. In addition, those who are plugged into a sector see enforcement initiatives make their way across the industry, and they may use this insight to forewarn clients to evaluate certain practices and correct issues before being called to task by those in an enforcement capacity.

Understanding the client’s business goals and assessing the roads to reach them. The best way to understand the business goal is to understand the client and how its people think. This may only be achieved by an investment from both the client and counsel. Our most productive relationships come from investing time, including on-site meetings to visit with employees face-to-face, to hear their priorities and ideas, and to be a visible member of a team. Such meetings take time away from valuable business activities so clients need to feel as if this is time well spent, and not a veiled marketing ploy. Such meetings, whether in person or via phone/video conference, also foster personal relationships between the client’s internal team and external counsel. There is no substitute for learning the players within an organization. Once trust is established, the client’s team will not hesitate to turn to counsel for both legal and business advice, and it is then that counsel becomes a member of the team who is well-positioned to provide the greatest value to the client.

Often times the counsel’s highest and best use is not in answering an inquiry about whether a particular activity is appropriate or not under the law. There are, remarkably, instances in which legal answers are quite apparent. No, often times the key is in choosing a strategy to effectuate a particular goal given the known underlying legal framework. Will an organization be plagued by the road not taken, or will it forge ahead down a road fraught with pitfalls? Experienced counsel must be knowledgeable enough to identify the avenues that are available to reach a particular goal, the likely consequences of choosing one over another, and handicapping the likelihood of success depending on the avenue chosen.

Practical solutions that place the organization’s interests first. When issues do arise, and they will, counsel should identify practical solutions that do not necessarily involve major billings for the outside counsel’s law firm. Not every potential whistleblower complaint should be met with a recommendation for a full-scale internal investigation. White collar litigation teams need not be brought in at the first sign of trouble. Indeed, full blown investigations and teams of outside attorneys have their place in quantifying and containing some issues. But, this is not typically the starting point for experienced counsel who should assess issues and recommend corrective actions with the least amount of business interruption possible.

One area where this tension is often found is in the assessment (or reassessment) of compliance and ethics programs. Although most organizations in heavily regulated industries have such programs, these are not, nor should they be, stagnant. As such, these programs are continually measured and updated against regulatory changes, agency policy (or interprepations of existing policy), government enforcement initiatives, and, of course, changes in a client’s business. When issues are uncovered during this process, counsel should not view this as a full-time employment opportunity. Rather, specialized counsel should be able to identify the significance of the changed regulatory landscape and assess whether only prospective corrective actions need be implemented and the affect, if any, on historical practices. Although such go-forward approaches involve less legal wrangling and more operational counseling, which likely is less lucrative for the law firm, a proactive fix, where supportable, is infinitely preferable to an organization.

Specialized counsel who has undertaken efforts to understand your business and key business goals should be able to take that specialized legal knowledge and industry contacts, and translate that into practical solutions.

Ms. Lutz is a partner at Sonnenschein Nath & Rosenthal LLP, in Washington, D.C., specializing in health care compliance counseling and civil fraud defense.

All but a very small handful of countries have been slow to expose and prosecute bribery. Of the countries that prosecute domestic bribery, the prosecutions are often directed at the former government by its successor or at political opponents within the current government. To tell governments that they should work harder to root out corruption when elected officials are an essential party to and beneficiary of these transactions is to deliver an unpopular message. To expose the companies that have used bribery as a cynical business strategy is not more popular. “Fourth estate” investigation of corruption, then, pits journalists against the most powerful and entrenched interests in the country. Few themes do this more starkly. Corruption is an abuse of power and the ability to silence with impunity those who would expose it is an unfortunate license of power.

A simple search of a few key sites dedicated to the protection of journalists and freedom of the press resulted in hundreds of stories about journalists murdered while investigating corruption. We cannot say murdered because they were investigating corruption, because most of the deaths were never investigated. The cases which were investigated resulted most commonly in conclusions that the reporters had died accidental deaths or were the victims of crime unrelated to their work. Bear in mind that some of these journalists were tortured, decapitated, sprayed with acid, killed by explosive devices in their briefcases or cars, or shot in their homes with their household effects left undisturbed. Some were left with warning notes on their bodies.

Why don’t we hear more about these assassinations? Perhaps because the journalists work almost exclusively on domestic stories, so they are often unknown outside their home countries. Perhaps because they operated in settings of entrenched fear and their murders generate a second wave of terror amongst their colleagues.

Before we turn back to longstanding debates about the roots of bribery, whether those who pay or those who demand are more culpable and who the real victims of corruption are, we should acknowledge the contribution of the investigative journalists who bring these stories to the public’s attention, who ferret out the facts, insist on the narrative and verify the details – or, in too many cases, die trying.

It is therefore crucial to monitor what companies have done, and are doing, to measure and reduce their carbon usage. In recent years, in order to facilitate this, several instruments have been developed to establish a baseline, develop greenhouse gas (GHG) reduction targets, and to measure the emissions and potential for reduction. That GHG accounting must be performed in a transparent way is evident, meaning that information needs to be shared with all stakeholders, including national parties to the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and any agreement reached beyond Copenhagen.

It is well known that the Global Reporting Initiative, provider of the world’s most widely-used sustainability reporting framework, includes a core set of GHG accounting indicators amongst its range of wider environmental, social and governance (ESG) disclosure principles and indicators. Globally, over a thousand companies now issue annual sustainability reports based on GRI and many include this information in their overall annual report. And it’s not just companies from Europe and North America. Among the global leaders in terms of number of companies reporting, Brazil is a global leader here coming behind only Spain and the United States.

The fact that many of the emerging economies appear to be leading in sustainability disclosure seems to have been borne out by a report recently published by GRI and the Association of Chartered Certified Accountants (ACCA). The report provides a unique insight into the degree to which large companies around the world have begun to disclose their GHG accounting and strategies for reduction.

While the bad news, reported in the first half of the study, is that less than half of companies studied here at the global level give climate change related specific information through GRI indicators in their sustainability reports, it is not all bad.

The second part of the study consisted of a review of the GRI reports of 32 large companies from Brazil, Russia, India, China and South Africa, the majority of which are from the metals and mining, and oil and gas sectors. The study shows that large companies from South Africa, China, India and Brazil, report on their climate change policy; that they report on their climate change strategy and governance, as well as on perceived physical and regulatory risks. All of them engage in mitigation as well as adaptation actions. They set targets and measure them, although very few use external independent assurance, which is perhaps an area that needs further study. Some, but not many of the Russian companies do the same.

So while some governments may be reluctant to take on binding GHG reduction targets, an impressive business leaders group is fully engaged already, a significant number of which represent the BRICSA part of the world. This is an important message to the government-level negotiators, to the business community and to the world at large.

Scott McAusland is Media Communications Manager and Teresa Fogelberg is Deputy Chief Executive of Global Reporting Initiative

Thailand is a country with strong and lasting religious traditions that has adapted well to the demands of technological and industrial development. The nation has an established infrastructure and liberalized economy that has positioned it as one of East Asia’s top economic performers. The people of Thailand are also notably proud of being the sole nation in the region to have never been colonized by any outside power. Thailand is sometimes compared to Hong Kong as a leading East Asian international hub, but political volatility tempers that ambition and remains a concern for many investors and entrepreneurs. Recent events like the 2005 coup d’état and massive public demonstrations in 2008 and 2010 illustrate the risk. The country’s history of 18 coups d’état since its modern establishment shows the challenges Thailand confronts of maintaining stability in the face of strong regional competition and growing investor exportations for world class infrastructure and production quality standards. Despite the unsettling politics, business in Thailand provides many commercial opportunities and a growing population of potential customers. Thailand is the 21st largest population in the world and its booming young generation is demanding western-style services and products.

Business Etiquette

Greetings

While globalization has brought western handshakes to Thai business culture, the traditional greeting is still the “wai,” where a greeter joins the palms of his hands at chest-level and bows over them. The position of your hands signifies the level of respect you hold for the person in front of you. To acknowledge seniority, greeters lower their forehead closer to their hands. The wai will not be returned if there is a notable social difference between two people greeting.

Business Meetings

Social status, hierarchy and connections are all considered by Thai business people when establishing a new partnership with both locals and foreigners. Status can also be determined by your dress, manners, education, complexity of your family name and connections. It is therefore important to clarify hierarchical roles and ranks within your organization during initial business meetings.

Business meetings tend to take place at the office. Arriving late signals disrespect, so you should always be on time for meetings. Dress should be traditional, elegant and conservative. During your meetings, decorum matters and openly complaining or losing your temper is viewed negatively within Thai culture. Try and keep a calm attitude at all times and present your ideas with tranquility and serenity.

Business Cards

Business cards are exchanged after an initial meeting and you should always offer your business card to the most senior person first. Cards are exchanged using the right hand and traditionally people tend to make comments about them to acknowledge their reception. It is recommendable to have your card translated into Thai prior to your visit.

Gift Giving

Gift giving is not common practice, even when visiting a Thai’s home. However, it will be appropriate and appreciated if you arrive with simple gifts like flowers, fruits or chocolates. Avoid giving Marigolds or Carnations because these are funeral flowers. Also avoid wrapping gifts in green, black or blue as they are also associated with funerals and mourning. Gifts are not opened when received and they are usually offered by the right hand and acknowledged with a wai.

Dinner and social events

For Thais, eating is a central and important activity. Sharing a meal is fundamental within Thai tradition and you should be ready to taste all dishes served. If the host is not wearing shoes when you arrive, make sure you remove yours before entering the dining room. In general, Thais will expect you not to talk about work related issues during meals and adopt a calm attitude. Avoid talking about Thai monarchy, religious issues or superstitions. It may be suggested that you pick up the tab for restaurant meals. This is actually a sign of respect as the wealthiest person is usually given the privilege of covering the cost of a meal. In general, there are no established tipping policies, but mid-range restaurants will include a 10 percent service charge on your check. When paying in cash or for smaller services, you can tip with any available coin.

Temple etiquette

During your visit to Thailand, you may be granted a visit to a temple. Temples are places of worship so treat your visit with utmost respect. Conservative dress is expected and flash photography should be avoided. Women should never touch or pass items directly to a Monk.

The Ethical Climate for Commerce

Ethical Challenges

On June 24, 1939, Siam, the only Southeast Asian nation to never have been a European Colony, changed its name to Thailand, a word that stands for “Free Land.” The change occurred following a bloodless coup which transformed the longstanding absolute monarchy into a constitutional government. Thailand’s economy boomed from 2000 to 2008 with an average 4 percent GDP growth annually over the period. The country has focused on building a solid infrastructure to support a free-enterprise economy with strategic emphasis on the development of high-technology goods for export. Although the recent financial crisis had a severe impact on Thailand’s economy, there are signs of recovery.

