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Ethics Training & Compliance Training Archives
I’m sure you’ve seen the news … it’s hard to miss if you’ve turned on a TV in the last two days. The New Yorker magazine has featured Barack Obama and his wife Michelle on the cover of its latest issue with a "satirical" cartoon. And it's no ordinary cover ( check it out for yourself). Obama is dressed like Osama bin Laden. And his wife is dressed in military gear with an exaggerated Afro – toting an assault rifle to boot. The two are congratulating each other with a “fist bump” in the Oval Office. And let’s not forget the American flag burning in the fireplace, or the portrait of Osama himself hanging on the wall. The New Yorker’s position is that the cover is intended to expose the “politics of fear,” and how it’s being used to undermine Obama’s campaign. So what exactly is the cover trying to expose and satirize? The lingering rumors that Obama is a Muslim, which links him to terrorism (or terrorist “sympathies”), and which paints him with the new dirtiest word in politics – unpatriotic. Add this all up, and he’s just not fit for the White House. There’s a lot of information out there to debunk all these rumors and myths…. I’ll leave it up to you to do some digging. Employees as "Unpatriotic"?The New Yorker cover exposes a growing (and in my mind unnerving) trend in America -- that the population can readily be divided into those of us who are patriotic, and those of us who are unpatriotic. That division gets based on where we're from, what religion we practice and even who we vote for. And if you think those conclusions aren't being drawn in the workplace, think again. My prediction? That some of your employees and managers readily make assumptions about a co-worker's patriotism, even if they need to rely on stereotypes tied to race, religion, and national origin. Now add that implicit bias into a manager's decision making, or the way an employee communicates with co-workers, and you have a recipe for serious unlawful discrimination. And rest assured that the media buzz about the cover is going to have employees talking openly about (and debating) volatile issues that cross a whole whack of protected categories. So What’s An Employer To Do?As an employer, you have an obligation to ensure that stereotypes and assumptions like the ones featured by The New Yorker don’t impact your workplace. So what do your employees need to understand? For starters, that: - Stereotypes and assumptions based on protected categories have no place at work.
- Managers cannot make decisions based on race, religion, or national origin.
- Patriotism (when linked to a protected category) is not an appropriate criteria for making important employment decisions.
- Harassing people for being "unpatriotic" is never appropriate – even if it’s not linked to a protected category, it's bound to be toxic.
- There's no such thing as "absolute free speech" at work. Employers can and will limit volatile conversations about race, religion and politics to prevent potential environmental harassment.
As always, achieving these goals consists of two key components -- (1) Well written and distributed policies, and (2) Companion training programs that explain the policies and bring them to life. These components are never a one-time event. Policy distribution and mandatory discrimination training needs to take place periodically. And if you see that New Yorker cover posted to a cubical wall -- or lying around the breakroom -- I'd highly recommend removing it. While in our personal lives we can argue about whether the cartoon is an effective use of satire, or bottom line inappropriate, your workplace is not the place to have that debate. It's a sure fire recipe for risk.
SHRM and the Ethics Resource Center (ERC) just released The Ethics Landscape in American Business Survey Report (membership required). The most interesting component, in my opinion, is the list of most commonly observed misconduct in the workplace. For fifty-seven percent of HR professionals, abusive or intimidating behavior toward employees (excluding sexual harassment) tops the list. While we’ve seen this issue percolating for years (check out Workplace Bullying, which has an extensive amount of information and resources on the subject), this is the first time I’ve seen bullying tied to a survey on ethics. And workplace bullying is about more than just soft costs (like low productivity and employee engagement) – it’s now becoming a real liability issue as well, with the case law building. For example, this past April, the Indiana Supreme Court upheld a $325,000 verdict against a cardiovascular surgeon accused of being a workplace bully. The case is considered groundbreaking because it categorically supports the contention that there is a legal basis for workplace bullying claims. And then there’s the 2005 9th Circuit decision that holds that bullying behavior can have a more severe impact on women than it does on men, because women are likely to be more intimidated due to factors such as size and power inequities. (See EEOC v. National Education Association, 442 F.3d 840, 846-47 (9th Cir. 2005).) So workplace bullying can also support gender discrimination claims. All of this should be a reminder that your workplace policies need to address the issue of bullying head on – and it should be a clear component of both harassment prevention and ethics training programs. The SHRM / ERC study’s list of most commonly observed workplace misconduct also serves as a reminder that the bulk of employers’ ethics concerns are really “bread-and-butter” HR / employment law issues: - E-mail and/or Internet abuse.
- Misreporting actual time or hours worked. (Is this any wonder given the shocking surge in wage and hour litigation over the past few years?)
- Behavior that places an employee’s interest over the organization’s interests.
- Employees calling in sick when they are not.
It’s been more than six years since SOX became law, and almost as long since the Federal Sentencing Guidelines were amended to require Code of Conduct adoption, as well as companion ethics and compliance training programs. Many employers are on their second, if not third round of Code and ethics training. Now’s the time to make sure that your training is fresh and updated. Evaluate the topics you’ve already covered, and identify the gaps you want to fill during your next retraining cycle. And by all means, consider topics that you may not think of as “classic” ethics issues. Just look at the key concerns identified by the SHRM / ERC study. While your training program may dedicate significant time to issues like preventing bribes, financial irregularities and potential antitrust violations, these are not the most common ethical missteps taking place at your organization. It’s all about finding the right balance.
