It’s 2009. Do you know where your gift and entertainment policies are?
Amid the economic downturn, heightened anti-bribery enforcement, and glaring headlines of lavish corporate spending, observers say compliance departments would be wise to review their policies on gifts and entertainment.
In a recent survey of more than 500 compliance and ethics professionals, 46 percent said their organization hasn’t significantly updated its gift and entertainment policy in the last year. Of that group, 20 percent admitted it’s been at least three years since their policies were significantly updated.
Observers say compliance executives have plenty of reasons to give those policies a fresh look, not the least being the continued enforcement crackdown on bribery.
Snell
“Given that bribery is one of the biggest risk areas for companies … it is a very good time to make sure that your policy is clear and enforced,” says Roy Snell, chief executive officer of the Society of Corporate Compliance & Ethics, which conducted the survey.
William Jacobson, a former fraud prosecutor for the Justice Department and now a partner in the law firm Fulbright & Jaworski, agrees. A review of policies on business courtesies like gifts and entertainment “is a smart idea, since tough economic times can make people more willing to cross the line or at least be less aggressive about defining where the line is,” he says.
Historically, stand-alone “G&E” policies were most common among U.S government contractors, says Lucinda Low, a partner at the law firm Steptoe & Johnson who specializes in bribery cases under the Foreign Corrupt Practices Act. Companies that haven’t implemented a stand-alone policy and simply bury the issue in their Code of Conduct may want to reconsider.
Low
Moreover, Low says, a specific policy to systematize gifts and entertainment can help compliance departments “draw some lines in an area where they can otherwise spend all day trying to advise people on what they can and can’t do.” That’s especially valuable these days, when compliance budgets are tight and compliance officers usually have something better to do than referee debates over treating clients to dinner.
“People don’t do what the boss expects; they do what the boss inspects.”
— Roy Snell,
Chief Executive Officer,
Society of Corp. Compliance & Ethics
Usually the dollar amounts involved in G&E violations are small, and the infractions aren’t likely to prompt an enforcement action on their own. But G&E violations can lead prosecutors to build “practice and pattern” cases under the FCPA, Low and others warn, and therefore they do still pose a legal risk worth quashing. For example, in 2007 Lucent Technologies agreed to pay $2.5 million to settle charges that it violated the FCPA by improperly recording more than $10 million in travel and entertainment expenses to Chinese foreign officials.
Experts say strong G&E policies can also be helpful if your company is looking to negotiate its way out of a regulatory probe over larger problems, such as an FCPA investigation, since they can demonstrate a commitment to compliance and training that prosecutors want to see. They “help demonstrate that the company is responsible,” Jacobson says.
The recession and the strong anti-corporation sentiment among the public these days might also warrant reviewing G&E policies. (Recall those banks last fall that were hosting would-be customers at fancy spas and retreats just after they accepted government bailout money, and how that looked on the evening news.)
Bloom
“Companies need to think about what’s going to seem reasonable to their customers and the general public and exercise commons sense and good taste,” says Lauren Bloom, a consultant who specializes in business ethics. In other words, she says, “Even though something is legal, it may not play well in Peoria.”
Setting Limits
Jacobson suggests reviewing G&E policies every two to three years, and says they should be “specific enough to be useful, but not too detailed or dogmatic.” He recommends that companies limit both the value of gifts and how often they are given, and require written approval for anything that exceeds those limits.
Jacobson
Caps of $50 for gifts and $50-$100 for entertainment are common, Jacobson says. He also suggests capping entertainment at four to six times a year, “to avoid having the same foreign official being taken out 15 times in a month.”
According to the SCCE survey, nearly two-thirds of companies either ban gifts to employees or require that they be a “modest” cost of $50 or less. Only 10 percent allow employees to receive gifts worth more than $100.
Overall, 23 percent of respondents say their companies don’t allow employees to be entertained by vendors or others. Another 12 percent have a $50 limit, while 27 percent don’t specify a limit but require a “modest” level of entertainment. The poll also shows that companies are more likely to restrict the giving of gifts (27 percent) than to ban the receiving of them (16 percent).
GIFT POLICY UPDATES
When was the last time your organization’s entertainment policy was
significantly updated?
Timespan
Percent
Longer than three years:
20%
Within the last three years:
26%
Within the last year:
27%
Within the last six months:
9%
Within the last three months:
18%
Source
HCCA Survey: Corporate Gifts & Entertainment (March 2009).
Tenet Healthcare Corp. clarified its policies on gifts and entertainment when it launched new Standards of Conduct in March, according to Chief Compliance Officer Audrey Andrews. The company’s ethics team was regularly fielding questions about what would be appropriate under which circumstances, so Tenet decided to add new detail and examples of permissible gifts and entertainment under federal regulations about how healthcare companies interact with doctors.
Tenet has adopted regulatory guidance that limits gifts to patients at $10 per item and no more than $50 per year, and follows other federal regulations on non-monetary compensation to physicians. In areas where guidance isn’t clear, Andrews says, Tenet imposes a limit of $50 per item and no more than $100 per year.
Andrews says Tenet permits “reasonable business meals and entertainment” and caps entertainment at $100. But even if a gift or entertainment is permitted under its standards, Andrews says it’s required to be “reasonable under the circumstances,” and employees are “strongly encouraged” to contact members of the ethics team with questions about what’s acceptable.
Of course, no single policy can fit all companies. Bloom recommends that policies and limits should be tailored to the company’s industry and where it does business. Low also says companies need to be mindful of the local laws and practices in the countries where they operate, and notes that it’s not unusual for multinational companies to have different G&E policies from region to region.
Training is also vital. There’s a tendency in ethics training to “assume that people understand what’s expected,” Bloom says. But, she notes, “Just because you tell them you have a policy doesn’t mean they get it or believe it.”
Snell stresses the need to monitor compliance by auditing expenses and to discipline violators accordingly. “People don’t do what the boss expects; they do what the boss inspects,” he quips.
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