Gordon noted that when structuring a monitorship of an entity or an individual, it can be an unknown. Some of the issues include how to approach and interact with all the stakeholders and how that is organized, as monitorships are heavily impacted by cultural considerations. Gordon stated, “I’ve lived in, worked in numerous countries and I can tell you that those legal processes, there are absolutely important cultural differences that have to be built in. For instance, I’ll take an example here in the US there really is not the same expectation that a corporation will take care of its employees beyond what is required under labor and employment law and safety laws. Yet in many other countries, employers may develop deep personal relationships with employees, really on a level that you and I might associate with familial relationships.” Obviously, this has impacts for monitorships with an international component.

Additionally, there may be separate monitorships from different sets of prosecutors. For instance, the Odebrecht corruption case mandated a US and Brazilian monitor. Gordon said that in such a situation, “as a monitor, we are appointed to help the organization remediate and approve. We need that buy-in, all the stakeholders.” Equally importantly, when a US based monitor is in other countries, considerations of cultural sensitivities, norms, values, are part and parcel of the design of the monitoring program. There can be “cultural values such as maintaining harmony within the organization, change how we approach interviews, dialogue with employees and managers, building consensus and so on. This can extend to seemingly basic monitoring elements such as asking and receiving questions. It can also be around how poor decisions can even be challenged within the company as in many cultures, they do not embrace challenging management even when employees know that what the managers are doing are violating the law.” All of these factors must be taken into consideration.

For more information on AMI, check out their website. For more information on Mikhail Reider-Gordon, check out her LinkedIn profile.

Just as compliance programs and the role of the Chief Compliance Officer (CCO) have evolved, the situations involving a monitor have evolved. We began with a consideration of some of Gordon’s thoughts about how the intersection of law and technology, including privacy, data management and data bias are really driving the conversation with clients around oversight and monitorships. Gordon began with the trend and growth in monitoring entities that have violated data privacy laws. Interestingly, this can come not from any overt or even poor decision on a company’s part or action. It could be from a data breach or it could be they misuse data. Gordon pointed to misuse such as Facebook, under evolving privacy laws. Here Gordon related that “Companies are a little on the back foot.”

The evolution of monitorships has also occurred around timing. Originally, monitors were brought in at the conclusion of an enforcement action. Now monitors are often brought in during and even before an enforcement action begins on a pro-active basis, to get out ahead of the problem. This can be to see if an issue exists or to remediate the issue before the conclusion of an enforcement action. If it is the former situation, it can help to prevent an enforcement action from even getting off the ground. If the enforcement action has already begun, the pro-active approach can help a company garner a declination or if one cannot be obtained prevent a multi-year, post-settlement monitorship from being mandated.

For more information on AMI, check out their website. For more information on Mikhail Reider-Gordon, check out her LinkedIn profile.

It is headquartered in Laxenburg, Austria, and hosts students from over 70 countries, including US, Europe and a heavy presence of African students. Many of the student are prosecutors and investigators from developing countries who are looking to expand their capabilities and technical skills in combating corruption back in their home countries.

Gordon said that from her work at the IACA she has garnered a wider appreciation of the cultural differences that every compliance practitioner and monitor need to be attuned to in monitorship work. She said, “that is one of the more enjoyable elements of it. We touch on a lot of cultural differences and we will raise scenarios or questions in the class. We’ll have folks from the Middle East, from Africa, from China, from Indonesia, India, Western European countries, from Brazil, from the US, from Canada, basically from across the globe. This leads to a wide range of opinions.”

For more information on AMI, check out their website. For more information on Mikhail Reider-Gordon, check out her LinkedIn profile. For more information on the IACA, click here.

It has also led into what Gordon characterized as the “danger of informal sympathies” with “subtle influences that can remove true impartiality.” Gordon underscored that true neutrals are not as easily come by as many may have thought. Such informality can be found in so many of our human relationships, former law school classmates, work colleagues, friendships, even home or social background can play such a significant role in allowing dispensations to occur, all of which can impact success of combating noncompliance.

Gordon tied all this “back to understanding on ethical culture where informality can allow certain behaviors to slide into a negative situation.” It could be “a willingness to cross lines regarding a specific regulation or failing to see that the spirit of the laws are not being fully upheld in a particular entity.” All of this means a monitor “can start with the proposition that every compliance and ethics program can be improved and then move to address what changes have to occur that will demonstrate to the outside world company and to the regulator which is overseeing terms of settlement agreement. Let’s get you to that place and help you to understand the value of constant evolution and compliance and ethics program.”