You’ve probably heard the news by now. (And if you haven't, you’re far too wrapped up in the race for the Democratic nomination.) The California Supreme Court recently issued a significant ruling about same-sex marriage – holding that it’s against the state constitution to deny the benefits of marriage to people based on sexual orientation. (The decision is based in part on a 1948 state case striking down California’s anti-miscegenation laws, which essentially banned the mixing of different racial groups – in marriage, cohabitation, sexual relations, etc.) So California and Massachusetts are leading the way on recognizing same-sex marriage. And where they go, others will follow – notably New York state, which just last week pronounced that it will recognize same-sex marriages performed in jurisdictions such as California and Massachusetts. (New York To Back Same-Sex Unions From Elsewhere). No doubt this decision raises a bunch of interesting legal questions, and will mean a lot of work for employers and government agencies that need to get systems in place to accommodate the change — including everything from benefits administration to employment policies. If you want a great summary of the most important impacts, Littler Mendelson offers a very helpful piece: California Supreme Court Opens the Door on Same-Sex Marriage. But What About the Impact to the Working Environment? What most articles you’ll read on this subject don’t cover, is the impact to the work environment. While employees don’t stand around the water cooler talking about the latest and greatest case developments — unless you work in a law firm — employees do take an interest when the developments are as big (and as personal) as this one. Same-sex marriage tends to be a very polarizing issue – you either support it strongly, or you oppose it vehemently. And there really isn’t a middle ground where reasonable minds can agree to disagree. That’s because people’s personal views are so often colored and shaped by religious beliefs and strong personal convictions. In other words, stuff that people take pretty darn seriously. And because it’s such a heated subject, it’s very difficult (if nearly impossible) to have a civilized discussion on the topic. And this can lead to some very uncomfortable and offensive situations in the workplace. Employee discussions can lead to serious workplace tensions and productivity issues – and frequently end up as harassment complaints. And if it’s a supervisor who makes offensive statements, not only are you dealing with potential harassment claims, but you may also see the statements used against you in subsequent discrimination litigation. Plan Ahead – Let Employees Know What’s Expected of Them Hot political and legal developments will continue indefinitely — that’s a certainty. And unless you’ve told your employees that discussions about politics, religion, morality, and other personal beliefs are completely off limits (an unrealistic and unworkable standard), people are going to, well…chat. Employers need to take a strong and clear position about the appropriateness of these kinds of discussions in the workplace. There is a delicate balance to strike between allowing reasonable employee conversations on the one hand, and preventing harassment and discrimination on the other. Don’t assume that employees know what’s off limits. In fact, you will often find yourself contending with the misguided convictions of employees who believe that the First Amendment allows them to say anything they like at work. You may also be dealing with folks who believe that religious discrimination laws protect any kind of behavior associated with deeply held moral beliefs – including brazen statements that gay marriage is a sin, or even proselytizing in the workplace. There’s a recent line of case law addressing the precarious knife’s edge that employers must navigate between sexual orientation harassment on the one hand, and religious discrimination laws on the other. I would highly recommend at least reading the head note summaries of the following: - Ng v. Jacobs Engineering Group, 2006 Cal. App. Unpubl. LEXIS 9142 (Cal. Ct. App. Oct. 2006)
- Piggee v. Carl Sandburg College, 464 F.3d 667 (7th Cir. 2006)
- Peterson v. Hewlett-Packard Co., 358 F.3d 599, 601 (9th Cir. 2004)
- Bodett v. CoxCom, 366 F.3d 736 (9th Cir. 2004)
- Buonanno v. AT&T Broadband, 313 F. Supp. 2d 1069 (D. Colo. 2004).
It All Comes Down to Communication – Which Means Effective Training At the end of the day, your employees will not be materially impacted by the cases you study – or even the policies you write to accommodate these recent changes in the law. Only well executed, periodic training programs will get people’s attention, and send the message home. That’s why you need to ensure that your harassment training program has been updated to include the following: - Sexual orientation and gender identity as “protected categories.”
- Scenarios, examples and Q&A that address not just the prohibition against sexual orientation and gender identity discrimination, but also the issues associated with same-sex marriage, as well as the application of employee benefits to same-sex couples.
- The rules protecting employee privacy, including how questions about an employee’s sexual preferences and lifestyle choices are inappropriate.
- The organization’s commitment to an environment that is inclusive, and values the diversity of its employees.
And rest assured, just because you’re not operating in California or Massachusetts doesn’t mean that the gay marriage issue won’t impact your workplace. It’s only a matter of time before the U.S. catches up with the rest of the industrialized world. (A highly opinionated statement by this Canadian-born blogger, but happily, I get to do that in this forum…) And with the likely change of administration in 2009, these reforms are more imminent than ever. It’s time for your policies and training programs to reflect the realities of the world’s demographics.
Can a workplace bully create true legal liability for an employer? Based on a recent decision of the Indiana Supreme Court, it would seem that the plain answer is 'yes.' This April, the Indiana Supreme Court decided what appears to be the first workplace bullying litigation of its kind. The Court reinstated a verdict of $325,000 in favor of an employee who was assaulted by a surgeon during a verbal altercation at the hospital. While the surgeon attempted to argue that the damages were excessive and that the ultimate finding of assault was based on insufficient evidence, the high court rejected these arguments, and also allowed into evidence the surgeon’s prior aggressive acts in order to prove that he was a workplace bully. As importantly, the supreme court supported the trial court’s refusal to give jury instructions that there was no basis in law for a “workplace bullying” claim. (See Raess v Doescher, IndSupCt, April 8, 2008). The Raess case is a reminder to employers to get a handle on their workplace bullies. Just because behavior does not appear to involve serious physical harm, or to rise to the level of unlawful harassment and discrimination, does not mean that a workplace bully is not causing irreparable damage to the workplace, as well as creating serious legal liability. Bullies are Rampant Unfortunately, our workplaces seem to be full of unpleasant and abusive people who don’t discriminate among their victims. Don’t believe it? Consider this. About 45% of American workers have been the target of workplace abuse. Another study by the Workplace Bullying Institute concluded that: When Bullying Creates Harassment Liability We should also remember that bullying behavior, applied equally to both men and women, can still result in a potential gender discrimination claim – at least in California. How is this possible? Well according to a 2005 decision out of the 9th Circuit, the bullying behavior can have a more severe impact on women who are likely to be more physically intimidated due to factors such as size and power inequities. [See EEOC v. National Education Association, 442 F.3d 840, 846-47 (9th Cir. 2005)]. This 2005 case is another reminder that classic “jerk” behavior may create more legal risk than employers ever imagined. Take Control of Your Bullies! Because bullying damages your business and can easily lead to harassment and workplace violence claims, it’s important to address the problem head on. Some simple things you can do: - Set conduct and behavior expectations. If your culture contributes to bullying behavior, think about making some changes – even small ones can make a big difference. (A bank I used to work with had a hard and fast rule that employees should not be “called out” or disciplined in group meetings.)
