The True Costs of Paper E&C Programs: The E&C Pulse - February 19, 2020

February 19, 2020 Ben DiPietro
ethics and compliance pulse
 

 

Feb. 19, 2020

The True Costs of Paper E&C Programs

 

The record $3.9 billion fine paid by Airbus for bribery violations in the U.S., U.K., and France is yet another example of how paper ethics and compliance programs don’t work, and that programs must be built upon a foundation of values, culture, and integrity.

 

The breadth and scope of the case involved years of bribery and corruption on every continent except Antarctica. The scheme went up to the highest levels of the company. 

 

The company’s written compliance program to prevent bribery and corruption was robust, with rules dating back to 2001 that banned bribery and corruption. The chief executive of the company in 2008 described the policy as state of the art in business ethics. 

 

The Airbus enforcement action will be the classic case study going forward on just how bad a catastrophic ethics and compliance failure can be, said Tom Fox, an ethics and compliance champion, and the founder of the Compliance Podcast Network.

 

“The company’s compliance program was designed simply to make sure all the boxes were filled in and ticked off,” said Fox.

 

For instance, when the new general counsel asked a senior compliance executive what review and checking of information the compliance function reviewed, he was told that compliance fully vetted all information provided by the business folks. 

 

“This was as blatant a lie as there was,” said Fox. “The compliance function did no independent review.”

 

The company’s Strategy and Marketing Organization was created to push international business development, and to manage third-party relationships for the sales side of the operation. The approval to enter into contracts with third parties was given to another organization, the Company Development and Selection Committee, which served as an oversight body for the SMO.

 

The problem was some of the people identified in the corruption cases at times served on the CDSC. As Fox put it in a recent blog post: “This is not a situation of the fox guarding the hen house; this is the situation of the fox residing in the hen house.”

 

This shows the need for robust audit is essential, said LRN’s Susan Divers.

 

Airbus hired an outside firm in 2012 to evaluate it’s program, but the firm awarded the company an anti-corruption compliance certificate for the design of its anti-bribery compliance program.

 

“This is a first-class example of the limits of paper compliance,” said Divers.

 

The nearly $4 billion fine will only be a part of the overall cost to the company. Investigative and remediation costs totaled nearly half the fine amount, and the company’s stock price took a huge hit when the company announced a loss in 2019 of nearly $1.5 billion, driving its stock price down for a market cap loss of another between $300 million and $400 million.  

 

All of this will drive every board of directors to mandate effective, operationalized compliance be in place, said Fox. 

 

So, what can companies take from this to avoid being in this position?

 

It starts with a clear and strong commitment from the top of the organization, and having a board willing to ask very hard questions of the compliance chief to show the company is actually doing compliance, and not faking it.

 

“There must be a process put in place, followed by the business unit,” said Fox. “Then there must be oversight. My favorite metaphor is ‘...the eyes of Dr. T. J. Eckleburg’ from ‘The Great Gatsby’. There must always be review and oversight.”

 

 

                                                                                                            BEN DIPIETRO
                                                                                                       @BENDIPIETRO1
                                                                                       BEN.DIPIETRO@LRN.COM

 

 

FROM THE LRN BLOG

Trust is an issue for the C-suite, and ethics and compliance leaders will be grappling with the foreseeable future, if a recent survey if any indication.

 

READ THE BLOG→

lrn trust
 

ON-DEMAND VIDEO: 25 AND BEYOND

LRN's "25 and Beyond" event was an insightful afternoon of exploration on how ethics and compliance will play a central role in determining which organizations will adapt successfully to the impending forces inevitably changing the world.

 

WATCH THE VIDEO→

25 and beyond
 

MIND NUMBERS

19%/10%/50%

A survey of federal government employees by Government Executive found 19% said they would be much less likely to report wrongdoing as a whistleblower following attacks on the whistleblower that put forth evidence that led the president's impeachment. 10% said they would be more likely to report, while 50% said it would have no impact on whether they would come forward. 

 

THE ELEVEN

Richard Cassin wonders in the FCPA Blog if we are doing compliance wrong.

 

Creating trustworthy AI will bring new ethics challenges to E&C professionals, according to an article in Corporate Compliance Insights.

 

A startup that scrapes the facial images of people and allows law enforcement agencies to access its data base is facing blowback from privacy advocates and governments who want to crack down on such uses, Axios reports.

 

NPR looks at what happens when bias is coded into technology.

 

2020 is the year corporate social activism and global political risk converge, Alison Taylor of Ethical Systems writes in Quartz.  

 

Steve Denning, writing in Forbes, argues both sides of the question as to whether stakeholder capitalism will fail, or whether it will triumph.

 

Governments in Europe are more apt to limit use of algorithms in identifying people likely to commit benefits fraud; not so much in the U.S., Wired reports.

 

Law firm Fisher Phillips says workplace safety may be the next focus of corporate activists, and empowered workers.

 

Now that it's out of the EU, the U.K. is considering creating 10 free port zones, which the EU was clamping down on because they can help facilitate money laundering and terrorism financing, Guardian reports.

 

A bill before the U.S. Senate would establish a data privacy agency to protect people and enforce data practices nationwide, Tech Crunch reports. 

 

Ethics and integrity starts with tone at the top, Betsy Akins writes in Forbes.

 

THE QUOTE

"Integrity is telling myself the truth. Honesty is telling the truth to other people.”

-Spencer Johnson, management expert, author

 

THE NUDGE

Politics aside, it was inspiring to see four federal prosecutors resign from the case involving Roger Stone, after their recommendations for his sentencing was reduced by the Justice Department. It's not often people walk away from their roles because their ethics have been breached--take former Houston Astros manager A.J. Hinch, who knew his team was stealing signs, didn't like it but couldn't stop it, yet stayed on in his job. When people say ethics comes with a cost, this is what they mean.

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