For more information on AMI, check out their website. For more information on Mikhail Reider-Gordon, check out her LinkedIn profile.

Gordon has long been a part of the ABA’s discussions around monitors. These standards are found under the Criminal Justice Standards on Monitors (the “ABA Standards”). The ABA Standards emphasize the monitor selection process should encourage consideration of a broad range of monitor candidates and should not be artificially limited by demographic, professional and geographic factors. Gordon also emphasized that “qualifications, integrity, credibility and professionalism are the top of the list.”

Moreover, under potential exclusion, there are a number of examples the standard provides that should be baked into every monitor selection process. Basically, anything that appears to create a conflict of interest or would be perceived to impair the monitor’s judgment or independence are non-starters. Yet, Gordon believes the standards actually go further. She stated, “They go onto provide additional factors that should be considered, some of which may seem obvious to us; such as not having worked for the organization being monitored during the time of the activity in question; not holding prior affiliation with a firm that provided legal or other professional services to the organization being monitored; and even extending to any other factor that could bias or impair or be perceived bias or impair the monitor’s judgment, objectivity, independence, including the prospect of future engagement or other economic considerations that could influence it”. The bottom line is that the ABA Standards “emphasizes the importance of independence.”

All of this extends beyond the criminal side where a monitorship might be put into place concerning a prosecution. It also extends to the civil side of enforcement. Moreover, the ABA Standards can also be applied to a variety of over situations where the independent third-party might be an ombudsman, Independent Sector Inspector Generals or other nomenclature. Gordon believes that “encoding true independence is essential no matter what form a monitorship takes, what title you give it, or whatever you might call it.”

 Highlights include:

• Begin with framework for such an assessment, usually the compliance program itself.
• Is your training both focused and effective?
• Is there institutional fairness in your promotion and compensation programs?
• Is there institutional justice around reporting, discipline and investigations?
• Is your compliance program a paper program or is it fully operationalized?
• Is there accountability in your organization?

For more information see Jay’s blog post How is ethical culture a part of an overall ethics and compliance assessment? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. check out their website here.

 Highlights include:

• Who should perform the assessment of corporate culture?
• An in-house resource may be seen as more ongoing monitoring than culture assessment.
• Conversely an independent outside expert may be able to garner more fulsome information of the true state of your corporate culture.
• Tools to assess the culture of an organization include employee surveys, conversations, visits to field operations.
• What are the differences, if any, which must be considered when assessing a global company?
• Why do you need to “fine-tune” a cultural survey to get a good understanding of the company’s culture and obtain meaningful metrics?
• The bottom line is you should take the temperature of your employees internally by doing regular monitoring of your company to understand its culture and what needs to be done.

For more information on Affiliated Monitors, Inc. check out their website here.

For more information see Jay’s blog post How does a company assess its culture? on Corporate Compliance Insights.

Highlights include:

• Who bears the responsibility for culture?
• The duty most often falls to the CCO, so both the CCO and the entire compliance function need to be able to coordinate the various inputs and support mechanisms that guide employee behavior.
• The CCO is often the face of the ethics program for the company – kind of the spokesperson for the company who helps to drive behavior.
• In hiring and recruiting, a CCO can create a culture where an organization would only hire the right type of people as employees.
• When managing upward, the CCO has an equally critical mandate through unfettered access to provide information to the Board regarding the compliance and ethics posture at the company, specifically including the culture.
• What are the warning signs of an unethical culture?
• It is up to the CCO to understand and have their finger on what the culture is, where the challenges are and what needs to be done to continually strengthen the culture.

For more information see Jay’s blog post What is the CCO’s Role in Strengthening the Organization’s Culture of Ethics? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. check out their website here.

 Highlights include:

• A company does not have an ethical culture unless top management commits to it.
• Equally important is a sense of organizational justice and fairness.
• One of the key elements of effective leadership is listening and that also applies to a company’s culture.
• Do senior leadership give their people the opportunity to be heard?
• Do senior leaders get out of the ivory tower, go out into the field and meet with employees?
• Are there town halls or other types of group interactions?
• Do the employees see whether their leaders are living those kinds of values?
• It is crucial for perception to equal reality.
• The bottom line is there must be alignment between what top management says and the company’s core values – between what the organization says and what it does.

