CCO Insights

“Technically” – or Ethically?

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Yet again, he’d crossed the line.

There had been several violators of a certain sales-related control in the not too distant past – to make quota during a tough quarter, of course, and he’d been the ringleader of this “creative” group. A new policy had been put into place by Finance to add weight and eliminate ambiguities. Those involved received counseling from Human Resources about the proper way to record revenue related to sales of this particular product, were instructed to do the corporate equivalent of “say 3 Hail Marys” and were then turned loose again into the market.

After several months, it happened again. The documentation evidencing this flavor of creative order taking was unambiguous. In interviews with the recently arrived Chief Compliance Officer (CCO), the salesperson had no cogent, much less reasonable, explanation for what he’d done. The CCO discussed the matter with the General Counsel (GC) on a Friday afternoon. She agreed with the recommendation – termination of the employee – and said she’d read the investigation report over the weekend.

The GC had different views on Monday, after speaking to the CEO over the weekend. He’d pointed out to her that the policy applied to product, so technically, this most recent transgression, involving services, wasn’t covered. But she and the CEO agreed that because of the “seriousness of the matter”, he would personally cover the matter at the next week’s board meeting. The result coming out of the Board meeting: further policy changes, more counseling for the individual and a letter to the file.

There are numerous variations of this scenario – all demonstrating the risks inherent in a straight rules-based approach to compliance. In the above example, it was possible to apply a scalpel to the facts and to thereby achieve a result that kept the salesperson, coincidentally the top producer, at the company.

Use a code of conduct to fill in the cracks

Specificity is needed in many areas of compliance.  But an ethical overlay in the form of a Code of Conduct or similar document, is critical to filling in the cracks – those areas of behavior or conduct that may not receive detailed treatment in other compliance documentation, but that are clearly contrary to the way the company expects its employees to do business.

Similarly, to support the “culture of compliance” that regulatory policy makers are increasingly emphasizing, management should be clear in their “tone from the top” communications to employees about the structure and importance of the ethical component to their companies’ compliance programs. In this case, other corporate priorities had taken precedence over introducing a Code or similar document.

Consider the ethical “big picture”

As incidents arise from time to time, as they do at all companies, those involved in determining the levels and forms of the consequences to the individuals involved need to consider the ethical “big picture” and the silent but clear messages that will accompany any employee discipline, or lack of discipline, as the case may be. Does this result set sound precedent for the future? Does the decision support or undermine the compliance program? How will this look to government investigators that may be assessing the effectiveness of the compliance program at some point in the future?

Shortly after the above events took place, the company was sold. The CEO, GC and CCO all went elsewhere, but the salesperson stayed. He only lasted a few months before his creative instincts again took over, and he was again caught red-handed.  New management went to the core of the issue: the employee’s conduct was inconsistent with the corporate ethical construct they’d been introducing since they arrived.  The fact that he was the company’s top producer was not part of the analysis. He was summarily fired.

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