Bringing HR and Compliance Together for Compliance and Consequence Management (Part II of II)
The Justice Department’s recent emphasis on ethics and compliance culture, along with greater specificity on “consequence management” is a welcome breath of fresh air. It is a policy coming for a long time and will bring about significant improvements. Do not get me wrong – there will be bumps and bruises along the way, hurt egos and turf battles, but in the end HR and compliance have to get along – oi they do not, senior management will have to intervene.
DOJ did a great service by digging into details surrounding HR data and cooperation, culture, investigations, root cause analyses, disciplinary procedures and clawbacks.
HR Data Sharing and Tracking Trends
DOJ knows how important data can be to tracking, monitoring and intervening to protect and promote an organization’s corporate culture and prevent misconduct. CCOs routinely report employee concern data (whether by hotline, walk-ins, reports to direct supervisors, and other reporting channels. Similarly, DOJ is aware that many companies track and disclose data relating to disciplinary actions as a measure of the effectiveness of its investigation and consequence management functions.
To this end, DOJ has suggested that such tracking should include monitoring the number of compliance-related allegations that are substantiated, the average (and outlier) times to complete a compliance investigation, and the effectiveness and consistency of disciplinary measures across the levels, geographies, units or departments of an organization.
DOJ’s enhanced requirements require companies to consider, track and evaluate its consequence management system’s reflection of the company’s culture. Specifically, DOJ breaks down the consequence management system into specific areas to measure, track and monitor, including: the company’s hotline reporting system, resulting investigations, substantiation rates, root cause analyses of misconduct, the average time to complete investigations of hotline reports, the application of consistent discipline and recoupment of financial bonuses from executives who responsible for the misconduct.
This mandate provides important directions to HR to share investigation and discipline information that is collected across the levels, geographies, units or departments of a company. CCOs will need access to this information to ensure overall achievement of these mandates.
DOJ’s laser focus is on incentives and disincentives. Here, as part of an overall compliance program, CCOs have to grab a seat at the senior executive table to include business, HR, legal, and compliance representatives to design and implement compensation systems to foster a culture of ethics and compliance. In other words, CCOs have to participate in the creation of a system incorporating positive incentives and negative penalties to promote compliant conduct.
The positive elements of an incentive program include promotions, rewards, and bonuses for improving and developing a compliance program or demonstrating ethical leadership. Further, organizations should establish career development opportunities and opportunities for career advancement linked to compliance responsibilities and performance. DOJ specifically noted that cross-assignments of business managers to compliance and vice versa would be a positive strategy for promoting career opportunities.
Interestingly, DOJ mentioned the need for an organization to examine the impact of sales targets and other similar programs on employee incentives to stay compliant with the law and corporate policies. Organizations that throw large contingent pay outs for lucrative business contracts should consider the impact of these incentives on sales employees adherence to ethical requirements.
On the negative side, DOJ is mandating that companies incentivize compliance by designing compensation systems that defer or escrow certain compensation tied to conduct that its consistent with the company’s culture and ethical values. In this area, companies will have to demonstrate such commitment to enforcement of employment and contract provisions to recoup prior compensation awards when the recipient employee engages in misconduct.
DOJ expects companies to act transparently in the design and implementation of the disciplinary process, consistently apply disciplinary actions, accurately measure disciplinary actions across the organization and constituencies, evaluate commercial targets and related incentive structures, include compliance in the design and award of financial incentives at senior executive levels or the organization, establish compliance incentives to encourage ethical behavior, and calculate the percentage of senior executive compensation tied to promoting ethical conduct.
CCOs have to step up now in the face of these requirements. CCOs have to ensure they are seated at the senior executive level of business operations – the C-Suite – so that they can fulfill DOJ’s expectations for overall consequence management. CCOs must establish positive working relationships with HR, senior sales executives, and legal to ensure effective coordination and cooperation. Of course, senior management has to establish a framework for this to be achieved.