For more information see Jay’s blog post What Factors Influence a Company’s Ethical Culture? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. check out their website here.

Highlights include:

• An exploration of the question “what is corporate culture”?
• Corporate culture is the way things really arein an organization and the way things really work.
• There may be more than one culture in an organization and there might well be multiple subcultures in a company.
• M&A due diligence around culture is critical.
• What different kinds of cultural systems could impact a company?
• Why is having a “speak up” culture a key indication of a strong ethical culture?
• How can an organization hold its employees throughout the organization accountable?
• Why must there must be an alignment between what top management says and the company’s core values to have an effective culture?

For more information see Jay’s blog post What is Ethical Culture and Why Does it Matter? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. check out their website here.

Some of the highlights from this podcast include:

1. What will be the overall scope of the monitorship?
2. What will be the frequency of engagement by the monitor?
3. What will be the duration of the monitorship?
4. What is the experience of the monitor and how does that play into overall costs?
5. How you can work through cost control issues by using a robust monitor’s Workplan?
6. How selective sampling is a powerful tool and why it can be a cost-saving measure.

For additional reading see Jay Rosen’s article How Much Will a Corporate Monitorship Cost? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. visit their website here.

Some of the highlights from this podcast include:

1. Considering the type and style of the monitor in your selection process.
2. What is the expertise of the monitor, not simply in the subject matter but concluding monitorships?
3. Balancing the interests of the regulator, the company and other stakeholders.
4. Making sure that the monitor is bringing value to the company.
5. Why a Monitor must be independent and conflict-free.

I hope you will join us tomorrow for Part 5, where we discuss the issue of costs when retaining a monitor.

For additional reading see Jay Rosen’s article What Issues Should a Company Consider When Hiring a Corporate Monitor? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. visit their website here.

Some of the highlights from this podcast include:

1.  What is an Internal Cultural Assessment?

2.  How can a pre-settlement monitorship be used as a (a) Pre-emptive Strike; or (b) to prevent a suspension or debarment action?

3.  What is the power of a pre-acquisition monitor in M&A Due Diligence?

4.  How is an independent integrity monitor can be a powerful prescriptive tool?

For additional reading see Jay Rosen’s article What is the Power of a Pre-Settlement Monitorship?on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. visit their website here. 

Some of the highlights from this podcast include:

1. What is a monitorship in the FCPA Context?
2. Complying with Consent Decrees
3. When does post-resolution monitorship have the impact of a pre-settlement monitorship?
4. There are myriad of other ways a post-resolution monitorship can help a company navigate post-resolution issues with regulators.

For additional reading see Jay Rosen’s article What is a Post-Resolution Monitorship? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. visit their website here.

1.  What is a corporate monitor?

2.  What agency has oversight?

3.  Who foots the bill?

4.  What about subject matter expertise?

I hope you will join us tomorrow for Part 2, where we discuss post-settlement monitorships.

For additional reading see Jay Rosen’s article Corporate Monitorship 101: Who Are They, and What Can You Expect? on Corporate Compliance Insights.

For more information on Affiliated Monitors, Inc. visit their website here.

It really starts from the position that most non-profits have less money than for-profit businesses so their compliance programs are typically not as well invested in. Moreover, most non-profits tend to see themselves, because they typically do not have a profit motive, as not open to waste, fraud and abuse. As Stern said, “they see themselves as wearing white hats and they do not see the need for compliance programs.” Finally, they tend to be very siloed. All these factors make the need for robust compliance even more important.

The bottom line is that after the NCAA basketball corruption scandal, the Varsity Blues college admissions scandal and others, non-profits will be investigated more thoroughly by federal, state and local regulators. Hiring a third-party independent, such as Stern, on a proactive basis can help any entity.

Find out more about Affiliated Monitors Inc. by checking out their website here.

In many ways the health care arena can be similar to other business, with their need to work with third-party independents. Stern said, “the cost of getting it wrong these days is very high. It’s not just the cost of hiring lawyers to defend you with a government agency or the Department of Justice. It is even more than the reputational risk. If you are a public company, your stock price is probably going to take a nosedive.” This makes bringing in a third-party independent a “cost effective step to try to get ahead of the situation.” All of this means that bringing in a third-party independent, on a proactive basis to assess a compliance program to bring it up to a best in class standard can really work as a business advantage. Stern believes that to be correct and added, “we work with the company at benchmarking and coming up with best practices. I think most companies want a kind of a state of the art, best practice compliance program rather than simply rely upon what worked five years or 10 years ago.”

