A poorly executed ethics investigation, however, can become a full-blown legal case, with the organization risking reputational and financial damages.

Customers and shareholders prefer engaging with a business that’s known to be highly ethical. This means your business has proper systems for reporting, investigating, and implementing recommendations to improve ethics within the company and its workforce.

But how can you conduct a successful ethics investigation to ensure the least possible legal and reputational trouble for your business? Here’s a look into the process.

What Would Warrant an Ethics Investigation?

A workplace ethics investigation is typically conducted when there’s credible information about significant misconduct, wrongdoing, or ethical lapses within the organization. These include office theft or fraud, health and safety violations, misconduct such as harassment and workplace violence, and time theft, such as altering time sheets for greater earnings.

An ethics investigation can also be warranted if there have been allegations against other employees to exclude the possibility of wrongdoing within the company. For instance, employee whistleblowers expose fraud in an organization 43 percent of the time compared to professional internal auditors, who only successfully uncover it 19 percent of the time, according to a study conducted by the National Whistleblower Center.

An ethics investigation aims to protect the company’s and its shareholders’ interests. It detects and prevents violations and misconduct, identifies areas where the business can improve its internal operations, and ensures the company’s activities comply with applicable laws and regulations.

An ethics investigation will unearth whether suspected misconduct did or did not take place, the circumstances leading to the misconduct, the involved parties, and whether the law or company policy was violated. An ethics investigation must be perceived to be independent, thorough, and analytical.

Whom Should Be First Informed of an Ethical Issue?

Typically, employees should be able to report potential ethical issues to their manager or supervisor. If this option is impractical or the manager or supervisor can’t resolve the issue, they should be able to speak up to people in higher positions and get the audience they need. This may include making a complaint through the company’s compliance hotline or corporate ethics office, where their reports can be heard and determined impartially and with maximum confidentiality.

Ensuring employees have a clear channel for making complaints and addressing them is crucial to avoiding lawsuits related to ethical issues and compliance and saving your organization expensive legal fees. 89 percent of employees who sue their employers do not receive a satisfactory resolution to their issues internally.

What is the Process of an Ethics Investigation?

An ethics investigation can take various stages depending on the industry or organization and its ethics investigation process. However, most investigations take the following steps.

1. Taking the Initial Complaint
An ethics investigation begins when you’re alerted of unethical behavior by someone within the company. The employee will file the complaint through the necessary channel or people. They will be responsible for documenting as much information as possible about the alleged misconduct.

The information filed from the complaint should include who is being accused of misconduct, what information has been given about their behavior, where the misconduct allegedly happened, how it happened, and when it occurred.

This information should be forwarded to your HR team and the department most affected by the ethical incident.

2. Ensure Confidentiality
Every aspect of an ethics investigation must be kept confidential. Maintaining confidentiality is crucial to the investigation’s integrity. If the investigation is not kept confidential, you risk consequences such as:

• Undermining the success of the investigation since others know of it
• Reputational damage to the accused if others learn about the allegations
• A compromised ability of the company to defend against any legal action associated with the investigation
• Liability and negative publicity for the company
• Retaliatory action from the accused
• Attempts to cover up the misconduct by the accused

Confidentiality begins immediately after the complaint is received. No other party should know that an investigation is underway, who is the subject matter, the evidence and materials gathered, the processes followed, and the investigation’s results until the final report is ready.

3. Give Interim Protection
Protecting the accuser or alleged victim should be one of the top considerations immediately after receiving the complaint. Separating the accused from the alleged victim may be necessary to avoid continued harassment or retaliation.

Some protective measures include providing a leave of absence, transfer, or schedule change. However, the complainant must be willing to take these measures. Otherwise, they can view your actions as retaliatory and file a retaliation suit.

4. Select an Investigator
A competent investigator must handle an ethics investigation. Typically, the investigator should possess the following traits:

• Investigate objectively without bias
• Have no stake in the outcome, a personal relationship with the parties involved, or have their position in the organization affected by the outcome
• Possess previous investigative knowledge and working knowledge of labor and employment laws
• Strong interpersonal skills to build a positive rapport with the involved parties and appear neutral and fair
• Right temperament to conduct interviews
• Attention to detail

5. Conduct Investigations
Once you’ve selected the investigator, you should start the investigations immediately, working quickly to identify and stop the unethical behavior before it spirals into bigger organizational issues.

While conducting investigations, the investigator should be thorough in finding the truth and reassuring employees that their submissions are confidential and non-retaliatory. This will ensure they’re more honest, contributing positively to the process.