As good as the prospects for business might be, investors often complain about the chaotic political scene. Recent protests from “red shirts” (former Prime Minister Thatskin followers) have alerted foreigners, with concerns of a possible coup. However, regardless of street demonstrations, regular business activities seem to continue with little disruption. While unrest concerns many international business players, local entrepreneurs tend to discount the importance of frequent protests, feeling that they can be coped with.

Nevertheless, as a result of the recent crisis, credit has become tighter. According to Bangkok Bank, the country’s largest lender, debt rescheduling for small-medium enterprises had increased by around 3 percent by 2009. Thailand’s government has put in place a number of initiatives including capital injections for Thailand’s Export-Import Bank and permits allowing Thai companies to offer loans to non-affiliated firms abroad.

State enterprises in Thailand represent a complex puzzle for foreign investors as well. Employing over 300,000 people, most of these companies are in the process of consolidation into a State Investment Corporation, with the stated goal of providing more independence to all state-enterprises. However, some have voiced concerns that this new entity will create private enterprises with access to government funding and opportunities for unfair competition and abuses.

With regards to its social system, Thailand is a traditional society, with historic administrative practices that can lend themselves to exploitation. For example, the Sakdina system allowed government officers to remunerate themselves through the modest retention of taxes and dues collected. Such traditional practices can create a lax attitude to what many consider unethical behavior in a global economy.

Five Compliance and Ethics Issues to Consider

Ma Tha Put

The Ma Tha Put industrial complex is an illustration of some of the risks in Thailand. In recent months a judiciary court issued a temporary suspension for more than 70 projects being developed in the complex in response to the complaints from residents and NGOs over industrial pollution and environmental damage created, critics contend, by the uncontrolled manufacturing facilities at the site. The decision has impacted confidence and foreign direct investment, and it is unclear how the outcome of the court action will impact investors.

Deal with it

The Ma Tha Put case represents a belated attempt to protect Thailand’s coastline from rapid development. At the time the complex was established in early 70s, there was no policy regarding conservation or environmental management. The Ma Tha Put case indicates that this historic deficiency is being corrected and investors will need to consider the environmental impacts of development. Thailand’s authorities have been willing to cooperate with investor initiatives that protect the environment, but a proactive approach to environmental management should be considered basic to any investment strategy.

Political Instability

After 15 constitutions and 18 coups d’état in the last century, Thailand portrays an image of political instability. Investors coming to Thailand complain that the instable investment environment makes forecasting risk exposure difficult. Many expect that political volatility will continue with a repeat of the violent protests and sieges that caused interruptions to operations of Bangkok airports in 2008 and 2010.

Deal with it

The Economist Intelligence Unit ranks Thailand as a flawed democracy, terminology used to describe a country where, even where some regulatory factors are not under control, most administrative processes are set and running regularly. Despite the political scandals, Thais have been able to cope and economic development has continued. Monetary/investment exposure guarantees are possible ways to manage some of the potential business risks. The World Bank through the Multilateral Investment Guarantee Agency (MIGA), for example, can offer this type of coverage.

Corruption

It has been said that corruption is one of the burdens of Thailand. As discussed, some historic practices and attitudes have left an impression in the country that bribery is like an additional tax or service fee to get things done faster. The World Bank has argued that little to no progress has been made in reducing corruption. According to a 2009 poll by the Abac Pol Research Centre, just over 50 percent of respondents said they would tolerate a corrupt government as long as the economic condition improved. It should not then be a surprise that Thailand ranks 84th out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009.

Deal with it

Traditional and popular customs convey a lax attitude toward ethically questionable business practices. However, it is important to understand that corruption is also facilitated by a disorganized political system, low salaries for public officers and educational and financial gaps between the social classes. Dealing with corruption in Thailand is an issue that has started to gain social attention and there are signs of a shift. The Global Corruption Barometer indicates, for example, that a significant percent of the population is willing to pay more to buy from a corruption-free company. This provides an opportunity for global businesses to advertise their ethical business practices, which may draw customers and will help foster greater social understanding of the problem and role business can play.

Taxes & tariffs

The complex and non-transparent nature of Thailand’s tax system poses a difficult task for international companies and individuals running operations from Thailand. A recent report produced by U.S. authorities presents Thailand as a country with high tariffs that remain an obstruction to the establishment of international business interests. The average tariff rate was around 11 percent for 2008. The main concern among foreign business owners relates to a perceived unequal treatment to local and foreign investors, since the highest import taxes apply to products that compete with locally produced goods.

Deal with it

Although, in general, high tariffs remain a market impediment in some sectors, the government is starting to provide concessions for companies listed on the national stock market or provide a value-added to Thailand’s society. Despite their apparent arbitrary nature, these tax breaks are a vehicle to achieving adequate taxation for investors. Businesses should be wary of questionable taxing practices, remembering that Thailand’s drug trade means money laundering is a common risk that is closely monitored by international organizations. Many companies may be able to take advantage of new regulations like a 2010 law that facilitates the repatriation of funds. Businesses should seek guidance from international auditing and taxing firms to better understand these opportunities.

Women and the Sex industry

Thailand is widely known as a center of sexual tourism. This industry has been widely criticized for cases of child and adolescent slavery and abuse and for fostering the growing number of HIV cases. People travelling or working within Thailand should be prepared to confront offers of illegal prostitution services during their stay.

Deal with it

Available statistics show only a small number of Thai women are actually involved in prostitution. However, because of the focus on business travelers, it is wise to tactfully ensure that any new acquaintances introduced by local contacts are not engaged in illicit activity.

Officials in charge of the U.S. government’s anti-corruption enforcement program have made clear that the aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) will continue in both size and sophistication, and that the government will pursue and punish companies and individuals that cross the line.

From the top down, U.S. government officials are talking about combating global corruption. This includes President Barack Obama, U.S. Attorney General Eric Holder, Department of Justice (DOJ) Assistant Attorney General Lanny Breuer (Criminal Division), Deputy Chief of the Fraud Section (and lead DOJ FCPA enforcement attorney) Mark Mendelsohn, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami, and Associate Director of the SEC’s Division of Enforcement Cheryl Scarboro. These top U.S. officials are speaking about the government’s deliberate steps to raise awareness, to build coalitions and cooperation among nations, and to vigorously enforce anti-corruption laws, such as the FCPA.

Examples of recent speeches and formal remarks include the following:

• Formal address of DOJ Assistant Attorney General Lanny Breuer to the American Conference Institute’s 22nd National Forum on the Foreign Corrupt Practices Act, delivered in National Harbor, Maryland on November 17, 2009. See http://www.justice.gov/criminal/pr/speeches/2009/11/11-17-09aagbreuer-remarks-fcpa.pdf.
• Formal keynote address of Assistant Attorney General Lanny Breuer to the Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, delivered in Washington, D.C. on November 12, 2009. See http://www.justice.gov/criminal/pr/speeches/2009/11/11-12-09breuer-pharmaspeech.pdf.
• Remarks of Attorney General Eric Holder at the Opening Plenary of the VI Ministerial Global Forum on Fighting Corruption and Safeguarding Integrity, delivered in Doha, Qatar on November 7, 2009. See http://www.justice.gov/ag/speeches/2009/ag-speech-091107.html.
• Remarks of SEC Division of Enforcement Director Robert Khuzami to the New York City Bar Association, delivered in New York City on August 5, 2009. See http://www.sec.gov/news/speech/2009/spch080509rk.htm.

The most recent pronouncements from Assistant Attorney General Breuer, Deputy Chief Mendelsohn, and Associate Director Scarboro came the week before Thanksgiving, at the 22nd National Forum on the FCPA. In prepared remarks and panel discussions, each made clear that the FCPA enforcement program is a priority and that the U.S. government will use every tool at its disposal to aggressively enforce the FCPA.

2009 Enforcement Achievements

Among the topics discussed were the government’s achievements in 2009. Examples include:

• DOJ officials predicted a record level of prosecutions (including the landmark prosecutions of Siemens and KBR), which is expected to equal or exceed the number of 2008 prosecutions.
• There also are a record number of open FCPA investigations, currently estimated at 130.
• The SEC is increasing its use of disgorgement, even where the DOJ declines to prosecute or has lower penalties. Examples include Halliburton, Siemens, and ITT.
• The government is focused on criminal prosecution of and civil enforcement actions against individuals as a means of deterrence. This was a reoccurring theme throughout the discussions. The government cited successful guilty verdicts in each of the criminal jury trials this year, namely the cases against Frederic Bourke, former Congressman William Jefferson, and Gerald and Patricia Green, and pointed to the large number of cases brought against other individuals this year.

What Looms Ahead: Future Enforcement Trends

Importantly, DOJ and SEC officials also provided significant insights regarding the future of the FCPA enforcement program:

• The government will become even more proactive in initiating investigations against companies and individuals. As a means of deterrence, the government will continue to bring criminal and/or civil enforcement cases against officers and senior managers such as those in KBR and Nature’s Sunshine Products cases and investors such as Frederic Bourke. Where possible, it will also pursue third-party agents such as Paul Novak, who had a consulting arrangement with Willbros.
• The government will continue to use sector wide corruption probes, similar to the ongoing probes in the medical device and pharmaceutical industries, as well as the “Oil for Food” prosecutions. Officials stated that other industry wide probes exist but have not yet been made public. One official predicted that we will see more activity in areas impacted by the global economic crisis, including, for example, not only the financial industry but industries that benefited from the infusion of government dollars, such as companies involved in infrastructure-related activities.
• FCPA investigators and prosecutors are more proactively partnering with other enforcement specialists to aggressively pursue corruption cases. For example, in the pharmaceutical and medical device industry probes, FCPA prosecutors are working with the DOJ’s Health Care Fraud Prevention and Enforcement Action Team lawyers. Where possible, FCPA prosecutors also are working closely with adjunct teams, such as antitrust prosecutors, Internal Revenue Service agents, and export control specialists, to name a few. The government is becoming more sophisticated in its approach, and is pursuing creative ways to “up the ante” in FCPA-related prosecutions, making these cases harder to defend.
• The DOJ is looking at other means to ensure that businesses and individuals do not benefit from corruption, and will more aggressively pursue asset forfeiture proceedings in connection with these cases. In particular, Assistant Attorney General Breuer has directed FCPA prosecutors “to speak with their supervisors and determine in every case whether forfeiture is appropriate.” (Emphasis added). Thus, we can expect ongoing collaboration in all future cases among FCPA prosecutors and their Asset Forfeiture and Money Laundering Section counterparts. Companies will need to be prepared for such actions, as they may involve the freezing of bank accounts.
• The DOJ will continue to define the term “foreign official” very broadly, to include not only ministry and customs officials but employees of state-owned facilities. In fact, in his November speech to the pharmaceutical industry, Assistant Attorney General Breuer stated that “it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a ‘foreign official’ within the meaning of the FCPA.”
• As appropriate, FCPA prosecutions will continue to include more traditional charges of federal criminal violations to achieve convictions, including allegations of money laundering, tax, antitrust, export control, conspiracy, and Travel Act violations that are brought in cases where the government alleges commercial bribery in addition to bribery of foreign officials.
• The U.S. government will continue to encourage cooperation and collaboration with foreign enforcement authorities, including requests for formal and informal international assistance. Government officials stated that the most common requests for formal and informal assistance are made to Azerbaijan, Canada, Dubai, France, Germany, Guernsey, Haiti, Hungary, Ireland, Lithuania, Macedonia, Mexico, Panama, Singapore, Switzerland, Thailand, and the United Kingdom, as well as other unnamed countries in Africa, Asia, and Europe. Two new bilateral extradition and mutual legal assistance agreements between the United States and European Union (EU) member countries will soon take effect in 2010 and are expected to greatly facilitate the sharing of information and extradition of individuals subject to criminal proceedings in specified cases.
• The DOJ will continue to use corporate monitors in appropriate cases. DOJ officials stated that corporate monitors can be a very effective tool and that they are here to stay. However, the officials also say that the government has become more sophisticated in its approach and that it will consider other alternatives, as appropriate in individual cases, such as self-monitoring and reporting, deferred prosecution agreements, etc.
• The government is seeing a trend away from “unnecessary” third-party relationships because of the inherent risks that third parties bring. However, the government sees problems increasing in the context of acquisitions and joint-venture relationships.
• The government emphasized its view that companies will receive substantial credit for voluntary disclosure and cooperation. On several occasions, government officials pointed out that Siemens, although it paid an extraordinary price to resolve its corruption probe, was actually subject to much higher fines and penalties under the United States Sentencing Guidelines. In particular, its $450 million penalty to the DOJ alone was a significant “discount” from the $1.35 billion to $2.7 billion Guidelines range. According to the government, this discount was due to Siemens’s extraordinary cooperation. The government also cited the nonprosecution agreement with Helmerich & Payne and the approximately 30 percent discount off of the Guidelines range as an example of the benefits of voluntary disclosure and cooperation.
• Assistant Attorney General Breuer acknowledged that Deputy Chief Mark Mendelsohn will soon be leaving the Justice Department. Given the surge of the FCPA enforcement program under Mendelsohn’s leadership, his successor will no doubt have big shoes to fill. However, there will be every incentive for the next Deputy Chief to make his or her own mark on the FCPA enforcement program. Thus, one can expect to see an up-tick in activity once the reigns are passed.

Managing Risk and Preparing for the “Next Wave” of FCPA Enforcement

Vigorously enforced, well-documented, effective FCPA compliance programs are now more important than ever. In this environment, a company must be able to demonstrate its processes and how its compliance program works in practice. Thus, a company must document not only policies and procedures but how it handles “red flags,” how it monitors deals or relationships, and whether deals or relationships are rejected.

In this enforcement environment, companies should consider taking such steps as:

• Review domestic and foreign anti-corruption-related policies, procedures, and training. Will they stand up to government scrutiny? Do they sufficiently control risk in your organization? Do they require adequate due diligence for M&A transactions, investments, and other third-party relationships? Do they require monitoring of ongoing third-party relationships? Are senior management and board members sufficiently attuned to anti-corruption risks? If policies and procedures require approvals, are approvals in fact being sought? How are your compliance efforts being documented? Do you have “buy in” from the business? Do you have a strong “top down” message? Are you building compliance partnerships within your organization?
• Understand your risks. Review your company’s “touch points” with foreign officials overseas. Where is your company regulated? To what extent and in what contexts do your employees come into contact with employees of state-owned or state-controlled entities? What third-party relationships exist and which ones require more oversight?
• Evaluate and monitor existing third-party relationships. Once you identify your company’s third-party relationships, categorize these relationships by risk and evaluate them. Are you satisfied with the due diligence? Are the third-party relationships, their business purpose, and anti-corruption controls sufficiently documented? Is the relationship being monitored? By whom? Is there a business “owner” for the relationship, i.e., who from the business is responsible for managing the relationship and monitoring compliance? Have you carefully reviewed third-party relationships that have been “inherited” through acquisitions?
• Conduct periodic compliance assessments. Risks change as company operations expand, contract, and shift in a global economy. Assessments conducted two years ago may not necessarily flag the actual risks of today’s business—particularly for operations that have been acquired or outsourced (but where certain control/oversight remains).
• Avoid successor liability. Does the company seek to identify problematic conduct in due diligence pre-acquisition, or does it simply implement appropriate policies and procedures after the fact? If the latter, has the company conducted an audit to ensure that no troubling conduct is ongoing? Companies that fail to discover risks in pre-deal due diligence are at increased risk for prosecution. Companies that fail to stop problematic conduct post-acquisition are almost certain to face higher penalties if the government investigates.
• If troubling sales or marketing activities are disclosed by competitors or by joint venture partners, distributors, or other third parties with whom you conduct business, monitor the disclosures and review whether you may face similar problems or legal exposure. The government is looking to leverage off of other investigations to build corruption cases. As a requirement of cooperation, your competitors and their employees (including possible former employees of yours) will be asked to provide information about other companies and business practices. Similarly, cooperating third-party intermediaries will be required to disclose each of their business relationships and related business practices. These investigative tactics inevitably lead to broader investigations that could impact your business.
• Take potential whistleblower claims seriously. If an employee raises concerns regarding overseas bribery, pay close attention to him or her—because the government will. Such concerns should touch off at least some review that will either corroborate or discredit the allegation and, if problems are noted, should at the very least result in swift remedial measures.
• Develop a crisis-management plan for handling cross-border investigations. It is no secret that the costs of cross-border investigations can reach astronomical heights. However, with some planning, companies can minimize certain costs upfront that will protect them if problems arise. For example:
  • Understand where and how to preserve and access your overseas records. Time and resources will be saved if your internal legal department and information technology specialists know where to look, and heed any legal restrictions for accessing or transferring electronic data. At a minimum, the government (and even your outside auditors) will expect that relevant information be preserved expeditiously once a problem is discovered.
  • Learn the applicability of privilege and work-product protection rules in the jurisdictions where you operate, or at the very least, identify local counsel who can help you navigate local rules and restrictions covering such issues if a problem arises. Local counsel may also be very helpful in identifying potential issues if interviews need to be conducted in the foreign territory. Make sure, however, that you conduct due diligence on your outside law firms.
  • Understand how the government can gain access to your company’s documents and employees, and understand your rights. Companies operating in the EU should understand the new mutual legal assistance treaty that will take effect in early 2010, and how the U.S. government will be able to access information about such companies in the future.
  • Develop a “scoping” plan. When a problem comes to your attention, do you need to “open the flood gates” or is there a more targeted and surgical way to get at the problem so that you address it without spending unnecessary resources? If the latter is the case, how do you go about determining that the problem does not exist in other jurisdictions? If you end up before the government, prosecutors will expect companies to explain where lines were drawn and why.

The continuing expansion of business operations overseas is crucial to building successful businesses in the future. However, it is also fraught with risk. The key will be how companies manage that risk and prepare themselves for addressing problems when they arise. In addition, companies that wind up in the cross-hairs of a government investigation will find it increasingly harder to resist the government’s settlement demands, due not only to the stiff penalties available under each of these statutes, but the government’s increasing willingness to use the threat of debarment and exclusion. Thus, companies must be prepared to respond appropriately to government demands while balancing the increased threat of parallel civil, state, and international enforcement actions, and likely follow-on shareholder and class action litigation.

These are just some of the important takeaways for companies and their executives as they navigate their way through this most recent wave of enforcement. As the government becomes increasingly sophisticated in its approach to anticorruption compliance enforcement, so too must the global businesses.

The business case for the creation of a chief compliance officer position is persuasive, and is supported by the Federal Sentencing Guidelines. Although the Guidelines do not mention the role by name, they state that “[h]igh-level personnel of the organization shall ensure that the organization has an effective compliance and ethics program” and shall be “assigned overall responsibility for the compliance and ethics program.”2 While many organizations initially responded to this guideline by assigning oversight to a company attorney or auditor, it quickly became evident that such an assignment did not provide the visibility and apparent authority that was necessary to convey the seriousness with which the organization viewed ethics and compliance. In addition, questions arose as to whether these individuals qualified as “high-level personnel” within the organization. As a result, there has since been a push among organizations to create a chief compliance officer position, where the individual appointed maintains overall responsibility for the ethics and compliance program. This move has been increasingly prevalent among larger organizations. Indeed, proposed changes to the Guidelines would provide additional credit to companies who not only convey appropriate authority upon compliance personnel, but also give these persons a direct reporting line to the board of directors.

Over time, an approach some organizations have chosen to pursue is combining the chief compliance officer position with that of the general counsel. In fact, of the individuals surveyed who cite their organization as having a chief compliance officer position, a substantial percentage state that the chief compliance/ethics officer also serves as the organization’s general counsel.4 In light of current economic conditions, this number may continue to rise. However, although these roles have natural areas of overlap, combining them is an approach that should be very carefully considered before adopting.

Case Law

Tenet

The Tenet case was one of the first of its kind to portend the dangers posed by combining the roles of chief compliance officer and general counsel. Tenet Healthcare received a letter from the Senate Finance Committee in September 2003, notifying the company that the Committee was investigating Tenet’s federal healthcare practices.5 Approximately ten years prior, the Company had settled a then record-setting healthcare fraud investigation at the resolution of which Christi Sulzbach, who signed a Corporate Integrity Agreement on behalf of Tenet with the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services, was promoted to the position of chief corporate officer, general counsel and chief compliance officer.6 After entering into the Agreement, Tenet allegedly continued gaming federal healthcare programs by overcharging Medicare patients for surgical outpatient pathology services and illegally submitting over 19,300 false claims for wrongfully upcoded Medicare bills.7 An investigation was opened by the Senate Finance Committee, and in the Committee’s document request letter, then Chairman Senator Chuck Grassley made the following statement regarding Ms. Sulzbach’s combined general counsel/chief compliance officer role:

Apparently, neither Tenet nor Ms. Sulzbach saw any conflict in her wearing two hats as Tenet’s general counsel and chief compliance officer. As general counsel, Ms. Sulzbach zealously defended Tenet against claims of ethical and legal non-compliance . . . 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.