Find out more about Affiliated Monitors Inc. by checking out their website here.

Stern believes, “it does lend some support. The organization under investigation not only has the right instincts, motivations and goals but it intends to fix the problem.” He believes they do “not expect you to assess every conceivable possibility and turn over every possible rock to interview every employee that might be involved. They want you to take a more risk based focused view on where you see the problems. The best way to do that is not by looking to people internally whose livelihood depends upon getting a paycheck every other week or every month from the company, but the people who were outside the company and who have some measure of independence.”

It is about the data and the metrics you use to reach your conclusions. This is because prosecutors are becoming much more sophisticated in their understanding of what constitutes a best practices compliance program. Stern noted that in areas as diverse as the FCPA or health care fraud not just the federal government, but state governments and now increasingly local governments, are really asking the right questions. They want to know, “what makes a good compliance program and what assurances do we have that if we give you a break in this case that you’re actually going to end up at the end?” The government wants corporations to be good corporate citizens and third-party independent monitors can help provide that assurance.

We began by exploring some basic questions around the attorney/client privilege, which belongs to the client and not the lawyer. Further, if a third-party independent monitor is retained by corporate legal to perform an assessment or review, it can be done under attorney/client privilege. It designed to give the company maximum information and flexibility to not have people being concerned about the information flow. It puts company’s in a position to make a decision on the possible self-disclosure. Not every issue needs to be self-reported nor does the government want to hear about every issue.

Stern emphasized that the privilege provides a company with the ability to self-disclose and, in some cases, to protect that information at least initially without worrying about being sued by private parties or class actions are securities cases. It allows an organization to “get an unvarnished view of the facts by an outsider or it goes to the lawyer who can assess it and discuss it with the client and then make a decision.” It allows you to explore such questions as: Do we need to report it? Should we report it? How should it be reported?” It can be a very powerful tool.

The bottom line is that companies cannot simply bring in a third-party independent, get a report or findings and then put their head in the sand. Stern believes being proactive means not simply bringing in an independent third-party but also using the information developed in a proactive manner. He said, “It is being aggressively proactive in fixing your problems. It is being as transparent as possible within that particular company’s environment. Identifying and fixing the problems, not only builds confidence internally within but provides assurance to the outside world; to shareholders, the media and government regulators that you are identifying your problems and fixing them yourself. This is the way to go.”

There are then multiple reasons for defense counsel, whose primary role is to defend an individual or organization. Stern ended by concluding, “the government has become much more sophisticated in assessing compliance programs. It used to be that you can simply present the policies, procedures and some metrics and the prosecutors or the regulators would nod their head and say you’ve got a very good program. But that is not anymore. They want an on the ground assessment as to whether it’s really working and whether people take it seriously.” The bottom line is that the “best way to do that in my view is having a third-party independent come in and do that work.”

Join us in next week where we dive into the weeds by looking at the nuts and bolts of working with a third-party independent monitor.

Find out more about Affiliated Monitors Inc. by checking out their website here.

To gain a better understanding of the effectiveness of corporate ethics and compliance efforts and to identify any gaps in the program’s scope, contractors are well advised to commit to an objective assessment of their ethical culture and ethics and compliance programs before a crisis occurs. Grandon stated, “part of the requirement for an ethics compliance program is that the contractor will conduct periodic reviews of the company’s business practices, procedures, policies, and internal controls for compliance with the Contractors Code of business ethics and conduct and the requirements associated with federal contracting.” Contractors should consider carefully whether the assessment can be performed using in-house resources, or whether the assessment should be performed by an independent and objective outside organization.

An independent, outside reviewer would in their report create a roadmap that a company could use to remediate any deficiencies if new risks had arisen, either in markets, products or services that could be used as a documented roadmap if a regulator ever came knocking. The company could show such regulator that “yes, we not only reviewed our program, but we have a roadmap and here are the steps we are taking based upon this roadmap to move forward into the future.”

To find out more about Affiliated Monitors, Inc. check out their website www.affiliatedmonitors.com.

