These days, after years of pressure from regulators and shareholders, most large public companies have a chief compliance officer with (relatively) clear areas of responsibility and lines of authority.

THE PANELISTS

The following executives participated in the March 22 roundtable on corporate ethics.

Audrey Andrews,

Chief Compliance Officer,

Tenet Healthcare

Bobby Butler,

Chief Compliance Officer,

Universal Weather & Aviation

Judy Carter,

Chief Compliance Officer,

BNSF Railway Company

Chip Duffie,

Chief Compliance Officer,

Safety-Kleen Systems

Rosario Heppe,

Senior Director, Corporate Compliance,

Fluor

Eric Hinton,

Chief Legal Counsel,

Lennox International

Gina Johnson,

Associate General Counsel, Labor & Employment,

Sabre

Gary Rowen,

Chief Compliance Officer,

Celanese

Denise Russell,

Director of Compliance,

Cash America International

Jim Stempak

Principal, Risk Services,

Crowe Horwath

Irene Wills,

Director, Ethics and Compliance,

Flowserve

Jonathan Marks,

Head of the Ethics, Anti-Fraud Practice,

Crowe Horwath

Ann Bruder,

Sr. VP of Law, Government Affairs & Global Compliance,

Commercial Metals Company

For More Information on Compliance Week Roundtables

Ethics, on the other hand … as always, is harder to pin down.

In practice, ethics remains an implicit function at most companies. Think about it: assuming the organizational chart gives any nod to ethics at all, it's usually in the form of a chief ethics and compliance officer, rather than an independent chief ethics officer. Likewise, how ethics should be integrated into the corporate structure, as well as how it could be improved and demonstrated, continues to confound many companies.

At an editorial roundtable in Dallas last month hosted by Compliance Week and auditing firm Crowe Horwath, a dozen ethics and compliance officers pondered just that point of how to define ethics and weave it into the entire fabric of the organization. “Ethics is doing the right thing over, and over, and over again—even when no one's watching,” said Bobby Butler, chief compliance officer of Universal Weather and Aviation, setting the tone for the discussion.

Indeed, the first order of business for the group was parsing the difference between ethics and compliance. Ethics, said Ann Bruder, head of legal and government affairs at Commercial Metals Co., is about who a person is at the core; compliance is what a person is taught to do. “It's essential for organizations to honestly assess the ethical core of their employees,” she said. “If an employee's ethical core is aligned ‘due north,' then compliance is easy to teach.”

As to where ethics should “sit” in the company organizational chart, roundtable participants generally said the more important issue is how senior leaders demonstrate ethical behavior generally. “The group agreed that it's the messages that senior management is sending down and through the organization, rather than just what resonates at the upper level—I'm glad to hear that people are starting to think like that,” said Jonathan Marks, partner and head of the ethics and anti-fraud practice at Crowe.

Bruder gave the example of Commercial Metals' “Tone from the Top” awards handed out at CMC's the annual management meeting, where the company praises managers who have demonstrated ethical leadership with their decision making and behavior. “We look for a behavioral example that provides a ‘teachable moment' to the organization, not just an opinion at the top. The example must resonate from the top down into their organization,” she said.

That idea of ethics by example resonated deeply with roundtable participants. “Actions speak louder than words, and when employees observe management behaving ethically and making compliance a priority, they'll typically do the same,” said Judy Carter, associate general counsel and chief compliance officer at BNSF Railway.

Money helps, too. Audrey Andrews, chief compliance officer at Tenet Healthcare, said her company ties a specific percentage of executives' incentive-based pay to ethics and compliance. For employees who aren't eligible for incentive compensation, Tenet also provides financial awards and recognition for “doing the right thing every day to prevent a problem—the things that typically go unnoticed,” Andrews said. “We recognize them as ‘Tenet heroes.'”