6. Provide Guidance and Recommendations and Document the Report
Once you’ve completed the investigations, the investigator should present all gathered information and provide a recommendation for the company moving forward. This may involve recommending disciplinary action against the accused employee and effecting policy changes to ensure such incidents don’t reoccur.

After completing this process, you should write a detailed and comprehensive investigation report to provide a reference for future investigations and clear evidence that the investigation was conducted according to procedure.

Having a written investigation report will also help your legal team make a defense in court if the accused employee disputes the disciplinary action in court.

7. Talk to a Compliance Expert
An ethics investigation is a crucial process that your organization must handle properly. An effective ethics investigation process will help your organization remain compliant and avoid damaging lawsuits that can hurt its reputation and finances.

We can hope that we will never have to conduct an ethics investigation, but at most organizations of any size, the time will likely come at some point where we must. Following these steps should ensure a sound and productive ethics investigation. Done right, a proper investigation can get to the bottom of wrongdoing, put an end to the bad behavior, and hold those responsible to account.   

Jocelyn King is the co-founder and CEO of VirgilHR, a Software as a Service (SAAS) solution that empowers HR professionals to make smart compliant employment decisions in real-time.

The post How to Conduct an Ethics Investigation from Beginning to End appeared first on Compliance Chief 360.

In Transparency International’s report, “Exporting Corruption 2022,” 43 signatories to the OECD Anti-Bribery Convention were assessed, along with China, India, Hong Kong SAR, and Singapore. Together, the countries analyzed account for almost 85 percent of all global exports, with OECD member countries accounting for almost two-thirds.

The report is meant to complement the OECD Working Group on Bribery’s (WGB) monitoring of country implementation of the OECD Anti-Bribery Convention in successive phases.

According to Transparency International, just two of the 47 largest exporting countries in the world—the United States and Switzerland—are “active enforcers,” meaning they investigate, charge, and impose sanctions commensurate with their share of global exports (11.8 percent in combination). However, even the United States pursued “significantly fewer cases in 2021,” Transparency International said in a blog post.

“From the inception of our categories in 2009, the percentage of global exports coming from ‘active enforcers’ had remained above 20 percent— nearly twice this year’s percentage—until it began to drop in 2020,” Transparency International said.

Two former “active” enforcers—the United Kingdom and Israel—dropped this year into “moderate” enforcement. Seven other countries whose enforcement levels declined were Italy, Brazil, Spain, Sweden, Portugal, Denmark, and Lithuania.

Most of the 47 countries analyzed have limited or no enforcement at all, while representing 40 percent of global exports. These countries include China, the world’s top exporter, as well as Japan, South Korea, Hong Kong, Russia and more.

Only two countries—Latvia and Peru—stepped up their foreign bribery enforcement efforts. That now puts Latvia in the “moderate” enforcement category, while Peru has inched up into the “limited” enforcement category.

Inadequacies persist
Transparency International’s report further highlighted inadequacies in legal frameworks and enforcement systems. “Serious inadequacies persist in laws and justice systems in every country. In many, investigative bodies have inadequate resourcing and independence,” Transparency International said.

It continued, “Whistleblowers lack key protections. Few governments publish sufficient information on pending or concluded foreign bribery cases stymying accountability to citizens, partner countries and the people harmed.”

“Even in countries that do enforce, foreign bribery continues to be treated as a victimless crime,” said Gillian Dell, head of Conventions at Transparency International and co-author of the report. “This means states whose companies commit crimes abroad fill their treasuries with multimillion dollar penalties while victims are left to bear the cost.”

“It is time to recognize victims’ rights by developing transparent and accountable mechanisms to compensate those harmed, including foreign states, business competitors and whole populations suffering from foreign bribery,” Dell added. “This is essential to achieve justice and deter future violations.” 

Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.

The post Group Finds Foreign Bribery Enforcement at ‘Historic Low’ appeared first on Compliance Chief 360.

Of 57 companies examined in the “Racial and Gender Pay Scorecard” report, released this week by the investment management firm Arjuna Capital and shareholder advocacy firm Proxy Impact, only seven—Pfizer, Mastercard, Bank of New York Mellon, Starbucks, Adobe, American Express, and Citigroup—received an “A,” while twenty-four companies receive a failing grade.

The fifth edition of the Scorecard provides pay equity grades based on quantitative disclosures (versus qualitative assurances) by companies taking concrete steps to close racial and gender pay gaps. Investors have engaged all of the 57 companies in the ranking through the shareholder proposal process and asked them to improve their public pay equity disclosures.