Grandon began by noting that this is a fair question given that many of the policies and procedures required in the Federal Acquisition Register (FAR) 3.1000 and 52.203-13 relating to contractor integrity and honesty have been in place since December 2007. Also, Sarbanes-Oxley (SOX) was passed in 2002 so those requirements have been around for nearly 17 years as well. Many contractors, particularly major prime contractors, have invested heavily over the years establishing and maintaining robust corporate ethics and compliance programs and internal controls. Additionally, major primes have taken steps to encourage and assist their subcontractors and suppliers to develop appropriate codes of conduct and related policies, procedures, and infrastructure. The limited research in this area to date has shown that such programs, when effectively implemented, produce positive results in reducing misconduct. Still, significant gaps remain within the federal marketplace, especially at the mid and lower tiers of the supply chain and services industries.

Grandon believes that while these responses to the FAR and legal requirements are “trickling down” to smaller organizations, unfortunately there are a large group of small and middle tier contractors that believe these programs are only for large government contractors, or they believe they lack expertise and resources to build and maintain appropriate programs. Many more do not focus on the requirements at all (until it is too late); instead focusing on building the business and thinking that their customer relationships will help them business survive any future challenges. Grandon also related, “frankly, a lot of small businesses and medium sized businesses either ignored this all together in their pursuit of business and revenues or they put in place a written policy set of policies and procedures, including a written code of conduct.” Perhaps they provided some training, but in most cases, “it was all a paper exercise. It never transcended into a way of doing business”. This has led to continued compliance and ethics lapses.

Regardless of size, for-profit businesses are hesitant to expend time, effort, and money on efforts that do not directly advance company market objectives or revenue growth. Government contractors are no exception. As such, while many contractors grasp the need for integrity programs, company leaders elect to forego necessary investments of time and resources into such programs. Instead, they operate under the assumption that they operate ethical companies; they believe their employees understand and embrace what we all should know from childhood: it is wrong to lie, cheat, and steal.

Grandon concluded by intoning, “even the best programs are threatened by complacency. Contractors must continuously strive to creatively spark their ethics and compliance programs to keep the objectives and expectations fresh and central to business operations.”

To find out more about Affiliated Monitors, Inc. check out their website www.affiliatedmonitors.com.

These programs, and their benefits, extend beyond a written set of rules and policies. Companies use ethics and compliance programs to communicate company mission statements, goals and expectations; to encourage staff to share the same set of corporate values; and to drive their behavior in day-to-day business activities.

It may be appropriate for small concerns to rely on “existing resources and simple systems.” For example, it may be appropriate:

• For senior company leaders to discharge their responsibilities for oversight of an effective program by directly managing the company’s efforts, as opposed to hiring or designating others to do so.
• To train employees through informal staff meetings, and monitoring effectiveness through “regular ‘walk-arounds’ or continuous observation while managing the organization.”
• To use available personnel and resources, rather than employing separate staff, to run the program.
• To model the company’s ethics and compliance program on existing, high-quality programs and practices of other similar organizations (although, as noted above, there are no perfect one-size-fits-all programs – even if adopting an existing program, the company must tailor that program to the specific business needs and operational risks associated with the company’s activities).

In this series, we examine the impact of two key Federal Acquisition Regulations (FARs), FAR3.1002 and FAR 52.203-13, Contractor Code of Business Ethics and Conduct, in the context of other authorities relating to corporate integrity programs, along with proactive steps contractors can take to better position their companies should federal enforcers come calling. It has certainly been Grandon’s experience that companies that proactively embrace robust ethics and compliance programs tend to become better companies for their employees and customers. Grandon emphasized that the government is focused on what it terms “responsible contractors”. While there is no FAR laying out the definition of this term, Grandon noted it has come to have a very broad meaning.

First, it addresses performance characteristics that a responsible contractor “should have the ability to perform as it said that it would perform pursuant to its contract.” This includes a contract with goods or services. It is beyond ethics and compliance “as it encompasses the concept that a contractor should have the financial wherewithal to complete the contracted task, the facilities or physical plant to perform the work, accounting systems and purchasing systems that are up to the task, property management systems, and all other such systems should be in place. It also means having a workforce that is capable of performing. Finally, it also includes a workforce that is committed to compliance and promoting all they do with integrity.”