- Senior management needs to lead by example. A well known, high-powered bully needs to be addressed head on.
- In my experience, comp and rewards drive 99% of behavior in most workplaces. Don’t reward bullies – in fact, make it cost to be a bully. (Several clients I work with tie a large component of a manager’s annual bonus to employee feedback from 360 reviews.)
Training is Key If you really want to get your message out, training is critical. You don’t need to go overboard on this one though – and you certainly don’t need a stand-alone anti-bullying course. What you do need is a harassment course that thoughtfully integrates the broader concepts of workplace respect and dignity. While employees need to understand the basics of unlawful harassment prevention, not all undesirable and costly behavior is illegal. In fact most of that spite and venom falls into the ubiquitous and category of plain “unpleasant.” And we all know why employees sue. It’s not because of their in-depth knowledge of case law, statutes or employment law treatises. Employees sue because they feel wronged and mistreated. Behind every successful plaintiff, there’s invariably a jerk who went unchecked, and untrained.
Whether the economy is … dare I say it … in a recession or not, employers and employees are feeling the pinch. Bad news in the housing market and the financial sector has made us all a bit skittish. And rest assured, you can count your employees among the nervous masses. What’s on their minds? A heady mix of stress that includes job security, threatened retirement savings, personal debt load, and future career prospects. If your organization is tightening its belt or considering how to weather this period, it’s critical to steer senior leaders away from making one big mistake – cutting back on essential employment law training. Employment law training budgets should never be considered “discretionary spending,” especially in a downturn. Employment law claims don’t dwindle along with a poor economy – they actually increase. This isn’t just speculative theory – it’s supported by a formal analysis of case filings. A great study published in the Stanford Law Review by John Donohue and Peter Siegelman (The Changing Nature of Employment Discrimination Litigation, 43 Stan. Law. Rev. 983 (1991)), gives a clear picture of claim trends during an economic downturn: - When the economy goes into a recession, there is a dramatic increase in the number of employment lawsuits filed in federal court. A scarcity of alternative employment serves as a catalyst for litigation.
- The single largest predictor in the long-term growth trend of case filings is the national unemployment rate. When the economy booms, employment discrimination case filings fall in the next half-year; when the economy slumps, case filings rise over the next half-year. This phenomenon explains roughly 95% of the variance in the number of cases filed. A modest rise in the current unemployment rate from 4% to 5.5% could generate a 21% increase in the number of employment discrimination claims.
- The average damage award to a successful plaintiff rises in business downturns, particularly with respect to employment discrimination suits. Because the length of time it takes for a plaintiff to find another job increases in a recessionary economy, monetary awards are elevated.
The charge filing stats just released by the EEOC certainly seem to support the notion that poor economic times translate into more discrimination claims. According to the EEOC’s FY07 numbers: - Overall charges surged by 9% over the prior year – the largest annual increase since 1993.
- Race claims still top the list at 37% of all EEOC charges.
- Up 18%, retaliation is now the second most common claim.
- Pregnancy discrimination claims jumped 14% over last year – a number that’s likely to only increase.
- The EEOC collected record monetary relief for victims of discrimination in 2007 -- $345M, an increase of 26% over 2006.
- Consent decrees and settlements with the EEOC consistently featured mandatory harassment and discrimination prevention training.
By now, you’re probably all familiar with your compliance training obligations and mandates. They really focus on three key areas – ethics, harassment and discrimination. If you’re not familiar, just check out the free ELT resources designed to help you understand the legal landscape. And as a final note, remember to pay attention to your potential wage-and-hour liability during these tough economic times. Like discrimination claims, wage-and-hour claims are increasingly attractive when wallets are thin, and alternative job prospects grim. Wage-and-hour class action claims now outnumber all discrimination class action claims, combined. So during our current downturn, I’m confident we can expect to see an increasing surge of claims related to pay and hours or work. Training in wage-and-hour compliance, like with harassment and discrimination, can help your organization to establish invaluable affirmative defenses in the event of litigation. Learn more about how training can impact the bottom line with ELT’s wage-and-hour resources. At the end of the day, employment law training is so much more than “training” – it’s bottom line risk management. You wouldn’t start canceling your business insurance policies to save money in a downturn. The same goes for foundational employment law compliance. It’s non negotiable.