A short time after Tenet received this letter, Ms. Sulzbach stepped down from her position.9

WellCare

WellCare Health Plans followed in Tenet’s footsteps by appointing the same individual to serve as general counsel and chief compliance officer.10 However, investigations into the events that had taken place at WellCare were far more pronounced, as an aggressive raid of its corporate headquarters (involving an estimated 200 government agents) quickly surpassed what had been viewed as a forceful FBI raid of one of Tenet’s hospitals (involving reports of 40 or more agents).11

Upon resolution of the issue, WellCare admitted that it had made “accounting errors” in connection with its compliance with Medicaid requirements.12 In addition, the company found that its senior management set an improper tone at the top with respect to the company’s compliance with regulatory requirements.13 WellCare defended its actions, stating that it combined the general counsel and chief compliance officer roles in order to ensure that compliance is “always represented at the senior management level.”14 Nevertheless, approximately two months after the government investigation became public, the top three executives at WellCare were ousted, including the company’s general counsel/chief compliance officer.15 The company then appointed new leadership and segregated the position of general counsel and chief compliance officer16

Pfizer

In more recent news, Pfizer announced that the company’s general counsel would no longer oversee the drug company’s ethics and compliance program.17 Upon reaching an agreement with the DOJ, Pfizer entered into a Corporate Integrity Agreement with the OIG.18 The Corporate Integrity Agreement institutes certain new measures and requires Pfizer to continue maintenance of its ethics and compliance program for a period of five years.19 Included among these measures is a requirement that the company’s chief compliance officer report directly to the CEO.20 Chief Counsel for the OIG Lewis Morris stated that this mandate was intended to “eliminate conflicts of interest, and prevent Pfizer’s in-house lawyers from reviewing or editing reports required by the agreement.”21 According to Mr. Morris, “The lawyers tell you whether you can do something, and compliance tells you whether you should.”22 Mr. Morris is of the opinion that Pfizer’s “upper management should hear both arguments.”23

Analysis

For every case like one of the above, there are myriad situations where a company has combined the general counsel/chief compliance officer roles and has not been subject to such an investigation or inquiry. Indeed, some within the field of ethics and compliance view this dual role designation as a best practice.24 Nevertheless, what is notable about these cases is that, while the companies defended their programs and WellCare specifically defended the dual reporting position, each quickly separated the dual role once their ethics and compliance programs were brought into question. So two questions remain—Is this dual role advisable? Does it meet best practices? We opine that the answer to each of these questions is most often “no.” Although individuals with legal backgrounds can serve as effective chief compliance officers, the role that an individual assumes when serving as general counsel is often opposite that which he or she takes on as chief compliance officer. While both roles are commonly staffed by attorneys and aim, in part, to comply with the law and reduce legal exposure for the company, they often do so in different manners and with very different focuses.

Let’s take a moment to consider the role of the chief compliance officer. Individuals in this position look to reduce corporate risk by focusing on both ethics and legal compliance, rather than setting their sights solely on the law. As the individual with overall responsibility for a company’s ethics and compliance program, the chief compliance officer is tasked with not only preventing misconduct, but also uncovering any legal or ethical misconduct that has taken place. This individual is required to be a neutral fact finder, and must act in the interest of the company’s stakeholders. He or she must also serve as one of the key drivers of a culture of ethics and compliance, which transcends mere compliance with the law. To paraphrase Mr. Morris, the question for the chief compliance officer is not “can” but “should.”

The general counsel, on the other hand, has his or her eyes set on the law, serving as the legal defender of a company, and seeks to avoid or negate related legal risks. As companies increasingly look at the “ethics” aspect of ethics and compliance, the general counsel’s narrow focus on compliance must remain intact. For example, the general counsel may find it permissible to quickly settle a situation involving unethical behavior in order to quietly resolve an issue, while the chief compliance officer may prefer to address the issue publicly in order to eradicate related behavior and make an example of it to others. 25

Furthermore, the necessary skill set for a general counsel and a chief compliance officer are different. A chief compliance officer, on the one hand, should be capable of overseeing the ethics and compliance program, including the development and maintenance of related internal standards, the creation and rollout of training and communications efforts, the institution of monitoring and auditing efforts, the organization of the program to include the engagement of local ethics and compliance officers and functional expertise, as well as the solution to a wide range of problems and issues. The general counsel, on the other hand, should be a highly capable lawyer who is able to advise on complex legal decisions and to manage a legal staff. While it is helpful for the chief compliance officer to be a lawyer, he or she is expected to perform a number of functions that go beyond the practice of law. In all likelihood, the ideal general counsel is probably not the ideal chief compliance officer. The converse is likely true as well.

In light of this inherent contrast, why have companies chosen to combine the roles of general counsel and chief compliance officer? This move is likely due in large part to the guidance set forth in the FSG and the FAR regarding ethics and compliance programs, which states that the oversight of such programs should be by persons with sufficient authority at the organization.26 The general counsel position certainly fits the bill in this respect. Additionally, for smaller companies, a combined position allows for the fulfillment of this obligation without adding costly headcount. Finally, some organizations believe they will be best served by trying to protect their programs and related activities/investigations by way of the attorney-client privilege, which a general counsel may be able to help preserve in certain countries.

Convenience and privilege concerns aside, an analysis of the Tenet/WellCare/Pfizer situations show that it is not prudent to create this dual position in any but the smallest organizations, where headcount limitations make it impractical to separate the roles. For those organizations that maintain such a dual position, consider separating it, taking into account the following principles.

Transparency is the Best Policy. Although it is natural to want to protect information about your ethics and compliance program from third-party view, maintaining a combined general counsel/chief compliance officer position for this purpose is contrary to the goals of an effective ethics and compliance program.27 The mark of an effective program is open and honest allegiance to ethics and compliance. Such a program is considered an attribute for a company, much like a corporate social responsibility program. Effective programs are thoroughly documented, as are related investigations. Such documentation not only reflects the components of the program in the event of an investigation, but also demonstrates that the company is responding to issues that are reported or discovered by refashioning its internal controls. While there certainly may be circumstances where the attorney-client privilege is still asserted, this privilege can be obtained either by involving in-house or outside counsel. At all times, however, the approach of an effective ethics and compliance program should generally be one of transparency and disclosure.

Although Headcount Affects Budget, A Serious Compliance Violation Can Deplete It. Budgetary concerns are clearly at the forefront of every corporate executive’s mind, especially in light of the current economy. A cost that is frequently given extra scrutiny is an organization’s ethics and compliance program. Whether this is due to the fact that it is difficult to quantify the benefit provided by the program or because its costs are not related to business-generating opportunities, the fact of the matter is that ethics and compliance programs are often under-resourced.28 It is important to understand that, in the event of an infraction, the DOJ will not give consideration as to why budgetary dollars were not allocated to ethics and compliance if this failure results in inadequate staffing of a program. Therefore, although adding headcount, especially at a senior level in the organization, seems implausible given current economic conditions, appointing such a person in order to divide a combined general counsel/chief compliance officer role may be necessary In order to give the ethics and compliance program the attention it needs

The Chief Compliance Officer Should Ideally Not Be Housed in the Legal Department. Commonly, the chief compliance officer position is housed in the legal department.29 When this is the case, often the general counsel doubles as the chief compliance officer or, in the event the two roles do not reside with the same person, the chief compliance officer reports to the general counsel.30 It is certainly true that overall responsibility for an ethics and compliance program should rest at a sufficiently high level of the organization, providing actual as well as apparent authority with respect to this important aspect of the company’s operation. However, best practices dictate that the chief compliance officer have a direct reporting line to the board of directors or to the committee that has been delegated oversight of the program. This is so that, in the event of a conflict between the general counsel and the chief compliance officer, the chief compliance officer has the authority to address the board regarding the issue directly. Many companies have recognized this best practice and have responded by giving the chief compliance officer a direct reporting line to the general counsel, with a dotted reporting line to the board of directors. While this is an available compromise, in practice the chief compliance officer may feel uncomfortable going around the general counsel, to whom he or she reports in almost every other instance. Even worse, he or she may simply refuse to do so

A better approach is to have the chief compliance officer position be placed at a parallel level to the general counsel. Such an organizational structure not only satisfies the Guidelines, but also allows unfettered access to the board or its subcommittee in the event it is needed. In addition, housing compliance outside of legal provides companies with the opportunity to further the dialogue around whether they “should” do something as opposed to whether they “can,” and fulfills Mr. Morris’s recommendation that executive management be exposed to both arguments.

Adequate Attention Must Be Devoted to Oversight of the Ethics and Compliance Program. In most if not all organizations, the general counsel is sufficiently burdened without having to also run an ethics and compliance program. Oftentimes, the general counsel is intimately involved not only in running the company’s legal department, but also with the company’s day-to-day operations. This involvement may be particularly problematic from an attention perspective. While an understanding of the company’s operations could certainly prove helpful when overseeing the organization’s ethics and compliance program, it may also prove to be worrisome from both an impartiality and a time allocation perspective.

In organizations where the dual general counsel/chief compliance officer position exists, the general counsel often exercises little oversight of the ethics and compliance program, relying mainly on others in the organization to run the program on his behalf. The general counsel trusts these designees to come to him or her to provide high-level updates or to obtain advice when there are questions or concerns. As a result, the cause for placing overall responsibility with the general counsel (placing this authority at the top of the organizational chain to provide actual and apparent authority for the program) is negated in practice. This will become quickly apparent to the organization’s employees. In addition, communications from the general counsel regarding ethics and compliance will likely sound like any other legal department communication, and may therefore be disregarded.

When separating the general counsel and chief compliance officer positions, make sure the chief compliance officer has the time and attention to exercise adequate supervision of the program, as well as to become involved in its operation. To wit, avoid the temptation to assign the chief compliance officer too many other hats to wear. This is essential for an effective program, not only to institute a healthy culture of ethics and compliance, but also to convey important aspects of compliance to the organization’s employee base.

Conclusion

The concerns addressed in the cases mentioned herein all center on the fact that the dual general counsel/chief compliance officer role does not afford the necessary independence for serving as the individual responsible for an organization’s ethics and compliance program. In particular, Senator Grassley noted the conflict between the general counsel defending an organization against claims of ethical and legal non-compliance, with the same person serving as chief compliance officer and working to ensure compliance by the organization’s board and employees. By splitting this dual role in keeping with the principles set forth above, questions relating to independence will likely be resolved. In addition, your program will be brought closer in line with best practices, which will well serve your organization in the long run.

1 Association of Corporate Counsel & Corpedia, 2010 Compliance Program and Risk Assessment Benchmarking Survey (forthcoming 2010).

2 U.S. Sentencing Guidelines Manual §8B2.1(b)(2)(B) (2007).

3 U.S. Sentencing Guidelines Manual §8B2.1(b)(2)(C) (Proposed Amendments to the Sentencing Guidelines January 21, 2010).

4 See supra note 1 (stating that 37 percent of those individuals surveyed report their organization maintains a combined position).

5 Letter from Senator Chuck Grassley to Trevor Fetter, Tenet Healthcare Corp. (Sept. 8, 2003), http://grassley.senate.gov/ releases/2003/p03r09-08.htm.