“Women and people of color are almost always deeply underrepresented in higher paying positions,” said Michael Passoff, CEO at Proxy Impact. “Median pay gap data helps shed light on that problem, and studies show that companies that disclose pay gaps are more likely to fix them. We are already seeing more company and shareholder support for racial and gender pay gap reporting and industry leaders are starting to emerge.”

Report Findings

• A failing grade of F is awarded to slightly less than half (24) of the total group of companies, including Goldman Sachs, Facebook, Disney, Oracle, Walmart, Best Buy, and Biogen, for a failure to disclose quantitative racial and gender pay gaps.
• Nine companies’ scores fell from last year, including Facebook, Google, Texas Instruments, and HP, for failing to disclose quantitative pay gaps within the last two years. Investors previously engaged and reached agreements with Facebook, Google, and Texas Instruments, yet those commitments have not been upheld through the pandemic. Facebook fell from a C to an F, and Google from a C to a D.
• Thirteen companies improved their scores year-over-year. McDonald’s managed the largest score increase from an F to a B, as it began disclosing adjusted racial and gender pay gaps.
• While many companies have felt comfortable disclosing adjusted pay gaps in the past, more and more companies are beginning to disclose unadjusted median racial and gender pay gaps beyond their U.K. data, where it is mandated. The Scorecard found that eleven companies currently disclose, or have committed to disclosing their median U.S. racial and global gender pay gaps in 2022. This includes: Mastercard, Bank of New York Mellon, American Express, Citigroup, Adobe, Starbucks, Pfizer, Microsoft, Target, Home Depot, and Chipotle.
• Adobe and American Express earned an A grade this year after disclosing unadjusted median racial and gender pay gaps, topping the list due to best-practice disclosures.
• Nine companies— Microsoft, Nike, Target, Apple, Wells Fargo, McDonald’s, Bank of America, Intel, and Verizon—earned a B grade for their efforts to disclose and act on their racial and gender pay gaps.
• Over the last seven years, 143 shareholder proposals requesting pay gap disclosures have been filed at more than 80 companies (including the 57 in the Scorecard).

Still a Wide Pay Divide
The Scorecard highlights an increasing number of companies that are setting a new standard for the accountability and transparency needed to close persistent racial and gender pay gaps. Last year, U.S. Black worker’s median earnings represented, on average, 64 percent of white worker’s earnings and women’s earnings represented 83 percent of men’s earnings.

Unfortunately, the COVID-19 pandemic has exacerbated pay inequity, as millions of minorities and women were forced to leave the workforce. One study estimates that women lost nearly 40 years of progress during the beginning months of the pandemic.

“The pandemic has been a one-two punch for women and people of color who disproportionately suffered from the 2020 job losses,” says Natasha Lamb, managing partner at Arjuna Capital. “It’s no surprise that racial and gender pay equity has become a key area of focus for investors, who are demanding more from companies. Just last week, nearly 60 percent of shareholders voted in favor of an investor proposal asking Disney to disclose racial and gender pay gaps, underlining the material importance of pay equity to institutional investors.”

Yet, Pfizer, a company that is all too familiar with the challenges of the pandemic, managed to far outpace its peers and top this year’s Scorecard. The company provides an example of best-practice pay equity reporting as it discloses adjusted and unadjusted pay gaps and a comprehensive methodology of its pay equity analysis. Within the last year, Pfizer managed to narrow its racial and gender pay gaps and began including executive leadership in its pay equity analysis.

Pay Equity Reporting Standards
The Racial & Gender Pay Scorecard assesses companies’ pay equity data against best-practice pay equity reporting standards, which consist of two important elements: (1) unadjusted median pay gaps, assessing how jobs are distributed by race and gender and which groups hold the high-paying jobs, and (2) statistically adjusted gaps, assessing pay between minorities and non-minorities, men and women, performing similar roles. While statistically adjusted gaps provide one piece of the story, median pay gaps are a tougher and more revealing standard. Median pay gaps show, quite literally, how the company assigns value to its employees through the roles they inhabit and the pay they receive.

Actively managing pay equity is a business imperative, the report’s authors assert, as it leads to improved representation, superior stock performance, and higher return on equity. It’s also good for the economy, they say. Citigroup estimates that closing U.S. minority and gender wage gaps 20 years ago could have generated 12 trillion dollars in additional national income and contributed 0.15 percent to U.S. gross domestic product per year. McKinsey projects that closing the racial wealth gap could increase GDP by 4 to 6 percent by 2028, netting the U.S. economy $1.1 trillion to $1.5 trillion. 