Even without financial rewards or award ceremonies, something as simple as an executive personally calling an employee who reports misconduct to offer thanks, is a wise practice, said Chip Duffie, chief compliance officer at Safety-Kleen Systems. Marks agreed, saying such a strategy reassures the tipster that he is taken seriously and will receive recognition from an executive for doing a good thing.

“People are starting to measure and reward employees for doing the right thing—that's a step in the right direction,” said Jim Stempak, principal of risk services at Crowe Horwath.

Those hailing from highly regulated industries said that ethics and compliance were usually more intertwined, and therefore more embedded into operations via strict compliance rules about what employees are allowed to do. “In highly regulated areas, detailed, meticulous compliance with all applicable requirements is the foundation of ethics for these topics,” said Gary Rowen, chief compliance officer at chemical manufacturer Celanese Corp. ”When you consistently and thoroughly comply, you are fulfilling a high degree of integrity and ethical behavior.”

A Little Encouragement

And how do ethics and compliance functions come into existence in the first place? Well, government investigations are still a powerful way of making that happen. Audrey Andrews, chief compliance officer at Tenet Healthcare, recounted how a series of regulatory probes at Tenet in the 2000s prompted significant changes.

“We originally had the general counsel serving in the role of the chief compliance officer but we wanted to adopt a best practice structure that increased transparency,” she said. “When we had our series of government investigations in 2002, our board and our entire management team redesigned our governance, compliance, and ethics; they got outside advice on the best structure for the company.”

Bobby Butler, chief compliance officer of Universal Weather and Aviation, discusses the ethics involved in international business transactions, while Judy Carter, chief compliance officer at BNSF Railway, listens in.

Ann Bruder, senior vice president of law, government affairs & global compliance at Commercial Metals Company explains her company's "Tone at the Top" awards program. At left is Rosario Heppe, senior director, corporate compliance at Fluor.

Today Tenet's board has an ethics and compliance committee separate from the audit committee. It oversees Andrews, who in turn oversees 90 ethics and compliance officers. Although Tenet historically had a separate chief ethics officer and chief compliance officer, the company eventually decided that the two issues were so linked that such division made little sense, Andrews said. “This is where we evolved to,” she explained. “It's a structure that works for us, and we believe it exceeds the U.S. Sentencing Guidelines.”

The Sentencing Guidelines are one of the fixed stars that companies use to navigate the tricky shoals of “effective” ethics and compliance programs. Just last year, the U.S. Sentencing Commission revised the guidelines to say the CCO should ideally be independent from the general counsel and answer directly to the board. Not every corporation has rushed to embrace that idea.

“Some companies are moving toward the Sentencing Guidelines, while some are still OK with the fact that the chief compliance officer is also a general counsel—which is problematic because it's a conflict of interest,” Marks said. “Sometimes there's a very fine line between what is legal and what is ethical.”

Roundtable participants discussed whether compliance should report to the general counsel. “I like being out of the law department and other groups, because we rely on and we leverage these resources, but we're a step away from them,” one attendee said. ”We feel that we can say ‘no' if necessary—more easily and effectively than some of the folks who are embedded within another function.”

Participants also enumerated the difficulties that arise from different cultural norms around ethics. “On an individual level, you choose whether you want to live by the prevailing code of ethics, but as a company, we choose an institutional set of values and require employees to live by them,” says Eric Hinton, director of the business conduct office at Lennox International. “The challenge in an international context is that people may not have been raised in a way or culture that comports with the company's values.”

“In some locations, there are things that are legal, but they're ethically or morally wrong, and you don't want to be in a situation of procuring services for people who may put you in a tough situation,” Butler said.

“The biggest thing that I heard today is, ‘We've done this now, we think we have a pretty good culture, now how do we sustain and maintain this?' That's the thing that I struggle with all the time is that it's really easy to fix problems when they're broken, but how do you keep it fresh? How do you keep people engaged?” asked Marks.

“I don't know if I have the magic answer for that yet,” he said.