6 Id.

7 Id.

8 Id.

9 Vince Galloro, Sulzbach to Exit Tenet; General Counsel Cites Outside Pressure for Leaving, HighBeam, Sept. 29, 2003, http://www.highbeam.com/doc/1G1-108496479.html.

10 Melissa Davis, WellCare, Tenet Have More Than Probes in Common, TheStreet.com (Nov. 19, 2007), http://www.thestreet.com/story/10390693/1/wellcare-tenet-have-more-than-probes-in-common.html.

11 Id.

12 Kris Hundley, WellCare Revises Earnings Down $28 Million, St. Petersburg Times, July 22, 2008, available at http://www.tampabay.com/news/business/article727538.ece.

13 Id.

14 See supra note 11.

15 See supra note 13.

16 See supra note 13.

17 Amy Miller, $2.3bm Pfizer Settlement Strips Legal Team of Compliance Brief, legalweek.com (Sept. 11, 2009), http://www.legalweek.com/legal-week/news/1533237/usd2-3bn-pfizer-settlement-strips-legal-team-compliance-brief.

18 Pfizer Inc., Office of Inspector General of the Department of Health and Human Services Corporate Integrity Agreement (Aug. 31, 2009).

19 Id.

20 Id.

21 Id.

22 Id. (quotations omitted).

23 Id. (quotations omitted).

24 See Banks et al., General Counsel as CCEO? Not an Obvious Answer, 6 Compliance and Ethics Magazine, June 2009, at 6.

25 Id.

26 See supra note 3; see also Federal Acquisition Regulation (FAR), 48 C.F.R. pt. 52.203-13(c)(2)(ii)(A)(2010).

27 See supra note 25, at 11.

28 See supra note 1.

29 See supra note 1 (reflecting that a significant percentage of respondents report to or serve as the General Counsel).

30 See supra note 1.

BG: One person who I served with on a board, and who recently stepped down from his company, is Dan Vasella, CEO of Novartis, a Swiss pharmaceutical company. Novartis has a large generics business, they’ve got the H1N1 vaccine and a large vaccine business, and they have a consumer health business. But the significant thing about Dan is that he recognizes all corporations exist first to serve society. If a corporation doesn’t serve society by using its strengths, then in the end it will have very difficult times.

If a corporation focuses only on maximizing shareholder value, as Milton Friedman erroneously told us, eventually a corporation will probably implode or self destruct—as General Motors did, and as Sears Roebuck did—by focusing entirely on shareholder value and not recognizing their job to serve the customer. But, I think part of that serving the customer is a societal concern. For example, Vasella also recognizes that not all patients have the wherewithal to pay, so Novartis has also had a big focus on malaria in Africa where they are giving away a drug called Coartem.

They also recognize the need to collaborate with NGOs and to collaborate with governments, because Novartis can not deliver the drug to Africa by itself. So it’s a whole team effort, it’s a whole collaboration and I think Dan Vasella recognizes that.

E: Are there any compliance/ethics risk areas in the healthcare industry that you see requiring particular focus from leaders in that industry? How can leaders prevent those risks within those companies?

BG: If you start with, broadly speaking, the provider side of healthcare, we have a huge issue and the incentives are all misaligned—even through this latest healthcare reform bill which is yet to be signed but will be by the time of your publication. The current incentives are for doing more procedures, giving more tests, seeing more people and not for keeping people healthy. And so I think there is a huge ethical dilemma in healthcare in general.

But so how do we get to a healthcare system designed to keep people healthy, and not just treat them while they’re sick? That gets to the really tough ethical question of lifestyle. Seventy percent of all healthcare costs emanate from people’s inappropriate lifestyles. Obesity is number one and is the most rapidly growing disease. Of course, you don’t hear it as obesity you hear it as type two diabetes. So I think there is a real ethical question in terms of providers of health care.

In terms of the suppliers—the pharmaceutical and medical technology companies—it’s hard to think over the long term that companies are going to be successful selling into an unhealthy system. So I think it is incumbent upon the pharmaceutical, biotech and medical technology companies to start trying to create a healthy system.

Certainly insurance companies are a big contributor to an unhealthy system. They are not helpful right now. We need insurance companies to start insuring companies and people for staying well, rather than just insuring them for staying sick. We have to get upstream of the problem. I don’t see a lot being done right now.

We need to look at the whole person, and that’s what my wife is talking about with the [George Family] Foundation. There are huge mind-body connections. Placebo effects are real. It’s a positive thing, even though most look at it as a negative thing. If you think you’re going to be healthy your odds are greater. How do we create that kind of sense of well being and how do we keep the commitment on people to exercise and diet to stay healthy and all those things?

That’s what John Mackey in Whole Foods is trying to do. But who is doing that in the healthcare industry? Who is taking the lead on that and really trying to make a difference in people’s health? We did a lot of things in Medtronic but Medtronic is just one player. What are other companies doing to make a difference in terms of the health of their employees? I think it’s essential that healthcare companies take a lead and create a healthier health care system. That means a healthier population, not just promoting their own products, drugs or insurance plans.

E: Now speaking more broadly than just the healthcare industry in particular, you have said that the younger generation (i.e. those under 45 or so) should take over because they are showing stronger leadership and more focus on their True North. Can you expand on the qualities that you see in that younger generation?

BG: I think we are going through a massive generational change in leadership. The baby boomers were raised in an era of coming out of two world wars and a depression that their parents experienced. Even though we didn’t live through it, our parents’ experience was very real to us. From that we developed this “command and control” mentality of how to run an organization.

The great corporations of the world in the 1950’s and 60’s were command and control organizations. With this new century, that concept of command and control has totally gone out because employees today are knowledge workers, they have options and they don’t stay around. But most importantly they’re looking for meaning, not just money. I think today’s great leaders will know how to empower people, all of us, to step up and lead. So it’s not a command and control type situation, and it’s not exerting power over the people, it’s aligning people over mission and values, and getting them to step up and lead, and getting them to recognize their job is to serve a certain customer first and not the shareholder.

That’s what I think the younger generation, like I said those under 40 or under 45, really understands. I think particularly for my students who are in their late 20’s, this is a great opportunity for them because the global economic meltdown of 2008 and 2009 is like a crucible experience for them in that they recognize that the way we were going was headed for sheer destruction. They have a chance to recover whereas a lot of the older leaders of Wall Street are passing from the scene and have no chance to recover.

I just read this new article called “Leadership’s Lost Decade.” I think this decade of 2000 to 2010 will go down as the lost decade of leadership. It started out with the collapse of the dot-coms, which were the great hopes for the future. We went from venture capitalists starting up great companies like Intel, Google, Microsoft, Starbucks and people like that, to trying to make money off of paper product. People thought they could quickly develop a business plan, take it to the market, run an IPO and make a lot of money and it will all happen in 12-18 months. It was all non-sense and it all collapsed.

That started the decade, and then right behind them came Enron, Worldcom, Tyco and those with real ethical problems. You look at the people behind bars like the Bernie Ebbers and Jeff Skillings, but the real addition there is that there were 200 real major companies like Bristol-Myers and Xerox that had to restate their numbers by some 2 to 3 billion dollars in income because of ethical deviations, because of inappropriate accounting which was driven by ethical considerations.

And of course we closed the decade with the financial meltdown of the last two years. That really resulted, in my opinion, from Wall Street, which had been pressing leaders for short term outcomes, actually playing the short term game so much themselves that they self destructed. So you had great financial institutions like Citigroup—which was the greatest bank in the world when I was growing up—literally self destruct. They had to go to the government for a combination of bailouts and loan guarantees of around $350 billion. These financial institutions were all built like a house of cards and someone pulled out the bottom card and the whole place collapsed.

I think in leadership terms that’s a huge wake up call. I think that in the advent of Enron and Sarbanes-Oxley corporate leaders got the word. Wall Street didn’t get the word. Now you have a whole generation of leaders passed from Wall Street, and the question is whether or not the next generation will. It’s still too soon to tell. The jury is out.

E: Very often ethics and compliance problems are caused by “Just One Employee,” i.e. one employee that makes a misguided decision (such as bribing a foreign official or making false claims). How can leaders let people know that their Codes of Ethics and Compliance and other ethical statements really do apply to the entire organization from the top down, and do not just exist to satisfy regulatory requirements?

BG: Today’s leaders need to be directly engaged with their people all around the world. It takes an enormous amount of time. They need to be asking the questions, “How do we do business? What happens when you get asked for favors? What do you do? How do you handle this?” You need to trust but verify. You need to have a verification and compliance system.

When there are any deviations, it should be a zero tolerance policy, no second chance. If you make mistakes, if you make poor business decisions you should get a second chance. If you have quality problems you should get a second chance. If you have operational problems you should get a second chance. On questions of company values there is no second chance. Everybody needs to know that and needs to be exposed. You need to publicize that. You need to not cover it up.

By the way, what’s really important in organizations is that you can’t just blame people at the lowest levels. You have to really look at the whole chain of command. That was Shell’s problem in Nigeria. They didn’t look at everyone. You can’t just blame the low level people, you have got to look at what the management is doing and saying because it’s there, too.

I felt that responsibility everyday. We had ethical violations at Medtronic. I had to fire the head of Europe. I had to fire the head of Japan. I had to fire the head of China. It was very embarrassing for me that it took so long to clean it up, but we went right at it and we finally got the message across that this is the way we do business.

Ed Breen did a very good job cleaning up Tyco. I don’t have as high regard for Dennis Koslowski because it was kind of anything goes in his era. But, I think Breen has sent a clear message, “this is how you do business.” Just like Anne Mulcahy did at Xerox. There were some ethical questions there and she did a really good job cleaning things up.

So I think we need to vet, not just criticize, people that are violating ethical standards but we also need to hold up the leaders that really do want to make a difference.

E: In 7 Lessons, you have a lesson titled, “Don’t be Atlas.” In that lesson you mention it’s good for leaders to have an external team that can help you get through a crisis. Can you expand a bit on your own external team and how they have helped you get through crisis?

BG: It starts with having one person with whom you can be entirely open with. That person for me is my wife, Penny. If I get too high on myself she’ll pull me back down and if I get really down she’ll give me a practical view of things. She’s just great and extremely helpful. I also have a men’s group that I meet with every Wednesday morning and we talk about really important issues in life. When you have challenges you can talk to them. And when I have tough questions I have three or four mentors like Warren Bennis and David Gergen that I can call up and solicit their advice and counsel.

That’s extremely helpful to have because inside an organization it is very easy to fall into a group think mentality. You tend to all talk about the same issue and you tend to think about them the same way. It’s really important to have outside exposure. When you have that external team they can help you bring perspective on things and tell you, “It’s not that bad.”

E: Broadly speaking, what are you most hopeful about with today’s leaders?

