Chief compliance officers (and the DOJ) want accountability and discipline

Donna Boehme – The FCPA Blog – March 30, 2017

This article first appeared on The FCPA Blog.

CCOs know that accountability and discipline are difficult and perilous areas to embed in their programs for a number of reasons.

Decisions involving discipline and internal enforcement involve levers of power that may be viewed as challenges to existing sources of power and “the way things are done around here.” So it’s important to employ principles of organizational justice to address issues of “fairness.

In many organizations, decisions on discipline are the purview of individual supervisors, which creates a chaotic record of disciplinary policy. We now know that the DOJ will be scrutinizing this track record specifically.

In its guidance — Evaluation of Corporate Compliance Programs — the DOJ said:

8. Incentives and Disciplinary Measures

Is there proper accountability as demonstrated by discipline for managers under whose watch misconduct occurred? Is the application of discipline consistent? Is there an incentive program for good compliance and ethical behavior? Can the company point to specific examples of actions taken (promotions or awards denied) as a result of compliance and ethics considerations?

Organizations take a varied approach to this issue, ranging from the “hands off” policy described above, to a detailed review of every disciplinary decision by a committee of HR/management or by the Compliance team itself.

In my view, there is a better approach that combines meaningful consideration of important factors and principles of organizational justice.

As Joe Murphy has written, a responsible organization considers both mitigating factors (e.g. lower level of seniority, first offense, and lack of prior training) and aggravating factors (higher level of seniority, amount of damage done or criminality, role in offense, retaliation behavior).

Thus, a good organizational solution is to leave the decision making to appropriate levels of management, but require that management consider all relevant factors. A good system would involve HR as “risk-owner” and subject matter expert (SME) in disciplinary action, since HR is usually in a position to advise on disciplinary matters and is aware of other disciplinary action elsewhere in the organization.

A leading edge program could go further:

  • Training on the use of checklists and tools for management, including the fact that consistent enforcement and discipline is a key (auditable) responsibility of management.
  • As risk owner and SME, HR could be responsible for training and oversight of management’s use of checklists/tools.
  • Random audits to review adherence to disciplinary policy (management makes the decisions but should be prepared to defend decision making).
  • Disciplinary decisions and backup documentation to be included in management performance reviews/promotion decisions.
  • A portion of annual bonus/compensation could be linked to management’s support of the compliance program, including consistent enforcement/discipline.
  • Managers who do not uphold the standard could be cited or disciplined for “failure to supervise.”

And now a word on organizational justice principles, which all CCOs can use to inform their programs.

The perception of a “fair” decision or policy is highly subjective and thus it is impossible to guarantee that all decisions will be “fair.”

But organizations can at least promise that all decisions will be made based on protocols or guidelines that are fairly applied to all individuals.

When employees perceive that the rules are fairly applied to all, this promotes a perception of organizational justice (and organizational trust).

Organizational trust expert Barbara Kimmel said:

In any organization it is critical that leadership, right up to the Board level, sets the standard for good behavior, through their own actions rather than just through words or ‘rule’ books. Likewise, the same ‘standards’ must be applied regardless of job title.

Companies would be well advised to review their disciplinary protocols, given the DOJ’s clear focus and increased interest on the topic, given the welcome input of their newly appointed Compliance Counsel (and Subject Matter Expert) Hui Chen.

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