Joseph McCafferty is editor & publisher of Compliance Chief 360°

The post Facebook, Disney, and Walmart Earn an ‘F’ on Pay Equity Practices appeared first on Compliance Chief 360.

Gordon “designs creative ways to help VF employees understand how to follow complex compliance requirements while living their values in their everyday work,” the CU Denver Business School said in a statement. “Her focus on using data and principles of behavioral psychology to drive company-wide initiatives has led to increased associate engagement, more targeted training, and improved compliance results.”

The award is presented by UC Denver’s Daniels Fund Ethics Initiative Collegiate Program, which works to provide principle-based ethics education at twelve partner university business schools, including the University of Colorado system. It is named for Bill Daniels, a cable television pioneer, philanthropist, and former co-owner of the Los Angeles Lakers basketball team, who died in 2000.

At VF Corp., which owns such brands as Vans, The North Face, and Supreme, Gordon has helped build a world-class ethics and compliance program. Since 2017, the company has been recognized by the Ethisphere Institute as a World’s Most Ethical Companies honoree five years in a row.

“Gordon is being recognized for her hard work in ethics for VF Corp., which currently employees over 30,000 people. Kellye uses her legal background to help VF promote ethical initiatives across many worldwide locations,” said the university.

The Ethical Leader of the Year award will be presented later this month at the Small Business, Big Connections event presented by the CU Denver Business School and the Denver Metro Chamber of Commerce. 

Joseph McCafferty is editor and publisher of Compliance Chief 360°.

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This CEO—we’ll call him Jack—was a complete jerk. He told crass jokes around the office. He bragged about his old college sexual conquests. And he bullied people by swearing at them and demeaning them. Jack fostered a corporate culture bulging with masculine bravado and a dog-eat-dog mentality. He was in charge and he wanted everyone to know it, even if no one really respected him.

Things got so bad that all the women in the small office eventually quit their jobs. They were tired of the snide comments, the sexual innuendos, and the angry demands. Lets just say it’s likely that Jack was responsible for more than his share of “me too” moments. At the company Christmas dinner, he joked about the all-male staff: “People might look at us and say we are sexist, but it’s not true. Hey, we tried a few broads… they just didn’t work out!”

His abrasion wasn’t reserved just for women, though. One sales manager was so terrified that one day he simply stopped coming into the office. No two-weeks notice, no letter of resignation, not even a phone call. After wondering where he was after a few days, we found a note on his desk that had been buried by incoming mail. It simply read, “I quit.” This manager hadn’t had the stomach to tell Jack face to face that he couldn’t stand working in the environment the boss had created and that he was leaving.

Jack’s poor behavior was contagious. There were heated arguments in the office all the time. People swore at each other. Opposing fractions developed. We had two fistfights in the office. Yes, that’s right, physical fistfights. There is nothing more unsettling then watching two guys bloodying each other’s noses in double-breasted blazers and Brooks Brother’s ties.

Sour Notes
The term wasn’t popular then, but this was tone at the top and what a horrible tone it was. More than a sour note, it was a cacophony of irresponsibility and downright meanness. And here’s the thing: It was completely intentional. Jack was creating exactly the type of culture that he wanted. He believed that command-and-control leadership, Darwinian battles of the fittest, brawn, and heated competition, were the ingredients to a winning company—one that leaves competitors in the dusk, saves money by screwing over suppliers, squeezes staffers into pulp, and takes no prisoners.

He was wrong. The hard-charging sales guys drove potential customers away. The scorned suppliers stopped supplying. The friction in the office grew dysfunctional and important worked suffered. Eventually, the company collapsed in on itself. I’ll never forget the day the entire staff was summoned to the conference room to be told that despite it being payday, no paychecks would be issued.

It’s an extreme example of course—and hopefully we have all learned a great deal about the dangers of command-and-control management—but it’s a reminder that culture matters. Hell, kindness matters! And most of us now know that companies run on testosterone don’t usually perform very well.

Setting the Tone
I think we can all agree that “tone at the top” is a terrible phrase for an important idea—that the actions and behavior of the CEO, the board, and other corporate leaders have the most influence on shaping the ethos of any organization.