BG: I’m most hopeful about the younger leaders stepping up and taking over. I hope that this generational change in leadership will come quickly and I hope it will give younger people an opportunity to step up and lead major organizations as well as start ups and new organizations. I’m most hopeful about the new leaders that have been appointed in the last three or four years from large corporations and small corporations. I think you’ve seen a remarkable job. I’m hopeful we can get a whole new generation that will step up and lead with a higher sense of ethics and values, not just for its own sake but for recognizing that’s the best way to build an organization and the right way to sustain success.

When Ethisphere creates the World’s Most Ethical Companies list every year, we look at the operations of many companies and score their ethics and compliance programs based on eight broad categories (for more on the World’s Most Ethical Companies methodology, read this edition’s cover story on page 26, or go to www.ethisphere.com). Each year there are a few dozen companies that earn high marks in the majority of these categories, but aren’t quite up to standards in one or two others, and therefore just miss crossing the threshold for World’s Most Ethical Companies designation. We like to refer to these companies as “Ones to Watch.”

Often, what can be most surprising to our readers is when companies that have received large fines or that have been implicated in very public scandals in the near past (thus missing the mark in the “litigation history” category) fit into this “Ones to Watch” category. Sometimes, because of these fines, company leadership will either become more involved in the ethics and compliance departments, or the leadership will be replaced altogether with individuals that give renewed attention and resources to these very important departments.

As one company spokesperson accurately pointed out to Ethisphere, compliance is an evolving function. It’s important to remember that, at times, a large fine doesn’t always imply that company leadership was completely removed from involvement in their company’s compliance program in the first place.
However, because of the internal activity that results from a large fine or scandal, sometimes companies that have experienced recent problems will very quickly develop best in class ethics and compliance programs – including hot line programs, increased employee training and updated codes of conduct. Although reputational damage lingers, these companies can actually develop pioneering ethics and compliance programs.

Take, for example, Tyco International. Tyco experienced a leadership scandal from the early 2000’s involving former CEO Dennis Koslowski and CFO Mark Swartz – both were convicted of stealing over $150 million from the company. After that multi-year affair came to an end, current Tyco CEO Ed Breen was brought in to clean up the company’s culture. Breen also brought with him a much more ethically-minded team, and was able to turn the company around. Today, roughly eight years after the scandal was a regular story in national media, the company is respected again by industry experts.

Another example of a former “Ones to Watch” company that later became a World’s Most Ethical Company is Mattel. During the company’s 2006 lead scare, Mattel in fact had strong ethics and compliance programs in place. The company quickly responded to the issue and worked to ensure the problems didn’t happen again. This year, in part because of its efforts before, during and after the lead issue, Mattel made the World’s Most Ethical Companies list.

In light of the healthcare focus of this edition of Ethisphere, the best recent example of a company actively improving its compliance functions after a very public fine is Pfizer, the world’s largest pharmaceutical company.

Category 1/Brief history of recent Pfizer fine

Ethisphere has said many times that it takes Just One Employee (“JOE”) to impact a company’s reputation (or, depending on the severity of the violation, the company’s pocketbook). Unfortunately, in the case of Pfizer there were a handful of JOEs. These employees were company sales representatives that allegedly recommended to customers that certain Pfizer products could be used for conditions not expressly approved by the FDA, or “off label,” uses.

One of the sales representatives, John Kopchinski, blew the whistle on the company and began the process for what eventually resulted in the largest healthcare settlement ever.

Pfizer notes that Kopchinski was let go from the company as a result of concerns relating to theft of company products, and also points out that it has no record of Kopchinski indicating his concerns to the company.

After several years of negotiations, Pfizer agreed to pay a total of $2.3 billion to settle the charges and move on.

Category 2/What compliance initiatives were already in place at Pfizer

That hefty settlement jolted to attention many in-house compliance professionals that may have become a bit lethargic (especially in the healthcare industry). What should be particularly upsetting to them is that prior to this fine Pfizer actually had many strong compliance programs in place, including the “Blue Book,” Pfizer’s aptly named Business Code of Conduct.

As with any top of the line Code, the Blue Book is publicly available and easily accessible for external audiences through Pfizer’s website, and also for employees through the company’s Intranet. The Blue Book also contains robust discussions around the company’s reporting mechanisms for employees. Importantly, the Blue Book is translated into 36 languages so that employees can read it in their native language.

As with any top of the line Code, the Blue Book is publicly available and easily accessible for external audiences through Pfizer’s website, and also for employees through the company’s Intranet.

Category 3/How Pfizer has responded

Although it’s only been a short time since the settlement was publicly announced in the fall of 2009, the government’s investigation into the issue began years earlier. During that time, rather than idly waiting for the outcome of the case, Pfizer’s leadership can be commended for the way it proactively worked to improve its internal compliance programs and prevent future violations.

One of the most impressive initiatives that Pfizer has developed is its risk mitigation program RAMP. Pfizer’s RAMP program is focused on discovering product-generated risk across 34 different business processes, which is kept in line with continuous monitoring. If you add RAMP data to all of the other monitoring and auditing efforts Pfizer has underway, including advisory boards, Internal Audit efforts, hotline and open door reports, Pfizer has no shortage of information about the Company’s risk areas.

One of Pfizer’s particular strengths is its FCPA work, including due diligence on third parties and for mergers and acquisitions. Obviously, the pharmaceutical industry has unique challenges in this high-profile area, and Pfizer is utilizing all available resources to attack it proactively. For example, Pfizer now ensures that it is looking for potential FCPA violations, as part of its internal audit work in markets outside the U.S.

Educational initiatives include extensive training opportunities; Pfizer went so far as to bring personnel from China to New York for in-person training sessions. Pfizer’s senior-level communication efforts are best in class; the executive team at Pfizer never misses an opportunity to talk about both ethics and compliance.

Category 4/Comparison to rest of industry

Although Pfizer has received mixed press in recent months (a search of recent news articles will result in both positive accomplishments such as the company’s anti-Malaria partnership with Bill Clinton, and of course headlines relating to the fine), to the company’s credit many of these compliance programs are the industry’s best. That is, in part, because the pharmaceutical industry isn’t doing so well right now. Eli Lilly paid a $1.4 billion settlement in January of 2009 after allegations of off label marketing. Other companies including Sanofi-Aventis, Merck, Abbott Laboratories and others have also in recent years paid multi-million dollar settlements for allegations ranging from antitrust violations to illness and death tied to the use of certain drugs.

One way that Pfizer is working to get ahead of its peers is by increasing disclosure around payments made to doctors. Pfizer’s Corporate Integrity Agreement (CIA) required them to begin disclosing financial relationships with doctors. However, Pfizer announced it would go beyond the CIA requirements and will begin disclosing payments sooner than required. Pfizer also will be the first pharmaceutical company that discloses payments to researchers to perform clinical trials.

With all that said, Pfizer executives acknowledge that the company isn’t perfect and there is still a lot of progress left to make.

“Over the past decade, there’s not been a single year in which we didn’t make significant improvements to Pfizer’s compliance programs, and we’re proud of the steps we’ve taken – many of which go beyond a strict interpretation of government requirements,” said Senior Vice President and Chief Compliance Officer Douglas M. Lankler.  “That said, we obviously would never contend that we have a perfect system.  Pfizer is a very large, multinational company that is part of a complex, tightly regulated industry, and we actively look for problems.  So we expect to continue dealing with issues. In our view, the most important consideration is how we respond to and learn from missteps.  How do we keep getting better?  And how do we ensure that all colleagues understand the company’s policies and their own responsibility for acting with integrity? This is an absolute priority for us at Pfizer.”

Category 5/Conclusion

Of course, no company is perfect, particularly companies as large as those mentioned here. Every global corporation will face an ethics or compliance issue at one point or another with varying degrees of severity. With that said, it’s also the large companies that have the greatest global impact when it comes to ethics, CSR and sustainability. After a compliance or ethics lapse, the best companies don’t shy away or fight the resulting charges. Instead, they actively work to improve their ethics and compliance programs, and continue to build their internal ethical culture. These companies are the “Ones to Watch,” and, with enough time, may just become one of the “World’s Most Ethical.”

New York – May 26, 2010 – Amid the national debate on healthcare industry reform, the Ethisphere Institute, a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics and compliance, today announced that the latest issue of Ethisphere Magazine will focus on ethical issues in the healthcare industry. Like all issues of Ethisphere Magazine, the Q1 edition, dubbed the “Healthcare Issue,” covers the most recent ethics and compliance activities in the business world, with this quarter’s issue focusing particularly on ethical issues and practices across various sectors of the healthcare industry.

“Recently, there’s been more scrutiny of healthcare politics and changing of the landscape of the healthcare industry than we’ve seen in the past,” Ethisphere Executive Director Alex Brigham said. “However, with all that’s been written and debated, not much attention has been paid to the ethics of healthcare as a business. We created the Healthcare Issue of Ethisphere Magazine to fill that void and, hopefully, to provide the basis for a very robust conversation on the state of, need for and importance of business ethics within the healthcare industry.”

For added insight, Ethisphere enlisted Alan Yuspeh, Senior Vice President and Chief Ethics and Compliance Officer of HCA, Inc., as the guest editor of the issue.

“Alan Yuspeh is extremely respected within his field and brings a tremendous amount of in-the-trenches experience to such a timely and critical issue for this industry,” said Stefan Linssen, editor-in-chief of Ethisphere Magazine. “We were very pleased to work with him on this project and think his experience and insight will offer significant value to both those in the healthcare industry and compliance and ethics practitioners overall.”

Ethisphere worked with Mr. Yuspeh to enlist the expertise of leading ethics and compliance practitioners from within the healthcare industry to share their thoughts on the state of the industry. These experts, representing the pharmaceutical, hospital, medical device and legal sectors, include:

• Holley Thames Lutz, Partner at Sonnenschein Nath & Rosenthal, LLP
• Dan Roach, Vice President for Compliance & Audit at Catholic Healthcare West
• Kathleen Erickson DiGiorno, Vice President, Chief Ethics and Compliance Officer, Medtronic
• Megan Barry, Ethics and Compliance Officer, Premier, Inc.
• Lori Queisser, former chief compliance officer for Schering-Plough and Eli Lilly

Each contributed a unique perspective into the ethics of their particular field, and detail what leading organizations are accomplishing in the ethics, CSR and legal compliance spaces.

“As the healthcare industry faces unique and rapidly evolving legal challenges, it’s critically important that industry leaders make an open and steadfast commitment to ethical business practices,” Mr. Yuspeh said. “We’re all in a position where learning from and sharing with one another will benefit our own efforts and the state of the industry overall. I’m delighted to have such seasoned and leading experts contribute to this special issue of Ethisphere, and I hope that others in our position and industry may benefit from our experiences.”

The Healthcare Issue also features insight from Bill George, a professor of management practice at Harvard Business School and former chairman and CEO of Medtronic. He is the author of four best-selling books, most recently, “7 Lessons for Leading in Crisis.”

