Creating an ethics and compliance culture

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• Creating an ethics and compliance culture
• Premier, Inc.
• Megan Barry
• Ethics Compliance
• June 22, 2006

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Setting the Ethics Stage
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This might not be ethical. Is that a problem
for anybody?
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Setting the Stage June, 2006

• Google Co-Founder Concedes Company Compromised
  Principles in China
• Firm will reevaluate its position in China
  Chinese officials stand firm on demand for
  control of Internet
• Prominent Ethicist Calls for Legalization of
  Euthanasia in U.K.
• He says doctors should be allowed to end lives
  swiftly and humanely -- and without consent if
  the patients are incompetent
• Fired Dean of New Jersey College Accused of
  Ethics Violations
• Federal monitor says Warren Wallace's conduct was
  'unethical at minimum
• Military in Iraq to Receive Ethics Training
• Commander of coalition forces says course will
  allow time to 'reflect on the values that
  separate us from our enemies
• Senator Reid Says He Made a Mistake when
  Interpreting Ethics Rule
• He accepted tickets to prizefights, originally
  saying it was his obligation to 'make sure boxing
  is conducted properly
• Snared in Abramoff Probe, Safavian Says He Did
  Nothing Wrong
• First Abramoff-related defendant to face jury
  says he was simply gathering information as part
  of his job
• Public Says FDA Decisions Being Influenced by
  Politics
• FDA's reputation faltering as most U.S. adults
  say its are influenced by politics rather than
  medical science poll

Taken from the Institute for Global Ethics
Ethics Newsline at www.globalethics.org
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Increasing Challenges

• More laws regulations
• Heightened industry professional standards
• Greater expectations (customers, others)
• Need to get more done with less
• Greater responsibility at lower levels
• Increasing performance pressures

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Ethics Data from the Ethics Resource Center
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Ethics Resource CenterNational Business Ethics
Survey Overview

• Survey of employees across the US
• Implemented 1994, 2000, 2003, 2005
• Nationally representative sample of
• Publicly traded for-profits
• Privately held for-profits
• Nonprofits
• Government

The following slides regarding the National
Business Ethics Survey are taken from a
presentation by Pat Harned, President of the
Ethics Resource Center
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Workplace Pressures

• The majority of workers (60) feel a substantial
  amount of pressure on the job and more than one
  out of four (27) feel a great deal of
  pressure.
• Most workers feel some pressure to act
  unethically or illegally on the job (56).

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Workplace Pressures

• Half of all workers (48) reported that, due to
  pressure, they had engaged in one or more
  unethical and/or illegal actions during the last
  year. The most commonly cited sources that
  highly contribute to pressure in the workplace
  are balancing work and family (52), poor
  internal communications (51), work hours/work
  load (51) and poor leadership (51).

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Ethics Resource Center Survey

• Challenges and Vulnerabilities
• Employees in transitioning organizations
  (undergoing restructuring) observe misconduct and
  feel pressure at rates that are double those in
  more stable organizations (44)
• Key Findings
• Ethics programs make a difference
• Written standards, ethics training, ethics
  offices, and a system for anonymous reporting
• 78 of employees are likely to report misconduct
  if all of these elements exist
• Actions Count
• Top management acts ethically by talks about
  the importance of ethics, informs employees,
  keeps promises and models ethical behavior
  observe less misconduct (15) compared to those
  who feel top management only talks about ethics
  or exhibits none of these (56)

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Observed Misconduct

• 52 of employees observed misconduct in the past
  12 months, consistent since 1994

NBES Slide
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Observed Misconduct

• Most frequently observed types of misconduct
• Abusive or intimidating behavior towards
  employees (21)
• Lying to employees, customers, vendors or to the
  public (19)
• Conflicts of interest (18)
• Safety violations (16)

NBES Slide
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Change Exercise
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Elements of Change

• Initially, change can be exciting and
  interesting, but too much change can make us feel
  overwhelmed.
• Often, we dont think we have enough resources to
  make change.
• Everyone is going through the same thing but we
  tend to isolate ourselves and go through change
  alone.
• When the pressure to make change subsides, we
  revert right back to the way we were.

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I dont know how it started, either. All I know
is that its part of our corporate culture.
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Defining Terms used in Organizations
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Defining the Terms

• Compliance
• Business Conduct
• Values
• Ethics

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Institute for Global Ethics - Values

• Survey by the Institute for Global Ethics on
  Moral Values
• The survey asked the respondents to choose the
  five moral values from a list of 15 that were the
  most important to them.
• The top three values Truth, Compassion,
  Responsibility
• The most frequent choice Truth
• The respondents were also asked to select the
  single most important value Compassion topped
  that list.

Information taken from the research and writings
of Rushworth Kidder of the Institute for Global
Ethics (IGE).
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IGE Sources of Authority

• Respondents were asked about their sources of
  authority, or the people and institutions they
  relied on for knowing what is morally right.
• The respondents ranked six possible sources of
  authority modern science, religious leaders,
  best friends, personal experience, God's word,
  and government.
• The most striking result was the tremendous
  importance given to personal experience.
• Government was far and away the least important
  source.