We could call it “lead by example,” “behavior at the top,” or “don’t act like jerks in the corner office,” but those just don’t have that poetic alliteration of tone at the top. And while the pithy phrase has wormed its way into how we talk about corporate culture, organizational ethics, and even risk management, it’s easy to toss it about without really thinking about or understanding exactly what it means. It’s easy to forget that tone at the top is about people.

It’s true too, though, that tone at the top is a tricky thing. These days, many organizational leaders talk about it, but they don’t spend time reflecting on what it really means. Tone at the top is way more than monkey see, monkey do. Tone at the top is about humanity and not about words like compliance and regulation. It is about doing the right thing and we all know what that is in our hearts. It is about treating people with dignity and respect.

Tone at the top is about creating an environment—from the boardroom to the mailroom—where people thrive. It’s about creating a place where they feel respected, where they are empowered, where they are reminded of their higher purpose, and where people flourish and do their best work. Those are companies that leave competitors in the dust.

Setting a tone, considered literally, can mean playing a note others can harmonize to or use to tune their own voices or instruments. As humans we tend to want to join the community and follow the actions of others, particularly those in leadership roles. It’s human nature to allow the actions of others to influence our own behavior, both for good and—as Jack reminds us—for bad.

Even small violations can have big consequences. It’s been long observed now that organizations where the leaders cut corners, take small liberties, hold themselves above following policies, and engage in many other minor transgressions, have more problems with employees who also break the rules and that wrongdoing can run the gamut from breaking policies, inflating expense reports, to outright fraud.

Internal Audit’s Tough Task
Internal auditors, familiar with the powerful connection between tone at the top and culture, must assess the tone as part of the increasingly common culture audit. But this is a difficult task. Assessing the behavior, actions, and words of those who sign your paychecks and decide your raises and promotions is tough work. How do you ask your boss, or maybe your bosses’ boss, if he or she handles conflicts in a proper way? What happens when you find that people who raise concerns inside the company get demoted or pushed out of the company? Internal auditors point out the behavioral failings of corporate leaders at their own peril, but it must be done. Internal auditors are the protectors of integrity in the organization.

As a young, inexperienced rookie in the workforce for the first time, I never confronted Jack. And to be honest, I never even considered it. At companies where internal auditors and risk managers share some responsibility for the ethical climate of the organization, they can’t afford not to confront the Jack’s of their worlds.  

Joseph McCafferty is editor & publisher of Compliance Chief 360°

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In March, the Securities and Exchange Commission said it would be looking more closely at ESG disclosures and also announced the creation of a Climate and ESG Task Force in the Division of Enforcement. The initial focus will be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.

In response, many organizations are likely to commence a review of their climate and ESG disclosures and many internal audit functions might be considering audits of the ESG reporting process.

To provide internal auditors with some guidance on ESG disclosures and practices, the Institute of Internal Auditors issued a new report, Internal Audit’s Role in ESG Reporting: Independent Assurance Is Critical to Effective Sustainability Reporting. “As environmental groups, activists, and asset managers step up pressure on major companies to make public commitments to sustainability, leaders in business and government are realizing the urgency and importance of environmental, social and governance (ESG) as an enterprise imperative,” the IIA said in a statement.

The IIA report explains the risks, opportunities, and how internal audit can help identify and establish a functional ESG control environment. Internal audit’s unique, enterprise-wide view allows it to provide crucial assurance on the effectiveness of ESG assessments, responses, and controls.

Achieving Consistency
Assurance over ESG disclosure should include the following components: a review of reporting for consistency with formal financial disclosure filings, materiality or risk assessments on ESG reporting, the incorporation of ESG into audit plans, and a review of reporting metrics for relevancy, accuracy, timeliness, and consistency, the report states.

“It is good news so many organizations are focusing on ESG,” said IIA president and CEO Anthony Pugliese. “But many more are struggling or are ill-equipped to determine exactly what should be reported. A key reason for this is a lack of a single set of standards and uniformity in reporting.”

While the IIA stopped short of offering a set of standards, it hopes the report will aid internal auditors in carving out their role in ESG reporting. The guide also offers some much-needed assistance on playing an advisory role on ESG at their organizations. Once the necessary assurances have been made, advisory steps include building an ESG control environment, recommending reporting metrics, and offering advice on ESG governance, says the IIA report.

“Business performance is no longer judged purely on short-term financial returns,” Pugliese, wrote in the letter to the SEC. “ESG issues represent a broad range of risks, including to external supply chains, internal operations, third parties, general control weaknesses, data accuracy, human capital, and more.”

The report is available for download on the IIA’s website.  

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