As part of our occasional series of conversations with compliance executives and others influential in the corporate governance world, we caught up with Lee Augsburger, chief ethics and compliance officer at Prudential Financial to talk about how Prudential structures the ethics and compliance departments. Prudential has a standalone ethics department, with ethics officers embedded in each business unit. Augsburger provides insights on Prudential's unique ethics and compliance structure and how it works to further the goals of the organization.

First, tell us a little about Prudential, generally.

Prudential is a global financial services company. It has 50,100 employees worldwide, and operates in 38 countries and territories.

Prudential is a sprawling, global company. What do you do to maintain a robust ethics and compliance program?

I've been working very deliberately to integrate ethics and compliance. For the longest time, we had two separate groups report up through two different individuals, who ultimately reported to the general counsel. In 2009, the two units were consolidated, with both of them reporting to me.

Ethics and compliance are mutually dependent. Getting your ethics message right is absolutely critical to getting compliance right. If you don't get the ethics issue sorted out, it doesn't matter how much effort you spend on compliance, you're going to continually run into problems.

Tell me more about how the ethics department is structured at Prudential.

At Prudential, global business ethics & integrity is a standalone unit of the law, compliance, business ethics & external affairs department. It has been in place since 1994 and predates the creation of the compliance unit by 12 months.

The focus of the business ethics & integrity unit is on developing, encouraging, and enforcing a high ethical environment across the company. Among its responsibilities is maintaining the company's Code of Conduct and the ethics reporting helpline that employees can use to tell us about their concerns—anonymously if they choose. The unit also tracks disciplinary data across the company and concentrates on training and communications. 

How many employees are on this ethics team?

There is a dedicated team of eight professionals at the corporate center that oversee all of those mechanical issues I mentioned and others.

In addition to the central ethics department, Prudential also has a team of 25 to 30 business ethics officers throughout the company who have direct reporting relationships with each of the business units. Each business ethics officer reports directly to the senior officer of their respective business units.

In this way, Prudential has somebody sitting at the elbow of every senor leader in our company ensuring that the integrity message and ethics accountability is real and vital and is front and center in their department and everything they do.

How do the business ethics officers help contribute to the culture of the company?

ABOUT LEE AUGSBURGER

Lee Augsburger,Chief Ethics and Compliance Officer, Prudential Financial

Lee Augsburger is senior vice president and chief ethics and compliance officer in the law, compliance, and business ethics unit of Prudential Financial, responsible for overseeing the company's global compliance organization of more than 400 staff worldwide and the company's global business ethics efforts.

Augsburger joined Prudential's law department in 1997 later becoming the chief legal officer for the annuities business. In 2000 he moved to the compliance department and was appointed global chief compliance officer in 2007 and global chief ethics officer in 2009. He also has served as vice president, compliance, for the company's investment division, where he was responsible for managing compliance programs for the retirement services, institutional brokerage, asset management businesses and mutual funds.

Prior to joining Prudential, Augsburger was a director in PwC's regulatory consulting practice, worked with Van Kampen Merrit, served several years with the law firm of Bell, Boyd & Lloyd, and later joined Smith Barney where he was deputy general counsel for its mutual fund organization.

Augsburger is adjunct faculty at New York Law School, developing and teaching Compliance for Global Financial Services Companies for its financial services LLM program.

He is a member of the bar of Illinois and various industry organizations, including the Ethics and Compliance Officer Association and the National Society of Compliance Professionals (for which he also serves as a board member). Augsburger also serves on the board of advisors for the Institute for Ethical Leadership at Rutgers University, and on the board of trustees of Star of Hope Ministries, an inner-city mission organization in Paterson, NJ.

Each business ethics officer has an annual plan that is approved by the corporate ethics team at the center. Those communication plans, which are revised every year, describe the activities that are unique and specific within each business unit.

The business ethics officer then has accountability to see that those plans are executed. The plans are communicated in a variety of different ways, including e-mails from senior executives, town hall events, and e-mail blasts within each business unit.

You mentioned the central ethics group. What does that team do, and how does it work?

The global business ethics & integrity team meets with all the business ethics officers on an every-other-month basis. This enables the group to sit down and trade stories about things that work well in their organization and to share ideas with their fellow business ethics officers.

It becomes a very good forum for ideas and brainstorming about how things are going. It also gives the central team feedback on the effectiveness of some of our communications and how well they  are working in each business unit.

What would you say is the biggest challenge when it comes to practicing ethics in a global corporate environment?

Practicing ethics in a corporate environment is challenging because it's not black and white. With compliance, you can go to a rulebook and find out what the regulations are; a lot of ethics takes place in the gray space.

Tell me about the compliance department. How does that dynamic work with the rest of the company?

Our compliance function is centralized. All ultimately report to me, irrespective of where they're located.

The compliance department is massively bigger than our ethics department. We have 400 people in our compliance department, and 80 percent of them are embedded in business units around the world because we believe the best compliance is local compliance. In fact, it would be impossible for a centralized compliance organization to know all rules in all jurisdictions in the world. So we have compliance teams on the ground in Japan, Korea, Argentina, and Germany that are familiar with all the local regulations that apply to those businesses.

What about the other 20 percent of the compliance team?

The remaining 20 percent is in the corporate center, which is focused on issues that have enterprise-wide impact. For example, there are teams focused on issues such as anti-bribery and anti-corruption or personal securities trading, which for a financial services firm are critical regulatory issues.

Training is another company-wide issue that the corporate team focuses on. And the compliance team also supports our corporate functions—such as finance, HR, systems, and operations teams. All those groups are centrally located.

What would you say is the difference between the ethics and compliance functions?

The ethics organization is very focused on culture and the environment of the organization, where the compliance function has a tendency to be more focused on regulatory obligations and how the rules are being monitored.

What are your plans moving forward?

What I'm continuing to focus on is making sure that the ethics message remains a primary element of Prudential's corporate culture. We accomplish this through the work of the compliance officers in the same way that do with the business ethics officers that are connected to each of the businesses.

What has particularly helped you in your role as a chief ethics and compliance officer that other peers may be able to learn from?

Many of my peers report  to the chief legal officer, or someone else, at their company, who then takes their message to the board.

Even though I'm supervised on a day-to-day basis by the general counsel, I meet and report to the Audit Committee independently and directly. I also have meet individually with the committee members several times during the year. 

Having that kind of direct access to the audit committee is very advantageous because it allows the escalation of issues to the appropriate level and provides a degree of independence that's important to the function of chief ethics and compliance officer. 

Thanks, Lee.

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