"Company Culture" & "Compliance": Revised DOJ Guidance

By Vinayak Bindal, Sub-Regional Compliance Officer, Sea, Merck

Vinayak Bindal, Sub-Regional Compliance Officer, Sea, Merck

The US Department of Justice (DOJ) published revised guidance on April 30, 2019 discussing various factors prosecutors should take into consideration while evaluating effectiveness of the compliance program of a company under investigation.

The revised guidance gives greater importance to “Company Culture” in measuring the effectiveness of compliance programs. Guidelines state that “prosecutors should also assess whether the company has established policies and procedures that incorporate the culture of compliance into its day-to-day operations.”

Its clear that its no longer sufficient to have a code of conduct, policies and procedures or a hotline. The focus is now on how effectively compliance program has been integrated into day to day business operations. To do so, the organization should set the right compliance “tone at the top”, make sure it percolates from top to bottom, reaching every single employee.

The alignment between what the top management does, and company’s core values is important for an effective compliance program. Effective compliance programs are “value driven” and not just “rules driven”.

So how does an organization integrate compliance culture in its day to day business operations? Here are some thoughts:

1. Make the compliance program “Values drive” not “Rules driven”: Employees working in companies with strong culture, feel less pressurized to resort to unethical practices to achieve organizational targets. Employee relate more to the values of the company which in turn leads to fewer instances of misconduct and greater commitment to compliance. Company should include ethics and integrity in core values.

2. Conduct at the top and commitment by leadership: As per the DOJ guidance “The effectiveness of a compliance program requires a high-level commitment by company leadership to implement a culture of compliance from the top”. It’s not only important to have clearly defined policies, but senior management should communicate ethical expectations clearly within the organization and also lead by example. Middle management also has in important role to pass these ethical standards to their teams. This is because employees are influenced by their supervisor’s behavior.

3. Autonomy and resources: Senior leadership should demonstrate commitment towards imbibing ethical behaviors in the organization by providing appropriate stature, authority and resources to the compliance function. Compliance function should be independent and not directly report to business. Based on the risk assessment, Compliance function should be adequately staffed and funded. Compliance Officer should be included in the Leadership Team.

4. Foster “Speak-Up” culture: Encouraging employees to raise compliance issues without the fear of retaliation is a sign of strong culture. Company should provide anonymous reporting mechanisms to employee and should investigate complaints received from employees in an impartial manner. Further, efforts should be made to solicit feedback from employees on the efficacy and relevance of the compliance program to identify improvement areas.

5. Measure “Culture” - As per DOJ guidance “How often and how does the company measure its culture of compliance? Does the company seek input from all levels of employees to determine whether they perceive senior and middle management’s commitment to compliance? What steps has the company taken in response to its measurement of the compliance culture?”

The company can conduct employee surveys and cultural assessments. These tools may not provide complete insight into the functioning of the compliance program or its effectiveness. However, they do demonstrate management’s intent and priorities. Some of the metrics of good behavior can also be built it performance evaluation. In some organizations, compliance objectives have been added as significant metric for bonus, rewards and even career advancement. Survey can also provide insights into employee perceptions of actual employee conduct versus expected conduct.

Compliance function is now considered as “strategic business partner” and adds “value” by protecting company against business risks. Companies with strong culture of ethics tend to have better business performance than companies without it. Organization stakeholders like employees, customers and shareholders seek greater transparency and accountability from management.

Company culture is reflective of the values of the company and how these values have been inculcated. Company should incentivize compliant behavior and have disciplinary action for non-compliance. Ethical culture is key to successful and sustainable business.

As rightly articulated by Ms. Indra Nooyi, former CEO of PepsiCo “You cannot deliver value unless you anchor the company’s value. Value make an unsinkable ship. Code of conduct goes beyond legal compliance and every employee needs to be well versed with it.”