In addition to healthcare ethics, this edition of Ethisphere Magazine features the 2010 World’s Most Ethical Companies Ranking. The annual World’s Most Ethical Company list recognizes 100 global companies that lead the way in promoting ethical business standards.

For more information on the Healthcare Issue, the World’s Most Ethical Companies or to subscribe to Ethisphere Magazine, please visit www.ethisphere.com.

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About Ethisphere Institute
The research-based Ethisphere Institute is a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability. The Institute’s associated membership groups, the Ethisphere Council and Business Ethics Leadership Alliance, are forums for business ethics that includes over 200 leading corporations, universities and institutions. These groups are dedicated to the development and advancement of members through increased efficiency, innovation, tools, mentoring, advice, and unique career opportunities. Ethisphere Magazine, which publishes the globally recognized World’s Most Ethical Companies Ranking™, is the quarterly publication of the Institute. Ethisphere provides the only third-party verifications of compliance programs and ethical cultures, Ethics Inside Certification® and Compliance Leader Verification. More information on the Ethisphere Institute, including ranking projects and membership, can be found at http://www.ethisphere.com.

Media Contact
Erin Fullerton
efullerton@ethisphere.com
(720)855-8212

Thursday, May 20, 2010 – Humana Military Healthcare Services, Inc. (“Humana Military”) announced it has joined the Business Ethics Leadership Alliance (BELA), a groundbreaking initiative founded by The Ethisphere Institute that promotes ethical business practices. Humana Military has aligned itself with other BELA members, some of the most well known and highly respected brands in the world, to encourage openness, transparency, responsibility and accountability.

“Becoming part of BELA enhances our continued commitment to business ethics,” said Matthew Paynter, Humana Military’s Director of Compliance. “BELA offers a unique opportunity to join with other like-minded companies that also recognize the connection between ethical business behavior and strong operating performance and brand identification. We are excited by the potential to improve the overall corporate environment, especially within the federal contracting space, and its public perception while learning and sharing best practices with the other members.”

BELA seeks to establish a benchmark framework for ethical behavior in the corporate world by focusing on four core values:

• Legal Compliance – Following both the letter and spirit of the law to counter fraud, corruption, bribery and deceit
• Transparency – Setting the cultural tone from the top by encouraging dialogue on ethical issues and disclosing information in a full, accurate and timely manner
• Conflict Identification – Actively identifying and addressing potential conflicts of interest and appearances of impropriety
• Accountability – Emphasizing quality, customer protection, environmental sustainability and integrity in the supply chain

“We are thrilled that Humana Military has joined BELA as a strong advocate of these core principles,” said Alex Brigham, Executive Director of the Ethisphere Institute and founder of BELA. “We congratulate Humana Military on the decision to take action by demonstrating a commitment to supporting responsible business practices and look forward to its contributions to BELA’s collaborative efforts to create a more ethical business environment for all.”

# # #

About the Business Ethics Leadership Alliance
The Business Ethics Leadership Alliance is a proactive initiative supporting leading American and international businesses focused on preparing the groundwork for improved business ethics across the global economy. Promoting better ethical business practices in key areas including compliance, transparency, conflict identification and accountability, BELA was developed by The Ethisphere Institute, a think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability. More information on BELA is available at http://www.ethisphere.com/bela.

About Humana Military Healthcare Services, Inc.
Humana Military, a wholly owned subsidiary of Humana Inc. and headquartered in Louisville, Kentucky, has been a Department of Defense contractor for the administration of the TRICARE program since July 1, 1996. In August 2003, Humana Military was awarded the contract to provide health-benefits support and services to approximately three million active duty and retired military and their eligible family members in the 10-state South Region. Humana Military was also awarded the Department of Defense contract to provide health care services and support for active duty service members and their families located in the Commonwealth of Puerto Rico, in February 2004. For more information about Humana Military, please visit www.humana-military.com.

Humana Military Healthcare Services, Inc. Media Contact:
Julie Ice
jice@humana.com
502-301-6982

BELA Media Contact:
Erin Fullerton
efullerton@ethisphere.com
720-855-8212

BELA Membership Contact:
Dan Appelson
dappelson@ethisphere.com
800-369-7583, ext. 4

Reaction was swift from the ethics, compliance and governance communities. Professor Ester Bonne from the Center for Ethics Statistics stated “What better way to haphazardly ruin a corporation’s reputation than to name them to the World’s Least Ethical Companies list?” She added “This will surely help reduce excessive executive compensation at these companies, albeit in a roundabout way”.

Ari Kidden, spokesperson for the Ethisphere Institute took a similar view. “We anticipate a lot of web traffic resulting from the publishing of our ‘World’s Least Ethical Companies™ ranking and plan to sell cleverly worded T-Shirts on the website that will make us all a lot of money” said Kidden.

“We are particularly excited about the World’s Most Kinda Ethical™ list as it is sooooo American to celebrate mediocrity, from trophies for Little Leaguers just for showing up, to grade inflation in college. We are excited to be extending this trend into the corporate world” Kidden added.

Some legal experts have already raised concerns about exposure that the Ethisphere Institute may be assuming in designating the world’s “least ethical” companies but others were impressed at the bold maneuver.

One outside counsel, who insisted on remaining unnamed in order to not jeopardize his client relationship with the Ethisphere Institute, called the development “Awesome!”. He added “I can only imagine how upset companies will be to see themselves on the ‘least ethical’ list… and my billings are going to skyrocket.” This individual was nonplussed however about the ‘kinda ethical’ list… deeming it “a waste of time.”

And if you have made it this far… APRIL FOOLS!

Below is a Q & A with Ethisphere Executive Director Alex Brigham.

Corporate Compliance Insights: How does the ranking process work?
Alex Brigham: Ethisphere tracks companies around the globe, and each year, the process and methodology continue to improve. When it comes down to it, earning a World’s Most Ethical (WME) designation takes a strong commitment to compliance and ethics, as well as the law. This is evidenced by how well a company meets or exceeds the definitions of an “effective compliance and ethics program” as set forth by Section §8.B2.1 of the US Federal Sentencing Commission (www.ussc.gov). Ethisphere’s editorial staff believes that a firm commitment from the top to uphold both letter and spirit of the law is necessary to create an ethical culture throughout.

Through in-depth research and a multi-step analysis, Ethisphere reviewed nominations from companies in more than 100 countries and 35 industries. The methodology for the World’s Most Ethical Companies includes reviewing codes of ethics, litigation and regulatory infraction histories; evaluating the investment in innovation and sustainable business practices; looking at activities designed to improve corporate citizenship; and studying nominations from senior executives, industry peers, suppliers and customers.

Other important factors in the analysis of a company include such things as: track record of ethical, compliant behavior; strong tone on ethics from top leadership; effective corporate governance; commitment to sustainability; transparency to investors and the public; and commitment to quality and safety.

Corporate Compliance Insights: Why does Ethisphere put this list together?
Alex Brigham: Ethisphere assembles these lists to: (a) bring greater awareness to the compliance and ethics profession; (b) highlight and give public credit to companies that are demonstrating leadership; and (c) encourage companies that are laggards to improve. Public recognition creates incentive for companies to do what it takes to be named to the list year after year, encouraging continual improvement of corporate behavior, which Ethisphere feels is a valuable public service.

Corporate Compliance Insights: What trends did you notice about the companies named to this year’s list?
Alex Brigham: The competition for the World’s Most Ethical Companies was the strongest it has ever been, with a record number of organizations vying for this distinguished honor. Enhanced transparency is the most dominant trend, exhibited by this year’s winners. Additionally, the issue of ethics and reputation is making its way into the boardroom, which is a new phenomenon. Companies are also more sensitive than ever as to how the actions of other organizations they do business with could reflect back on them, and thus, are taking measures to ensure ethical behavior.

Corporate Compliance Insights: What does it mean for companies who are named to the WME?
Alex Brigham: We have seen companies that earn WME distinction use it in all sorts of ways to further their own investment in ethics and their business over all. This includes using it as a valuable employee and customer recruitment tool. Companies have informed us that receiving WME or Ethics Inside Certification™ recognition from Ethisphere has translated into millions of dollars of new opportunities for their organizations. Furthermore, companies trumpet their WME distinction to shareholders. The 2010 World’s Most Ethical Companies have outperformed the S&P 500 by delivering a 53 percent return to shareholders since 2005—compared to the S&P’s four percent shareholder loss over the same period. This trend is a continuation from the initial WME list from 2007 comprised of companies that still dramatically outperform the S&P to this day during the subsequent three years.

Corporate Compliance Insights: How long has Ethisphere been identifying the WME?
Alex Brigham: Ethisphere began identifying the World’s Most Ethical Companies in 2007. Thirty-six companies on this year’s list have the distinction of earning this honor all four years, including General Electric, Starbucks, American Express, Google, Nike, Time Warner and PepsiCo. Additionally, 25 companies are new to the list in 2010 and 24 dropped off since the 2009 rankings.

Corporate Compliance Insights: Where can people go if they want to learn more about the World’s Most Ethical Companies?
Alex Brigham: They can visit www.ethisphere.com/wme-2010 to view the full list of companies on this year’s WME and to learn more about the methodology.

See the full article here.

A handful of them have actually achieved some prominence — lists such as Fortune’s 100 Best Places to Work, Working Mother’s Best Companies, J.D. Power recognitions, Dow Jones sustainability indexes, and the U.S. News & World Report “Bests.”

One of the newest — but by far the most important — entrants in the field is Ethisphere magazine’s annual list of the “World’s Most Ethical Companies.” Started in only 2007, it has catapulted to the top of its class within a very short period of time, making it an absolute “must read” for anybody in the business world.

And here is why: those who invest in public companies or work at them want to know that these are good organizations — ones that try to do the right thing every single day. Who wouldn’t want that?

But there’s a fundamental problem: trying to figure out which corporations are really good is a difficult exercise. Random press articles about this or that don’t really tell you about a company, and corporate securities disclosures certainly don’t do the job.

That’s why I think Ethisphere’s list is so vitally important.

Now, some people might think that the words “Ethical Company” are an oxymoron similar to the term “Central Intelligence,” but Ethisphere and the standards it applies to the hundreds of applicants who are vying to make that all-important annual list prove otherwise. And so do the companies themselves.

To be sure, every corporation has its bad actors or has done something that it’s not especially proud of. Ethisphere, however, has devised an insightful set of criteria, weighs different — and entirely transparent — standards to rank the most ethical companies across 35 different industries, and allows outsider advisers to comment on the listings. The criteria include executive leadership, tone from the top, corporate citizenship as well as integrity, track record and reputation.

As a former journalist, I’ve always been more than suspicious about one particular aspect about all of those various rankings out there and it’s this: is anyone on those lists paying to play? And, if they are, has that been fully revealed upfront in an open and transparent manner?