Information taken from the research and writings
of Rushworth Kidder of the Institute for Global
Ethics (IGE).
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(No Transcript)
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What does an ethical culture look like?
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Changing Perspective
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Changing Perspective
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Changing Perspective
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Changing Perspective
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Changing Perspective
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Changing Perspective
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Changing Perspective
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Changing Perspective
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New Federal Sentencing Guidelines
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Background

• 1984 - United States Sentencing Commission
• 1991 - Federal Sentencing Guidelines Enacted
• 2004 Federal Sentencing Guidelines Updated
• Carrot and Stick approach
• Stick - the threat of fines
• Carrot - reduced fines if the company has in
  place an effective program to prevent and detect
  violations of law BEFORE an offense occurs

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Purpose of an Effective Compliance and Ethics
Program

• To exercise due diligence to prevent and detect
  criminal conduct and otherwise promote an
  organizational culture that encourages ethical
  conduct and a commitment to compliance with the
  law.

Taken from Ethics Resource Center Ethics Index
www.ethics.org
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Revised Guidelines

• Under the revised guidelines, if companies hope
  to mitigate criminal fines and penalties, they
  must also promote an organizational culture that
  encourages commitment to compliance with the law
  and ethical conduct
• The new requirement to promote an ethical
  organizational culture significantly expands the
  scope of an effective program.

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What does this mean to you?
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Elements of a Compliance and Ethics Program

• Standards and procedures to prevent and detect
  criminal conduct
• Responsibility at all levels of the program,
  together with adequate program resources and
  authority for its managers
• Due diligence in hiring and assigning personnel
  to positions of substantial authority
• Communicating standards and procedures, including
  a specific requirement for training at all levels
• Monitoring, auditing, and non-retaliatory
  internal guidance/reporting systems, including
  periodic evaluation of program effectiveness
• Promotion and enforcement of compliance and
  ethical conduct
• Taking reasonable steps to respond appropriately
  and prevent further misconduct upon detecting a
  violation

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Formal Ethics and Compliance Programs

• On the rise
• Codes (86)
• Training (69)
• Resources (65)
• Helpline (73)
• Evaluation (67)

NBES Slide
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Premiers Approach
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Premiers Values

• Integrity of the individual and the enterprise.
• A passion for performance and a bias for action,
  creating real value for all stakeholders, and
  leading the pace.
• Innovation seeking breakthrough opportunities,
  taking risks, and initiating meaningful change.
• Focus on people showing concern and respect for
  all with whom we work, building collaborative
  relationships with the community, our customers,
  co-workers, and business associates.

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Ethics and Compliance Officer

• Reports directly to the Audit Committee of the
  Board of Directors

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Code of Conduct

• Actively ensure fairness, impartiality and
  objectivity in serving our members.
• Maintain appropriate arms-length distance with
  suppliers.
• Provide greater transparency to stakeholder
  regarding how Premier conducts its business.

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Reporting Mechanism

• Internal through the Ethics and Compliance
  Office
• External Guideline
• Avenue for reporting anonymously
• Protection from retaliation

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Communication

• Internal and external publications/websites
• All stakeholders

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Training

• Existing Employees
• New Hires
• New Managers
• Board of Directors
• Function specific training

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Monitoring and Auditing

• Process, Process, Process

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Consistency and Disclosure

• Consistent application of punishment and
  consequences
• Process for bringing forward issues to external
  parties
• Transparency
• Annual compliance report

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• Auction

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Auction Rules

• No talking during the auction. Only those
  bidding can speak.
• Bidding must take place in increments of .50.
• The highest two bidders must pay their final bids
  to Megan.
• Only the highest bidder will collect the
  auctioned item.

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• What happened?

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Auction Learnings

• Sometimes our emotional commitment to something
  causes us to behave irrationally.
• If we step back and think about the outcomes, we
  are often more likely to act rationally.
• Sometimes we think weve won when actually
  weve lost. (Winners curse)

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Rationalizations
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Role-play

• While attending a conference, you come across a
  competitors information in the lobby. The
  information is marked confidential. You call
  your manager to ask for advice.

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Rationalizations

• Do you have a good reason why we shouldnt do it?
• I didnt know we couldnt do it.
• Are you really sure we cant do it?
• Weve done it before, so it must be ok.
• Everyone does it, so there shouldnt be a problem
  with our doing it.
• This is a small instance, so it wont really
  affect anyone.

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Rationalizations

• It may be a problem, but its not our
  responsibility.
• It really wont matter just this one time.
• Its not illegal or against the rules.
• Anyway, it doesnt matter what I think, I was
  ordered to do it.
• This is really not an ethics decision, its a
  business decision.
• If we do it the right way, we wont get what we
  need.

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Rationalizations

• No ones going to know we did it.
• Others may say not to do it, but they really
  intend for us to do it in order to meet our
  objectives.
• We have to do it there is no other way to meet
  our more important objectives.
• I dont care if its wrong, just do it.

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Concluding Remarks
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Card 1
Some say you can't win a war in Southeast Asia
with a public divided about its moralityBut
I'm going to tell you how.
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Card 2
Some say you can't advance the cause of civil
rights without violence in the streets...But
I'm going to tell you how.
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Card 3
Some say you can't fight poverty and balance the
budgetBut I'm going to tell you how.
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Card 4
And now, Lyndon, you're on your own.