We concluded by me asking DiCianni what he was most proud of from the creation of AMI in 2004 up through the 15th anniversary. He said there were three things. The first is that he was able to take an idea, the need for an independent monitor, and germinate it into an ongoing, successful and viable business concern. The second was through the work of AMI, DiCianni has helped not only companies become more robust around ethics and compliance but AMI has helped them become better run organizations. He said, “the fact that we really have helped a lot of companies. We’ve just wrapped up a few matters, and we get these unsolicited comments by our clients and when they say you’ve made, we didn’t want to have a monitor, but you made us a better company. That makes you feel great. And when you do that, that’s been very fulfilling.” The final thing that DiCianni mentioned was the people of AMI. He said, “The last thing that I’m proud of is that I have a remarkable team of people. I have a great team of people dedicated and passionate about the work that we do. So that makes me very proud. We never know what the next day is going to bring. And so there’s a level of uncertainty, which is a good thing because you never know what the next case could be. So again, Tom, it’s been a great 15 years and I’m really looking forward to more of this.”

DiCianni said that over the life of AMI there have been two Memos released by the Department of Justice (DOJ) which have directly impacted the selection of independent monitors and their application. The first was the Morford Memo, released in 2008. In this Memo, the selection criteria for independent monitors was first laid out, including the need for subject matter expertise and independence and integrity of the monitor.

The second was the Benczkowski Memo, released in 2018, which discusses limiting the use of monitors to certain situations where they might be warranted. However, it does give a company the incentive to go out and evaluate their own ethics and compliance programs, compelling them to strengthen those programs so that if they are ever confronted with an investigation or a self-disclosure to the DOJ, the company can demonstrate it has a strong compliance and ethics program and perhaps get special consideration.

They were (1) to convince the regulators that a truly independent monitor not only had advantages but would work; (2) many government agencies and state oversight boards did not want to put the licensed companies and persons out of business because the government and people in a state needed the services; and (3) economic pressures which caused cut-backs to funding and the regulators simply did not have the head count to fulfill the oversight role that an independent monitor can perform. DiCianni was able to answer these questions and others; all of which helped in the formation and growth of AMI. 

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit Affiliated Monitors at www.affiliatedmonitors.com.

From this point, DiCianni was able to convince some state regulators in Massachusetts to try this third way of having an independent monitor step in and assess whether a professional, who had run afoul of a regulatory scheme, could be rehabilitated via a probationary structure. He then I reached out to a number of folks in the Boston area. Some of them were regulators, some were attorneys who represented folks before the state boards, some were acting state attorneys general and some were in business. With this idea coming to fruition, the next step for DiCianni was to create a business organization to fill this niche.

For more information on Affiliated Monitors, check out their website at www.affiliatedmonitors.com. 

A key is the independent nature of the monitor. Part of it is that they have no stake in the outcome, no stock to vest or other remuneration. Also, it is natural for the target company’s employees to have their guard up as they are more than a little wary about anybody coming in and asking a question. Stern said, “I find that people open up, I’m more willing to be forthcoming when somebody’s outside either company comes in and is asking the questions really in a non-threatening way. The independent monitor is just looking for the facts. I find that we are able to get more information than I think we would otherwise get if we were not independent.”

This FCPA Safe Harbor for M&A re-emphasizes how powerful a tool an independent monitor can be in the M&A context. Stern ended his remarks by noting that the Department of Justice (DOJ) certainly sees it as good practice to have a third party independent involved on both the company side and the reporting side, if required. All of this lends credibility to your ethics and compliance program. If your company finds itself under scrutiny from a M&A transaction, you can take some comfort in the strategies outlined in this series.

In the integration phase, he noted the type of culture which exists through working with the respective workforces to understand what are their cultures. Are these cultures compatible in terms of bringing together a program to promote ethics and compliance? This requires, in many cases, deep dives, particularly the use of focus groups to get down to the workforce to get a true understanding of what some of the cultural elements that are in play. And in many cases, this is just a critical and complicated piece. From there, Grandon advocates moving into the controls area to literally put an independent set of eyes on the internal compliance controls. This is to help the parties understand the risk environment they find themselves in and the culture that is in play for the post-acquisition phase.

Moving to the post-acquisition phase Grandon noted that the independent monitor can also provide a key piece to help the integration phase. It can be a critical asset in this process of coming in helping management understand what it has acquired. This is the point there are no limitations on getting in and doing that deep dive with the workforce which already knows it’s been merged or acquired. Also the public already knows so no excuses for not getting in and getting a very good understanding the culture and how the workforce sees the ethics and compliance structure of the company.