Thirty percent of employee learning in 2007 occurred online, a significant jump from 7 percent in 2005, according to two independent reports on the U.S. training market by the American Society for Training & Development (ASTD) and Bersin & Associates. As importantly, the reports find that “one of every three hours of training is now being delivered via some form of technology, and that ratio is expected to climb in coming years.” The reason for the switch is that e-learning is more “flexible and efficient…[and] a more fluid model of training delivery” than the traditional classroom model, according to the reports. Instructor-led classes are also generally more expensive per learner, and organizations are growing reluctant to pull employees from their work in order to attend training sessions – not to mention tighter budgets during our slowing economy. “It’s become pretty clear that companies simply cannot do corporate training without using technology,” said company president Josh Bersin. Even companies that were late adopting virtual training, such as St. Louis-based Anheuser-Busch Cos., have “reached a point where they [have] no choice.” The studies align with our own findings at ELT, which suggest an even stronger trend toward online training in the compliance space. In 2005, we polled more than 2,000 HR, legal and ethics professionals, asking how much education on topics such as harassment prevention and ethics was occurring online in their workplaces. The answer was 25 percent. When we ran the same poll in 2007, the number climbed steeply to 40 percent -- an impressive 60 percent jump in less than two years. When it comes to mandatory, enterprise-wide compliance training, the sheer volume of learners, as well as the requirement to constantly re-train workers, has made e-learning the only real viable option for companies of any significant size. The other trend we’re seeing, however, is a downsizing in the number of online courses being built or purchased by employers. While in the early 2000’s, a “library” model gained popularity, most organizations have discovered they purchased far more programs than they could consume, which translated not only into a poor ROI, but also watered down quality of the actual training programs. The same 2007 ELT study referenced above asked employers where they are investing the majority of their training dollars and time when it comes to compliance subjects. Over 90 percent indicated that efforts were concentrated in ethics/Code training, and harassment/discrimination prevention. This finding is hardly surprising, given that these are really the only two areas where widespread training mandates impact employers of all sizes, and across all industries. (For a detailed overview, check out ELT’s mandatory compliance training summary.) So as you embrace e-learning, and the volume of online education at your organization grows, don’t fall into the trap of over spending on multiple compliance titles that are unlikely to get used, and unlikely to add much value to the bottom line. While we love to see those e-learning numbers climb, sometimes less is more. And as the economy only looks to get worse, that’s an easy argument to sell.
There’s never a dull moment in the life of an HR or corporate legal professional. Just when you survived landmines for bad behavior at the holiday party and Valentine’s Day shenanigans, there is a new and hazardous workplace situation brewing – the 2008 presidential election. The contest between Hillary Clinton and Barack Obama is one of the most talked about elections in years. And as the first female and first African American candidates engage in a highly televised debate season, the number of debates among coworkers is on the rise as well. And in a lot of cases, these discussions can center on topics not appropriate for the workplace, including ethnicity, gender, sexual orientation, religion, and even morality. And while it’s exciting to see our nation so engaged in the race for our next president, the current frenzy can also create challenges for organizations when it comes to maintaining a discrimination-free workplace. The very topics of the debates – healthcare, abortion, the environment, economics, immigration, and the war on terror, are ones that people are passionate about, and may cause resentment and tense working relationships among employees. The increased media coverage is not helping. Employees are inundated 24/7 with election news on television, radio, newspapers, email, and blog postings. And because so many employees have the misconception that what’s on television is fair workplace conversation, training employees on what your organization deems appropriate is more important than ever. Consider an instance where you have two coworkers who interface on a regular basis. Coworker A is vigorously opposed to the war, but coworker B has a child or relative in the military, stationed in Iraq. Discussions on the war could prove disastrous, and in the end, cost your organization significantly in terms of lowered productivity, as well as the time and resources needed to resolve the issues. If other employees become involved creating a workplace schism, the lost productivity, overall costs, and decreased morale just multiply exponentially. Even discussions on policy can create huge problems for employers. Take for example the recent Economic Stimulus Act of 2008 which will provide refunds for individuals earning under $75,000, or couples earning under $150,000 jointly. As employees discuss this topic and inevitably mention whether or not they will receive a return, what they are also doing is revealing to their colleagues their general salary range and those of their spouse. If an employee learns a coworker is making significantly more money, the disclosure could create problems and resentment, especially if those conversations then continue among other coworkers. So how can you prevent inappropriate and potentially explosive political discussions in your workplace? - On election day, communicate to all employees that while your organization encourages them to exercise their right to vote, discussions about political preferences or issues may not be suitable in the workplace.
- Monitor your workplace for political campaign ads, advertisements or other literature, and remind employees that certain printed materials may not be appropriate.
- If you overhear heated discussions in the workplace, address them early. Make sure your managers are also paying attention to what is going on in their individual departments.
- Continue to train employees on the importance of maintaining a tolerant workplace and continue to communicate your policies for what your organization considers appropriate workplace discussions. Training has been and will always be your best defense for preventing problems before they happen.
So the good news is that we have survived 55 past presidential elections. And while the 2008 election may be the most watched and debated in years, having a sound policy and training program around diversity and discrimination will prove your best defense against problems. See you in 2012!
When Sarbanes-Oxley passed in 2002, all of us understood that it represented a complete overhaul of financial controls and reporting in this country. What some of us didn’t understand, however, was that SOX created a whole new theory of employment discrimination – not discrimination related to membership in a protected category defined by Title VII of the Civil Rights Act (like race, gender or religion), but discrimination related to whistleblowing activities – like raising a concern about the books being cooked. The key provisions of the whistleblower protection under Article 8 of SOX are as follows: - Employees who provide information about acts they reasonably believe to be a violation of securities laws, rules of the SEC, or laws relating to fraud against shareholders, are protected from retaliation by their employer.
- Protected employees cannot be discharged, demoted, suspended, harassed, or otherwise discriminated against.
