Call To Action Building Ethics Programs for Tomorrow The Institute of Internal Auditors November 16,

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Call To Action - Building Ethics Programs for
Tomorrow The Institute of Internal
AuditorsNovember 16, 2004

• Ed Dudley, CIA, CPA
• Retired Vice-President General Auditor-ABB
  Americas

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Agenda

• Introduction Key Issues For Today
• Ed Dudley
• Taking the Ethics Program to the Next
  Level Brian Sears
• Monitoring and Assessing Corporate Governance
  from the Internal Audit Function
• Donna Passal
• Annual Disclosure and Conflicts of Interest
  Questionnaire
• Chris Yost
• Break
• Q A
• Summary of Main Points
• Ed Dudley

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Key Issues

• Examine Several new Initiatives in Ethics
• Review Ethics Tools for Leaders
• Discuss Advantages in Producing an Ethics Film
  Festival
• Examine an Internal Audit Review and
  Certification of NYSE Rules

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Key Issues

• Examine How to Plan for That Review and the Board
  Committees Affected
• Review Corporate Governance Guidelines for Board
  Directors
• Review Questionnaire Disclosures for Board,
  Corporate and Regional Leaders
• Examine an Internally Developed Web-Based
  Questionnaire Application

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Taking the Ethics Program to the Next Level

• Brian SearsDirector Ethics Awareness
• Lockheed Martin Corporation

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Ethics Business Conduct Program
Program Elements

• Setting the Standard Code of Ethics Business
  Conduct
• Worldwide confidential Helpline
• Ethics officers at all major sites
• Communication and awareness campaign
• Compliance training and education program
• All-employee Ethics surveys
• Annual Ethics awareness training for all employees

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New Initiatives

• The Chairmans Award
• Ethics Tools for Leaders
• Organization Ethical Maturity Assessment
• Ethics Film Festival
• Ethics Minute

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The Chairmans Award

• Recognizes a single LM employee for acts that
  exemplify our commitment to Ethics and Integrity
• One nominee from each Business Area and from
  Corporate
• Winner selected by Chairman/CEO and President/COO

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Ethics Tools for Leaders

• Online, self-directed training course
• Creating an ethical environment
• Responding to employees
• Using the tools
• All managers will complete course in 2003
• Online support toolkit
• Ethics resources
• Links to policies
• News information
• Search, Contact, Help

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Organization Ethical Maturity Model
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Self-Assessment Tool
Requestor contacts Ethics Office
Next Level Director or Vice President completes
Self- Assessment
Employees complete Self- Assessment
Manager completes Self- Assessment
Self-assessment Tool Hosted on the Ethics Website
Reports
Ethics Officer consults with Requestor Prepares
Action Plan
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Ethics Film Festival Objectives

• Promote ethics in the workplace
• Opportunity for employees to present their views,
  in a positive forum
• Keep ethics message fresh and interesting
• Multiple potential uses of videos received
• Training
• Ideas for future initiatives
• Internal publicity and promotions
• Outside publicity

37 Videos Received to Date
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The Ethics Minute

• A series of one-minute video episodes containing
  an ethics message on a central theme
• Delivered by email link
• Three to six episodes constitute one series
• Periodic delivery after initial kickoff

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The Ethics Minute Objectives

• To deliver an ethics message that
• Complements annual awareness training
• Is received throughout the year
• Focuses attention on key issues
• Reaches a large segment of the employee
  population
• Uses an engaging and interesting format

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Monitoring and Assessing Corporate Governance
from the Internal Audit Function

• Donna Passal, Director
• Global Corporate Audit Services
• Office Depot

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Internal Audit Review

• In November 2003, the SEC approved the final
  corporate governance rules of the NYSE. These
  rules require that each listed companys CEO
  certify to the NYSE each year that he or she is
  not aware of any violation by the company of
  these standards.
• OD had to be in full compliance by the time the
  May 2004 shareholders meeting was held and had
  to submit the first certification to the NYSE no
  later than 30 days after the meeting.
• Global Corporate Audit Services performed a
  detailed review of ODs compliance with the
  rules, and provided the results to the CEO.