 If pre-acquisition due diligence is done correctly, it will identify risks associated with the target and a risk assessment of that company should follow as a part of your pre-acquisition due diligence along the line to your post-acquisition, to give you a roadmap of what areas of risk need to be addressed immediately. Some of the things you would specifically look for in an integration plan are around internal controls. Feldman noted, “Are you going to use the acquired entities internal controls or are you going to put your company’s internal controls regime in place? If so, how are you going to integrate them? How are you going to address any training and awareness gaps as it relates to ethics and compliance responsibilities of the employees, of the new company that are coming into your company? Do people understand the acquiring company’s anti-corruption posture and their ABC policies and procedures and all of that needs to be well documented into an integration plan.”

Near and dear to my heart is Document Document Document as it is very hard to demonstrate the pre and post-acquisition due diligence to an external entity like the DOJ without documentation. The real issue has to do with how you can demonstrate to a government regulator that you have done everything that you can do as a company to identify risk associated with corruption and misconduct. Moreover, if you do identify the misconduct, that you have taken the right steps to inform the government and make that disclosure.

The lack of knowledge on each parties culture can lead to many problems in the post-acquisition phase. Stern emphasized that the key is to not only come in with a plan but to listen and be attentive while implementing the plan. This can lead to a standoff in accomplishing the integration steps required under the Foreign Corrupt Practices Act (FCPA) or similar legislation. However, this is the situation where an independent monitor can assist both parties. Even after closing, an independent integrity monitor can come in and help to smooth out the process. An independent third party comes in with credibility and experience which allows employees at the acquired entity to communicate their concerns in a way that really is very helpful to the acquiring company. Employees can communicate such basic issues as they do not understand the new training they are required to go through, how things do not seem to fit together or the most basic question of why they are now required to do something. Employees can explain why risk areas may exist in other places but not exist in some others. Someone who is truly independent, with no stake in the game, can help make those explanations in a non-threatening way. The key is that independent third-party expert.

Near and dear to my mantra of Document, Document, and Document, was Feldman’s thoughts on keeping a thorough record of your entire process. Not only should the target (or at least you would hope) have a documented process of all of the above issues, but you should be sure to document your entire pre-acquisition process as well. This could be important if you discover any nefarious conduct in the pre-acquisition phase which you should report to the DOJ or if such discovery occurs after closing. If it happens after closing you will need to be able to document the reasonable steps you took in pre-closing and how you will remediate the issue(s) going forward.

Finally, your pre-acquisition investigation and due diligence will inform your post-acquisition steps. Hallmark 10 of the Ten Hallmarks of an Effective Compliance Program mandates that companies will develop and implement policies and procedures for mergers and acquisitions requiring the company to conduct appropriate risk based due diligence on potential new business entities including Foreign Corrupt Practices Act (FCPA) and anti-corruption due diligence. Obviously, this should be a documented process. By having an independent third party do this, with a documented process, it can lower the risk if there is a problem. As problems are identified, the acquiring entity can decide whether to go forward with the M&A. If there is a very specific identification of misconduct, the company can make a disclosure to the DOJ. By using this process, there is a road map created for remediating the issue as a part of your post-acquisition steps after closing.

 DiCianni concluded with accountability. He said, “I think the other one that I can’t emphasize enough is accountability. You know if there are serious violations of an ethics policy of the company, be it conflicts of interest or code of conduct. If nothing is done about it, everyone in the organization knows about that. It diminishes all of the efforts that have gone into creating this program and trying to have an ethical culture. If you do not do anything to enforce it, when something serious happens, it literally becomes a futile exercise”. 

The bottom line is that it is helpful to take the temperature of your employees internally by doing regular monitoring of your company to understand its culture and what needs to be done. However, employees are not going to be as honest and forthcoming with someone in their company as they would be with an independent third-party. This is because employees are almost always afraid of the potential blow back from superiors. Employees will be much more reserved with people that they know or people in their own company so it can be much more powerful and much more effective for an independent third party performing cultural assessment work.

 Moderator:

Dionne Lomax — Managing Director, Antitrust and Trade Regulation (Affiliated Monitors, Inc.)

Panelists:

Peter Mucchetti — Partner (Clifford Chance)

Vic Domen — Partner (Norton Rose Fulbright)

Jesse Caplan — Managing Director, Corporate Oversight (Affiliated Monitors, Inc.).