SOX retaliation claims have been steadily on the rise since 2002. What’s even more interesting is that the average recovery in a SOX whistleblower discrimination claim ($270,000) significantly exceeds the average recovery in a classic Title VII retaliation claim ($187,583). (Employment Practice Liability: Jury Awards Trends & Statistics, 2005, Jury Verdict Research, Horsham, PA.) So we know these types of claims are prevalent – which is why a robust ethics and compliance training program will include appropriate coverage of whistleblower protections and the rule against retaliation. What some of us may not realize, however, is that SOX whistleblower protections could apply outside the U.S. At least that’s what a recent case out of the Southern District of New York is suggesting. In O'Mahony v. Accenture Ltd., 07 Civ. 7916, 02/05/08 (S.D.N.Y.), U.S. District Judge Victor Marrero held that the whistleblower protections of SOX applied to the U.S. subsidiary of a foreign Bermuda-based corporation based on conduct that took place on foreign soil, under foreign law and affecting an employee based in and performing services in the foreign jurisdiction. The case involved the non-payment of Social Security taxes in France for an employee of Accenture's U.S. subsidiary who had worked in France – not the typical kind of issue we focus on as ethics, legal and HR professionals. The Plaintiff claimed she was demoted and fired for refusing to conceal from French authorities that she had worked in the country long enough to invalidate the original certificate of exemption of coverage from France's Social Security taxes. In other words, she was asked by her employer (Accenture's U.S. subsidiary) to keep silent about payments that were owed. While it may seem a bit overly technical and obscure, the decision is worth watching because it is the first case to hold that the whistleblower provisions of SOX apply to an employee working overseas. The Court focused on three key aspects of the case to justify the application of SOX protections extra-territorially: - The Plaintiff had worked at the U.S. subsidiary before being posted to France, and she was an employee of and paid by the U.S. subsidiary, even when she was working in France. The employment relationship was therefore between a U.S. employer and its employee;
- The alleged wrongful conduct "involved employees of Defendants located in the United States and occurred in the United States" [namely, the decision that Social Security taxes were not due and owing in France]; and
- The Plaintiff was bringing suit against a "foreign parent and its U.S. subsidiary for alleged misconduct of the United States subsidiary in the United States."
Aside from the overseas application of SOX whistleblower protections, the case also carries importance because Judge Marrero rejected the previously assumed limitation of SOX to securities matters involving "fraud against shareholders." He held that "general principles of statutory construction weigh against reading [the statute] as providing whistleblower protection only to employees who provide information concerning fraud against shareholders." So O’Mahony is a big deal, not just for its jurisdictional reach, but also for its extension of SOX to cases not involving fraud on shareholders. As to its specific relevance for those of us interested in compliance training, I think the take-aways are also three-fold: - It’s critical for your ethics and Code of Conduct training to cover the principles of whistleblower protection, to encourage reporting, and to make crystal clear the rule against retaliation – both by employees and by managers.
- When you address the issues in #1, be sure to cast a broad net, and underscore that these rules are not limited to circumstances which involve reporting suspected fraud against shareholders. They can apply to a much more extensive range of ethical violations and suspected misconduct.
- If you are a multinational organization, don’t limit your ethics and code of conduct training to U.S. employees. Train everyone (with appropriately localized programs). Not only does your Code have global application, but in cases like O’Mahony, you may find U.S. laws being applied extra-territorially.
It will be interesting to see if O’Mahony can withstand appeal. Even if it does not, the practical recommendations that it inspires make for good business practice in any event. So many of the training programs I review are dangerously thin on proper treatment of anti-retaliation principles, yet lawsuits claiming retaliation are on a steep and steady increase. Time to review your materials and blow the whistle internally (pun intended) if your organization’s training programs are coming up short.
What?
Amendments to the Federal Acquisition Regulations (FAR) now affirmatively require most companies doing business directly or indirectly with the federal government to: (1) adopt a code of business ethics and conduct (“Code”), and (2) educate all employees on its provisions.
Who?
FAR 3.10, FAR 52.203-13 and FAR 52.203-14 apply to government contracts of at least $5,000,000, and which require at least 120 days to perform.
How?
The new regulations require both an employee awareness program, as well as a robust internal audit program.
When?
Effective December 24, 2007.
Government Contractors Face Substantial Requirements
The new FAR rules are noteworthy for requiring both an employee awareness program and a robust internal audit program. Specifically, the regulations provide that an employee training program should extend to all employees, and represent an “ongoing” effort to ensure that employees both know and understand their obligations under their employer’s Code. Likewise, the regulations require affected contractors to institute internal controls, including suggested “periodic reviews of company business practices, procedures, policies and internal controls.” This make a robust ethics and code of conduct program an absolute essential for employers doing even modest business with the federal government. The new FAR requirements will sound very familiar to those in the private sector. Most organizations adopted Codes of Conduct and ancillary ethics training programs following the passage of the Sarbanes-Oxley Act in 2002, and amendments to the Federal Sentencing Guidelines in 2004. The FAR rules emphasize the need for an ongoing program, as well as the requirement to reach out to all employees. These requirements codify what we view as best practices for all organizations – whether doing business with the government or not. The complete text of the new FAR requirements can be found at http://acquisition.gov/far/current/html/Subpart%203_10.html and http://acquisition.gov/far/current/html/52_200_206.html. A summary of the key rules follows:
Which Government Contractors Are Affected?
The new FAR requirements generally apply to any government contract worth at least $5,000,000 and which requires at least 120 days to perform. They also apply with minor exceptions to subcontractors providing services under the affected contracts. How Does the Timing Work? - Within 30 days* of entering into a government contract, contractors must:
- Adopt a written code of business ethics and conduct;
- Provide a copy of the Code to each employee engaged in the performance of the government contract; and
- Promote compliance with the adopted Code.
*This time may be extended by the contacting officer and the requirement does not apply to existing contracts that were awarded before December 24, 2007, or to task orders awarded under those contracts.
- Within 90 days of entering into a government contract, contractors must:
- Establish an “ongoing business ethics and business conduct awareness program; and
- Establish an internal control program aimed at:
- The timely discovery of improper conduct; and
- Ensuring corrective measures are taken.
What Kind of Employee Training and Audit Programs Are Required?
In general, the regulations provide that government contractors must adopt (1) employee business ethics and compliance training, and (2) internal audit programs: - That are suitable to the size of the company and extent of its involvement in Government contracting.
- That facilitate the timely discovery and disclosure of improper conduct in connection with Government contracts
- That ensure corrective measures are taken.