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Planning the Review

• Final NYSE and SEC corporate governance rules
• Current year proxy statement/10K
• ODs conflict of interest policy
• Completed directors questionnaires
• Charter, meeting schedule and minutes for board
  committees
• Corporate Governance Committee
• Compensation Committee
• Audit Committee

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Board Of Directors

• Independence of directors
• Basis for determining independence disclosed
• No material relationship with OD
• Independent after three years of condition
• Director is officer of a charity
• Executive sessions for non-management directors

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Corporate GovernanceCommittee

• Member independence
• Written charter
• Director selection
• Corporate governance principles
• Board evaluation
• Committee evaluation
• Member qualification, structure, operations
• Search Firms

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Compensation Committee

• Member independence
• Written charter
• CEO compensation and evaluation
• Non-CEO compensation plans
• Report for proxy statement
• Committee evaluation
• Member qualification, structure, operations
• Compensation consultants

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Audit Committee

• Member number, qualifications and independence
• Written charter
• Oversight functions
• Annual and quarterly financial statements, MDA,
  press release, analyst guidance
• Risk assessment and risk management
• Meetings with management, external auditors and
  internal auditors
• Internal accounting controls, accounting and
  audit matters
• Responsibility for external auditor
• Quality control
• Hiring, firing and compensation
• Audit and non-audit services
• Partner rotation and auditor independence

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Corporate Governance Guidelines

• Director qualification standards
• Director responsibilities
• Director compensation
• Director orientation and continuing education
• Management succession
• Annual performance evaluation of board

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Office Depots Corporate Governance Website

• WWW.OFFICEDEPOT.COM
• Select company information, then investor
  relations, and finally corporate governance

• Company values
• Board independence
• Board training
• Committee charters
• Governance documents

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Code of Business Conductand Ethics

• Directors, officers and employees covered
• Waivers approved and disclosed
• Compliance standards and procedures
• Available on website
• Addressed in annual report and 10K
• Key areas

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Annual Certification

• CEO certification
• Annual report
• Non-compliance

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Annual Disclosure and Conflict of Interest
Questionnaires

• Chris Yost, CIA, CPA
• Director of Internal Audit, Whole Foods Market

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About Whole Foods

• Founded in 1980 in Austin, Texas
• Largest natural and organic foods retailer
• Sales of 3.1 billion in fiscal year 2003
• 160 stores in the United States, Canada and the
  United Kingdom
• 10 operating regions
• High level of autonomy in decision-making
  processes

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Code of Conduct Ethics

• Approved by the Board in November 2002
• Requires completion of annual questionnaires by
• Board members
• Executives
• Other leadership including store and regional
  personnel

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Types of Questionnaires

• Conflict of Interest
• Corporate leadership
• Regional leadership
• Store leadership

• Disclosure
• Board
• Corporate leadership
• Regional leadership

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Electronic, internally developed web-based
application

• Easy to complete
• Easy to follow up on non-responses
• Easy for Ethics Committee to review responses
• Users can review prior year responses and update
• Facilitates data retention

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Form A
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Form C
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Questionnaires

• Questionnaires complement other elements of the
  Whole Foods ethics program- Whistleblower tip
  line- Awareness materials- Communications with
  vendors regarding the Companys gift acceptance
  policy.

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Questions?
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Q A
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Summary of Main Points

• An Online Self-Directed Training Course can help
  Create an Ethical Environment
• Online Support Tool Kits can aid Ethics
  Resources, Links to Policies and Provide Contact
  Help
• An Ethics Film Festival Promotes Ethics in the
  Workplace and is an Opportunity for Employees to
  Become Involved with the Message

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Summary of Main Points

• An Ethics Minute Program can Focus Attention on
  Key Issues Throughout the Year
• Internal Audit Reviews of Compliance with
  Internal and External Rules can Provide Valuable
  Assurance to your CEO
• A Corporate Governance Board Committee Should
  Have a Written Charter Providing for Member
  Qualifications, Structure and Operations

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Summary of Main Points

• Compliance Reviews can Cover your Corporate
  Governance, Compensation and Audit Committees
• Code of Conduct Questionnaires Should Cover Board
  Members, Company Executives, Store (Unit),
  Regional Leadership and Other Employees
• Web-Based Questionnaires are Easy to Review and
  Compare to Prior Years and Follow Up on
  Non-Responses

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Summary of Main Points

• Code of Conduct/Ethics Questionnaires can
  Compliment Other Elements of your Compliance
  Program, Including Materials Awareness, Gift
  Policy and Others

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