 For more information on Affiliated Monitors, check out their website here.

The key is that there be an alignment between what top management says, coupled with the company’s core values and what the organization says together with what they do. This all comes from senior management getting out of their office and talking to employees in the field to see not only what they think but how they feel. No company aspires to be unethical and most assuredly employees do not want to engage in unethical behavior but if senior management does not talk to employees they will not know how their messages are being received. It does not take long when there is a disconnect between what senior management says and what the employees take away. It is disconcerting how little top management really understand their employees. Because of this, senior leaders do not know what messages they are receiving, both verbal and non-verbal.

In this webinar our panelists will discuss current challenges and practical responses to help organizations maintain the effectiveness of their ethics and compliance programs in the current crisis. They will also present a framework for an ethical decision-making process based on practical considerations and industry experience. Join Moderator, Rod Grandon, Managing Director, Government Services, at AMI and Panelists, Eric Feldman — Senior Vice President, Managing Director, Corporate Ethics & Compliance Programs at AMI, Dismas Locaria — Partner at Venable LLP and Thomas Topolski — Executive Vice President, Infrastructure Business Development at Parsons Corporation. 

For more information on AMI check out their website, here. 

Feldman emphasized that there can be more than one culture in an organization and that there might well be multiple subcultures in a company. Moreover, you simply cannot force one culture throughout an entire organization. This is because you are dealing with different inputs in every company. He stated, “Culture is made up of all the different people that work for that organization, which means that it’s going to differ by necessity based on population and geography.” This could mean that different locations will have different cultures. Feldman believes that “the linkage between culture and compliance, is that it drives ethical behavior.” Every employee you hire, up to every organization you acquire will change your culture. This is why mergers and acquisitions (M&A) due diligence is so critical.

Another indicium of a strong ethical culture is having a speak up culture. This leads to more formal cultural systems and processes which also impact culture. Here Feldman emphasized the hiring process; who you hire, how you train people and what performance management systems are used throughout the employment tenure. This also leads to the Fair Process Doctrine and whether it is consistently applied within the culture. Finally, are you incentivizing, through measurement, compensation and recognition, the right kind of behavior?

I asked Feldman about holding employees throughout the organization accountable. Feldman responded that it is no longer just top management’s responsibility. There still must be an appropriate tone at the top, but there should also be an appropriate mood at the middle management of an organization as well as a buzz at the bottom of the company about compliance, ethics and values. This is because employees are more influenced by their immediate supervisor and their peers than a faceless CEO, even if that CEO is saying all the right things.

The key is that there be an alignment between what top management says, coupled with the company’s core values and what the organization says, together with what the organization does. This all comes from senior management getting out of the ivory tower and talking to employees in the field to see not only what they think but how they feel. No company aspires to be unethical and most assuredly employees do not want to engage in unethical behavior but if senior management does not talk to employees they will not know how their messages are being received.

1. How does this change the Antitrust Division Leniency Program?
2. Does your compliance program have an antitrust focus?
3. How should compliance professionals consider using this Evaluation?
4. How does this Evaluation fit in with Evaluation of FCPA Compliance Programs?

For a copy of the DOJ Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations, click here.

In this first episode, we begin with some of Feldman’s observations. The 2019 Guidance asks three fundamental questions prosecutor should ask; all other questions are divided into these categories: (1) “Is the corporation’s compliance program well designed”; (2) “Is the program being applied earnestly and in good faith?” In other words, is the program being implemented effectively? Is it real? and (3) “Does the corporation’s compliance program work” in practice? Feldman expanded on these three basic questions, noting in the first question, the query is “whether it’s well designed and there is no a rigid formula.”

For more information on Affiliated Monitors, visit their website at www.affiliatedmonitors.com.

For more information on Affiliated Monitors, visit their website at www.affiliatedmonitors.com.

For more information on Affiliated Monitors, visit their website at www.affiliatedmonitors.com.

For more information on Affiliated Monitors, visit their website at www.affiliatedmonitors.com.

For more information on Affiliated Monitors, visit their website at www.affiliatedmonitors.com.

For more information, visit Affiliated Monitors by clicking here. 

For more information, visit Affiliated Monitors by clicking here. 

For more information, visit Affiliated Monitors by clicking here. 

For more information, visit Affiliated Monitors by clicking here. 

For more information, visit Affiliated Monitors by clicking here.