For details on available online training and awareness programs, go to ELT’s ethics training resources.
Do We Also Need to Display Hotline Posters?
Probably not. Under FAR 52.203-14, if a contractor has implemented a business ethics and conduct awareness program, including a reporting mechanism (such as a hotline), then the contractor does not need to display any agency fraud hotline posters, other than any required DHS posters. If a contractor has not implemented a business ethics and conduct awareness program, it must display a government agency or Department of Homeland Security-approved fraud hotline poster (available from the official Contracting Officer). This requirement will most likely apply to small businesses that are not required to follow the training and internal control rules. (See exceptions below.)
What Happens if We Don’t Comply?
Contractors that fail to comply with these new requirements could face withheld payments, loss of fee award, or even debarment, suspension or other disciplinary action.
Are There Any Exceptions to the New FAR Requirements?
Yes. The regulations do not apply when the contracts are awarded under the FAR Part 12 commercial item contracts clause, or when the contract will be performed outside of the United States, the District of Columbia, and outlying areas. In terms of a partial exception, contractors that have represented themselves as small business concerns during the contracting process are excluded from the formal training program and internal control requirements. These exceptions also flow through to subcontractors.
Could There Be Additional Changes to the new FAR Requirements?
Yes. At the request of the DOJ, a supplement to the Code is under consideration. The proposed additional rule was published on November 14, 2007 and the deadline for comments was January 14, 2008. This Proposed Rule imposes additional requirements regarding codes of business ethics and conduct, including notification requirements for contractors upon becoming aware of violations of federal law. The Proposed Rule appears to be consistent with the contractor compliance requirements in U.S. Sentencing Commission Guidelines Manual, which provide specific guidance on what the FAR Councils consider to be an effective ethics and compliance program. It is anticipated that these additional requirements will be approved. Stay tuned to ELT’s website and blog for more updates.
What Should We Do Now?
If your organization does business with the federal government, you need to immediately determine whether you have current or prospective contracts valued over $5,000,000. If you meet the threshold, it’s imperative to create a robust and easy-to-understand Code. If you already have a Code, you should consider reviewing and updating it. The new regulations require “periodic reviews of company business practices, procedures, policies and internal controls.” A Code should be a living document that reflects the ongoing needs and challenges of your business, as well as changes in the law. The Code then needs to be widely distributed to your employees. The distribution requirement dovetails nicely with the requirement to establish “ongoing business ethics and business conduct awareness program.” The most effective way to communicate the Code, and to bring it to life, is to include it as part of your enterprise-wide training program. With online education, the Code can be seamlessly delivered and tracked, along with the training. Finally, you need to establish an “internal control program.” Don’t let this sound more complicated than it needs to be. The intent of the new FAR requirements is for companies to be able to discover improper conduct, and to take corrective action when they do. In short, you need to have an effective complaint and investigation procedure. This is likely something already well established at your organization. The key is for employees to know about it – in other words, make sure that it’s well publicized through your training programs and other forms of internal communications (intranet, periodic e-mail announcements etc.) Now here’s a reality check for those of you hoping to fit the exceptions. Even if you’re not technically covered by the new FAR requirements, it is still highly advisable to follow these new rules. Not only do they reflect the key components of the Federal Sentencing Guidelines (which almost every employer needs to follow), they represent basic best practices when it comes to risk management, and fostering a culture of compliance. The trend of Code adoption and ethics training is only continuing to build momentum. In the coming months and years, we’re likely to see more of these types of regulations -- impacting employers of all sizes and types, and across all industries. For more information about online training and awareness programs, go to ELT’s ethics training resources.
With increasing knowledge of the Federal Sentencing Guidelines Requirements, Ethics and “Code of Conduct” training is becoming more and more popular. The topics that employers choose to emphasize in ethics training tends to be driven by two factors: (1) prevalent areas of risk for that particular organization / industry, and (2) whatever’s making the news. The first driver makes sense. For example, if your company has substantial international operations, basic education on the Foreign Corrupt Practices Act (FCPA) is likely important. An organization with a significant sales operation tends to care about anti-trust. Most publicly traded companies want a baseline established when it comes to insider trading rules. The second driver is a little more tricky. The ethical meltdowns that hit newspaper headlines aren’t necessarily highly relevant to every employer. For example, while some companies are concerned about pretexting given the HP investigation scandal from 2006, when you consider a typical employer’s compliance and risk profile, pretexting just isn’t a “top ten” issue. (For those of you who need a quick primer, pretexting involves misrepresenting your identity to gain access to privileged information – like financial records, or telephone records.) The reality is, most employers can dedicate about 30 to 60 minutes once a year, or once every two years, to mandatory ethics training – so allocating precious minutes to non-critical topics is obviously not ideal. A focus on what’s newsworthy can cause employers to ignore their most prevalent and “mundane” areas of risk. Which brings me to the topic of employee fraud and theft. Employers frequently develop a false sense of comfort about their employees by relying on pre-hire background checks, or internal controls that look good on paper. They think employee theft and fraud won’t happen in their workplace, or that misconduct will be spotted before it becomes a real problem. But the reality is that employee theft happens far more often than you’d think – and it happens at all levels within an organization, including the very top. Employees can and do steal all types of things everything – money, equipment, tools, office supplies, and business gifts. If it has value, it’s a potential target. The statistics are shocking, but it’s estimated that American businesses lose more than $50 Billion each year due to employee theft, and that employee theft is responsible for 33% of all business bankruptcies (!). Ok – so that’s a pervasive problem that’s worth addressing in ethics training, regardless of your size or industry. Another soft spot? Overlooking your senior executives and top managers. They can be some of the absolute worst offenders. A recent KPMG survey (Profiles of a Fraudster Survey 2007) drew some interesting conclusions about top executives who steal, and the impact that their conduct has on the organization. In 73% of the cases, greed and opportunity are the prime motivators. (See Institute For Corporate Productivity: Et tu, Brute? When Top Executives Go Bad). In 55% of the cases studied by KPMG, there was no prior suspicion. While you’re not likely to rehabilitate an employee who’s inclined to steal, you can impact his or her opportunity to engage in misconduct. And you should be looking to your employees to become your allies in this fight. Let them be the eyes and ears of the organization. And that’s where education about employee theft and fraud is so important. Your ethics and Code of Conduct training should cover the basics, including: - The rules against theft, no matter how small the asset
- The early warning signs of employee misconduct (isolation, refusal to provide information to management, a sudden change in spending habits).