I can’t remember any of the ranking publications ever disclosing whether there was any sort of economic relationship between them and those that they ranked. Call me cynical, but I’ve seen enough in my reporting life to cause me to wonder whether any monetary incentives were ever at play in these rankings.

This year, Ethisphere has set an entirely new standard that every other ranking publication would be foolish not to follow. It has just released its first annual “Media Responsibility Report,” identifying the companies on its lists with which it has had material economic relationships. (There were very few.)

But can the same be said for Fortune, J.D. Power, Dow Jones, Working Mother, etc.? I don’t know, but I think it’s really important for their readers to find out.

The “Media Responsibility Report” does a whole lot more than just disclose economic relationships: it also identifies the methodology behind the rankings, the amount of weight given to each of its standards and the list of outside advisers who helped to create the ranking system itself.

That is what I call complete and absolute transparency. And it shows you exactly why Ethisphere — and its list — have had such a meteoric rise and become so well respected in such a short period of time.

Why can’t the other list-makers do the same? And why shouldn’t they? What on earth is wrong with full disclosure when they’re basing their rankings on what they lead others to believe is an entirely objective set of criteria? Even the slightest lack of transparency will only hurt their credibility.

So, just when we’re all forced to wonder about who is really guarding the hen house, it’s nice to know that at least one outfit is reviewing hundreds of pages of submissions and trying to identify for us the hens that need the least guarding. Isn’t that what we all want to know?

Not surprisingly, it was a media company dedicated to ethics that took the first leap. And the real question now becomes: will the others follow suit or just go their normal merry old way?

Read the entire article here.

Ethisphere made it clear that ethics pay by pointing out that the companies that made its list have returned 53% to shareholders since 2005, crushing the S&P, which has only returned 4% for the same period. It make sense. Companies that can be trusted by employees, vendors, and customers tend to create stronger customer loyalty, which results in higher sales and profits.

Toyota, which made the list in 2009, suddenly accelerated off this year’s list due to its well-documented problems.

The good news at Ford is translating to great news for chief executive office Alan Mulally, who earned 17.9 million in 2009, which was a 6% increase from his 2008 compensation. It’s doubtful his paycheck is going to cause much of an uproar after the kind of year Ford has had for shareholders.

I mean, how could investors complain if they bought F on March 9, 2009? Holding from then until now has resulted in a 715% annual increase! That’s the type of return that should impress any investor. But does that astronomical return mean that the run is over for Ford stock? I think not.

Consider that Ford shares hit a five-year high last week after Moody’s Investors Services upgraded $65 billion of the company’s debt. Ford’s debt is still 5 grades below investment grade, but after two upgrades in two weeks from Moody’s, you’d have to forgive optimistic investors who are hoping that one day soon Ford Motor will once again achieve Moody’s highest investment grade. At that point, the debt is considered the “smallest degree of risk,” which means money is easier to borrow at the lowest terms.

Not only is the company improving from a financial standpoint, but the quality of Ford vehicles was recently recognized, which helps boost the company’s profile with the car-buying public. At a time when competitors like Chrysler, GM, and Toyota are struggling, getting the highest grades for consumer quality is bound to help. Many industry experts have praised Ford recently for their product pipeline as their vehicle lineup has taken off with customers.

If all of these good news signs still don’t move you to invest in Ford stock, consider this: the automobile sector is expected to be America’s fastest growing industry in the next five years, given the country’s recent economic woes which caused such a massive reduction in sales for the auto makers. Now the consumer is coming back, getting financed, and increasingly choosing Ford Motor Co. products. That’s the type of trend anyone would love to see before they make an investment. Ford is now North America’s largest vehicle supplier by volume and the overall market is growing at the fastest pace of any industry! The trend is your friend and the trend for Ford remains up.

Right now Ford shares are trading for just under $14 as the price action consolidates.

Look for much higher returns in the next three months as long as the company continues to execute its plan.

Read the full, original article here.

Companies that “go green” or divest from Sudan tend to get a lot of attention, but those that undertake more subtle efforts to promote transparency and strong corporate cultures often fly under the radar of socially responsible investors. With that in mind, Ethisphere has picked out 100 companies that do a superior job in the area of corporate governance.

To make the list, businesses not only need to have stringent policies in place to weed out corruption and waste, but they also need to actively encourage employees to follow them. “A company can have a hotline where an employee can raise concerns, but with a lot of companies, if the culture is not right, no one is going to use that hotline,” says Alex Brigham, Ethisphere’s executive director.

The vast majority of the companies on the list are based in the United States, where regulations concerning corporate ethics are relatively strong. Most of Ethisphere’s picks are rather unobjectionable, but a casual glace at the list will still reveal a few surprises.

To read the full article, click here.

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Hartford Financial Services (NYSE:HIG) zoomed 0.88% to $27.50 after today it announced that it has been recognized by the Ethisphere Institute as one of the World’s Most Ethical Companies for 2010…

To read more, click here.

The Ethisphere Institute, a New York City think tank, on Monday released its fourth annual list of the World’s Most Ethical Companies. The listing, of companies with at least 100 employees and more than $50 million in annual revenue, gives its winners an opportunity to trumpet their do-gooding ways. It is not a ranking, so they are all equally winners.

To compile the data on which it bases the list, Ethisphere relies mostly on the honor system. Three thousand companies were nominated–or nominated themselves–to be considered. They each filled out a survey with items like, “Please describe your organization’s projects and initiatives aimed at workforce sustainability and well-being.”

“Depending on their responses, we might give them more points in that category,” says Stefan Linssen, editor of Ethisphere Magazine. He adds that most companies tend to be “overwhelmingly honest.”

Ethisphere evaluated the surveys and assigned the companies scores in seven different categories, including “Innovation that contributes to the public well-being” and “Executive leadership and tone from the top.” It culled the list down to 200 or so and then cross-checked it against governance lists from GovernanceMetricsInternational, FTSE for Good and other organizations. Ethisphere nixed any company that’s had significant legal trouble over the past five years. Companies that focus on alcohol, tobacco or firearms also got the boot.

The 100 companies that made the final cut include first-time recipients Ford Motor Company ( F – news – people ), Adobe Systems ( ADBE – news – people ) and Campbell Soup ( CPB – news – people ). Google ( GOOG – news – people ), Starbucks ( SBUX – news – people ), General Electric ( GE – news – people ) and 33 other companies have appeared on the list for all four of its years.

Ethisphere says the companies on this year’s list have outperformed the Standard & Poor’s 500 by delivering a 53% return to shareholders since 2005, significantly higher than the S&P, which has been down 4% in the same period. The list hasn’t been a great predictor of future performance, though. Twenty-four companies dropped off it from last year, including Kellogg ( K – news – people ), which in April settled a Federal Trade Commission complaint that it had made false advertising claims. Another 2009 winner was Toyota ( TM – news – people ), which in the past year has recalled 8.5 million cars due to sudden acceleration problems. “Toyota still has some good ethics and compliance programs,” Linssen says, “but they haven’t made it terribly clear what they will do to prevent this situation from happening again.”

Ethisphere tries to be transparent about its own conflicts of interest. It discloses, in a “Media Responsibility Report,” that 10% of the honorees have a “material economic relationship” with the organization. The think tank makes money by charging businesses for its Ethics Inside certification and to be members of subgroups like its Business Ethics Leadership Alliance. Marketers can also buy ads and advertorials in Ethisphere magazine and buy ads on the organization’s Web site. “Every media company has conflicts of interest,” says Alex Brigham, the director of the Ethisphere Institute. “Some publications charge substantial fees to be considered for their lists. That’s a problem. What you end up having is pay to play.” Companies don’t currently pay to be considered for this list, although Ethisphere may change that in the future.

Ethics and corporate citizenship rankings have multiplied in recent years, and the lack of consistency between lists can cause confusion. In January Corporate Knights, a Canadian media company, published its list of the world’s most sustainable companies. CRO magazine published its list of the 100 Best Corporate Citizens in early March.

“CRO magazine includes companies that we would immediately eliminate,” Linssen says. However, CRO left out Google, citing its lack of transparency; Ethisphere included it on its “Most Ethical” list.

How much do these lists really matter, beyond corporate window-dressing? After Corporate Responsibility published its 100 Best Citizens list, a debate broke out in the online community Justmeans.com. There, Campbell Soup’s vice president of corporate social responsibility and sustainability, Dave Stangis, sounded a very dubious note. He wrote that anyone who “looks to a single list to provide the output that every stakeholder wants will be looking far beyond the grave.”

Read the entire article here.

The 2010 list includes some well-known names, including automaker Ford Motor Co (F.N), software company Adobe Systems Inc (ADBE.O) and grocer Whole Foods Market Inc (WFMI.O) among the new entrants. Those newcomers pushed other big names, including Toyota Motor Co (7203.T) and McDonald’s Corp (MCD.N) off the list.

Ethisphere evaluated more than 3,000 companies with at least $50 million in annual revenue.

NEWCOMERS TO THE TOP 100:

Adobe Systems Inc (ADBE.O)

Aramark Corp ARMRK.UL

Ashland Inc (ASH.N)

Barrett Jackson Auction Co

Campbell Soup Co (CPB.N)

Comme il Faut

Dow Corning Corp DOWCR.UL

Ford Motor Co (F.N)

Granite Construction Inc (GVA.N)

Hospital Corp of America Inc

J.M. Smith Corp

L’Oreal SA (OREP.PA)

National Grid Plc (NG.L)

Noblis

Parsons Engineering

Paychex Inc (PAYX.O)

Rezidor Hotel Group AB (REZT.ST)

Rockwell Collins Inc (COL.N)

Solae LLC

Teradata (TDC.N)

Timken Co (TKR.N)

Wegmans

Whole Foods Market Inc (WFMI.O)

Wisconsin Physicians

Wyndham Worldwide Corp (WYN.N)

DROPPED FROM TOP 100 IN 2010:

Accor (ACCP.PA)

BMW (BMWG.DE)

Baxter International (BAX.N)

Danone SA (DANO.PA)

Dell Inc (DELL.O)

Holcim Ltd (HOLN.VX)

Honeywell International Inc (HON.N)

HSBC (HSBA.L)

Intel Corp (INTC.O)

Kellogg Co (K.N)

Marks & Spencer (MKS.L)

Marriott International (MAR.N)

McDonald’s Corp (MCD.N)

Novartis AG (NOVN.VX)

Novozymes (NZYMb.CO)

Oracle Corp (ORCL.O)

Petro-Canada (SU.TO)

SC Johnson & Son

Safeway Inc (SWY.N)

Sompo Japan Insurance Inc (8755.T)

Statkraft STATK.UL

Stonyfield Farm

Toyota Motor Co (7203.T)

Unilever Plc (ULVR.L)

Source: The Ethisphere Institute

(Reporting by Scott Malone; Editing by Gary Hill)

Read the original Reuters post here.