- The expectation that employees report their concerns.
- The reporting process. (In its study, KPMG emphasized the importance of educating employees about whistleblower hotlines. An anonymous tip by a whistleblower was the primary source of fraud detection in 25% of cases investigated by KPMG. Other sources of fraud detection were management reviews (21%), external controls (10%), internal controls (10%), suspicious superior (9%), complaints by customers (9%) and accidental discovery (8%).)
The KMPG study also confirmed that a corporate culture that promotes ethical behavior at all levels is critical in preventing executive fraud. Employers need to clearly communnicate business ethics and encourage workers to question unethical or illegal orders – no matter who they're coming from. At the end of the day, it's about a vigilant culture of compliance – and mandatory employee ethics training is central to that effort.
I came across an interesting article in last month’s National Law Journal that highlights the growing trend of individual manager liability for employment litigation. (Employment Litigation Gets Personal for Company Managers: More executives sued personally for workplace actions). It’s a reminder of why comprehensive ethics and legal compliance training should reach everyone in the organization – even the execs who presumably “know all the rules.” Individual managers have been named in lawsuits for years. The risk of personal liability is extremely stressful and can put enormous pressure on an employer to settle even the most frivolous lawsuits. But what’s new is the rate and frequency that managers are being named as parties to lawsuits, and who’s being named as a party. Plaintiffs aren’t just targeting frontline managers who have extensive employee contact – they’re reaching to the top of the house and targeting high profile executives. The hottest new trend for personal exec liability? Wage and hour violations, which can easily run into the millions of dollars. Too many organizations excuse their most senior levels of management when it comes to ethics and compliance training programs. Unfortunately, this is where the stakes can be the highest, bad practices can be the most deeply ingrained, and many transgressors have a sense of righteous impunity. The Federal Sentencing Guidelines are crystal clear about the breadth of your ethics training obligations – they run from the lowest to the highest levels of the workforce, and periodic refresher training is expected. Skipping over senior execs leaves both the organization, and individuals, dangerously exposed. Will you get some pushback from top management when they discover they need to take the same training as everyone else? Yes. Will managing that pushback be a walk in the park compared to explaining why key leaders were excused from ethics and compliance training in the event of litigation or regulatory review? You bet. The busy schedules of your execs, and their supposed mastery of the rules, will fall on deaf ears when questions about your ethics and compliance training programs matter most. In today’s world of high stakes employment litigation, it’s so important that you educate all employees about the basics of your Code of Ethics as well as key workplace laws. Clearly wage and hour liability is a new topic to add to the mix, along with basic ethics, harassment and discrimination training.
We all gripe about the cost of airline travel – even though few consumers recognize the razor-thin profit margins that most carriers have to contend with. But there’s nothing like a price fixing scandal to really fuel the fires of consumer outrage. And that brings us to this week’s ethics scandal – the dark and dirty relationship between British Airways (BA) and Virgin. These two giants are the target of an investigation into price fixing and collusion by the British Office of Fair Trade (OFT) and the U.S. Department of Justice (DOJ). The allegations claim that BA and Virgin (along with some additional carriers) colluded to fix fuel surcharge prices for passenger and air cargo fares on long-haul flights to and from the U.K. British Air increased this surcharge seven times in two years, and the money it collected from fuel surcharges surpassed after-tax profit the past year. (See Timesonline.com article: British Airways investigated over price fixing cartel & Foxnews.com article: Airlines Face Probes Over Price-Fixing). Just yesterday, the OFT announced that it had obtained an admission of collusion from BA. The outcome? Some very hefty fines. BA will pay £121.5 million, or $246.5 million US - the largest penalty ever imposed by the British competition regulator. BA was also was fined $300 million by the U.S. DOJ after parallel trans-Atlantic investigations. Needless to say, BA has been hit very hard in terms of financial punishment. So what about Virgin? After all, it does take two to collude. The airline reportedly discussed price-fixing schemes with BA on at least 6 different occasions between June 2004 and January 2006. But here’s what may surprise you: while the criminal investigation is reportedly still underway, Virgin will not face fines. Why? Virgin employees blew the whistle and reported the colluding activities first to their internal legal department, and then externally to the OFT. Under the OFT’s leniency policy (which is designed to encourage reporting – a critical part of regulatory compliance), Virgin is protected from monetary penalties. That’s a big payoff.
Ethics Training Can Make the Difference
So in the event that a few rogue employees in your organization fall prey to unethical and illegal behavior (which is the case in the BA/Virgin scandal), how can you increase the odds of their co-workers and colleagues reporting the situation? Through periodic ethics and compliance training. Even if you have a robust and utterly thorough Code of Conduct – your Code is not enough. (Enron had a fantastic Code.) The Code needs to be brought to life for your workforce – actually followed and enforced. Interactive and compelling educational programs are critical to making that happen. Relevant to the issues in the BA/Virgin case, most employees don’t even have a basic understanding of price-fixing and anti-competition laws. While few people need truly in-depth training on the subject, all your employees will benefit from an awareness-level introduction to this increasingly important area of law. Basic coverage of the topic and clear guidance on how to spot and report policy violations can make a big difference. Proper ethics and compliance training also needs to focus on the importance of reporting, as well as the rule against retaliation. Whistleblowers need to know: (1) how to report, and (2) that they will be protected against discrimination and mistreatment for having come forward.
Ethics Training Has Real ROI
The British Office of Fair Trade is not alone in providing a financial incentive for proactive compliance efforts and self reporting. In the U.S., preventative action and responsible corporate governance can make all the difference when you’re under investigation. Under the U.S. Federal Sentencing Guidelines (FSGs), if an organization has taken proactive steps to prevent unethical and illegal conduct through an effective ethics and compliance program (which includes periodic, formalized training), the employer may be able to mitigate potential fines and punishment for criminal violations by up to 95%. (For more details, see ELT’s summary of the FSGs.)
Review Your Ethics Training Programs
For those of you not providing periodic ethics training, this latest newspaper headline is yet another reminder of why you need to start. Just scroll up, and check out those penalties again. For those of you who have embraced periodic, mandatory ethics training, consider whether you need to address the basics of price fixing and other forms of anti-competitive behavior. While for some organizations, this is simply not a risk area, for many it is. With ELT’s Ethics & Code of Conduct online training program, I see the majority of our clients select antitrust content as part of their “core” course. I have a Virgin flight coming up in a just few weeks. (They just announced service from SFO.) I’ll be looking closely at the ticket cost, and wondering if a whistleblower is handing me my blanket and pillow …
When it comes to ubiquitous fame and notoriety, nothing has upped the ante like the Internet. If you’ve got something to say, you’ve got an audience online. And its not just celebs and politicians that own the online communities – even business tycoons have a hand in the game, authoring blogs, posting YouTube clips and appearing as regulars in online chat forums. A little fame is intoxicating – even liberating. It feels even better when you can spin it into a competitive strategy to raise your company’s stock prices, and undermine your biggest competitor. Case in point: John Mackey, co-founder and CEO of Whole Foods. But this online personality did things a little differently. He hid his identity. For the past 8 years Mackey has been an avid poster on Yahoo Finance stock forums. (See LA Times article, CEO postings can be hits or headaches). He wrote under the pseudonym Rahodeb (a play on his wife’s name “Deborah”), and used his online alter-ego to unabashedly attack Whole Food’s most significant competitor in the organic food market – Wild Oats. Mackey trashed Wild Oats’ management, questioned their corporate structure, and constantly undermined the value of the company’s stock. On the flip side, he praised Whole Foods, commented on the efficacy of his own financial models, predicted stock increases, and even defended his own looks when online posters made fund of his not-so-celebrity hair cut. Mackey’s online tirades were so supportive of Whole Foods, and so critical of Wild Oats, that a few people started to suspect his real identity. When questioned directly in 2003 by another poster, his response revealed a steadfast and shameless commitment to deception: "If you really believe I'm John Mackey you should probably pay more attention to what I say on this board. I would be the ultimate Whole Foods Insider!"
Web Postings Can Create Real Liability for Your Organization Regardless of whether the writer is an employee or the CEO, online postings can create significant liability for your organization. This is especially true when a person’s “private” web authoring walks the knife’s edge between personal and professional life. Many employees include detailed information about their work lives in their blogs, their MySpace profiles and their chat room posts without fully recognizing that a line may have been crossed. For Whole Foods, the line was crystal clear – and Mackey’s online masquerading was nothing but purposeful. His postings have harmed the reputation of the organization, undermined the general public’s trust in the company, and resulted in very bad press. Mackey’s deceptive rants may also derail Whole Foods’ attempt to acquire Wild Oats. (See Guardian Unlimited’s article Takeover at risk from Whole Foods boss’s web ranks). Only time will tell how the FTC will react to Mackey’s antics. Online postings like Mackey’s can also create serious legal risks for an organization – from defamation and loss of trade secrets, to improper disclosure of confidential information and violations of antitrust and insider trading laws. An Employer’s Best Defense The best way to head off problems (and to protect your organization’s reputation and integrity) is to let your employees know the do’s and don’ts of online conduct. While those employees intent on engaging in deception may not be completely deterred by some of the basics detailed below, you can make an impact on the most common online transgressors -- employees who are unaware of the rules, or the risks they may be creating for them themselves, as well as the organization. And with these basic steps, even your conscious offenders will at least know the potential consequences of their behavior. Step One: Develop a Comprehensive “Cyber” Policy (or Electronic Resources Policy) A forward thinking policy should: - Address the employer’s right to control communications; dispel “free speech” myths
- Set clear rules for making statements about the workplace, employees, clients etc.
- Set clear rules about accessing sites during working time
- Explain privacy rights and responsibilities
- Remind employees about trademark and confidentiality issues
- Clearly explain the consequences for violating the policy
Step Two: Periodically Train Your Employees So They Understand the Policy and Your Expectations Trainings should at a minimum: - Explain workplace rules
- Demonstrate how off-duty conduct can create workplace issues
- Explain the risk of certain forms of online expression
- Address new technologies (like blogs and social networking sites), but always tie them back to core values that do not change
- Clearly describe the consequences for policy violations
On Thursday, June 21, 2007, the United States Supreme Court handed down an important decision (Rita v. U.S., 06-5754) that should make all employers take note. The case involved the reasonableness of a 33-month prison sentence imposed on a criminal defendant under the Federal Sentencing Guidelines (FSGs). The prison sentence fell within the range established by the FSGs. The Court held that an appellate court, considering the appropriateness of a prison sentence, can apply a presumption of reasonableness to the sentence if it falls within the guidelines established by the FSGs. Prior to this ruling, a sentence could be reversed if it was deemed unreasonable by an appellate court. The practical effect of this decision is that criminal defendants (even employers held liable for the criminal acts of their employees) will have great difficulty getting a prison sentence overturned on appeal if the sentence falls within the FSG guidelines. (See Associated Press |