Organizational Culture of Transparency - elements, costs, and benefits.

1. A Compliance and Ethics Program:
Framework for Implementing a
“Culture of Transparency”
Charles L. Pourciau, Jr. JD

2. Why listen today?
• What are the Costs . . . . . . . . . without a
Culture of Transparency?
• What is a Culture of Transparency?
• What are the Organizational Benefits?
• Questions

3. Do these situations exist in your company?
Types of misconduct observed:
• Sexual Harassment
• Substance Abuse
• Insider trading
• Illegal Political Contributions
• Stealing
• Environmental violations
• Improper contracts
• Contract Violations
• Improper use of competitor’s information
• Health or safety violations
• Anti‐competitive practices
The 2011 National Business Ethics Survey asked
employees about these situations in their companies.

4. 2011 National Business Ethics Survey
US Workforce = 138M people
• 62M (45%) – observed misconduct,
• 41M (65%) – reported misconduct,
• 9M (22%) – experienced retaliation
Are the details of these responses an indication of an
Opaque Culture?

5. How does an ‘Opaque’ Culture Look?
AS ECONOMIC STRESS ON COMPANIES EASES,
MISCONDUCT BECOMES MORE PREVALENT
Hiring new
80
Percentage of Employees Who Observed
employees
79%
Misconduct in previous 12 Months
Rehiring of
60 63% former staff
56%
Business
40 42% expansion
Restoration of
20 compensation
and/or
benefits
0 1 or 2 3 or 4 5
Reinstatement of
Number of Recovery Measures hours or overtime
What are other indications of an Opaque Culture (vs. A Culture of Transparency)?

6. ‘Uncle Sam’ visits!
The Justice Department’ s Criminal Division ‐ FCPA:
• 2004 collected around $11,000,000;
• 2005 collected around $16,500,000,
• In 2009 and 2010 combined collected nearly $2B.
Assistant Attorney General Lanny A. Breuer’s speech before World Bank on May 25, 2011
Healthcare fraud 2001 to 2009 $2.5B
False Claims Act (FCA) whistleblower lawsuits – 2001 to 2009 $9.2B
Pfizer ‐ $ 2.30B 2011
GSK ‐ $ 0.60B 2010
NYS/ NY City $ 0.54B 2009
Lilly ‐ $ 0.43B 2009
Merck‐ $ 0.65B 2008
Total $ 4.52B
“The Justice Department’s Consumer Protection Branch recovered more than
$913M in criminal and civil fines, penalties, and restitution in 2011. . .”
DOJ Press Release Monday, March 5, 2012
Is this the US Government’s Deficit Reduction Program?

7. Motivation of healthcare fraud
whistleblowers
• New England Journal of Medicine (May 2010)
– Identified 42 whistleblowers
– Interviewed 26 – 4 outsiders; 22 insiders
– 6 intended to file suit; 20 saw lawyer for other
reasons before filing suit
– Motivation themes – integrity (11), public safety
(7), justice (7) and self preservation (5)
It is about integrity not about the money!!!

8. 2011 National Business Ethics Survey
Supplement
• MONETARY REWARDS LEAST LIKELY TO MOTIVATE REPORTING
• Reason for Reporting Outside Company:
– If it was a big enough crime 82%
– If keeping quiet would cause possible harm to people 76%
– If the problem was ongoing 70%
– If keeping quiet would cause further harm to the environment 65%
– If my company didn’t do anything about my [internal] report 65%
– If keeping quiet would get my company in big trouble 56%
– If I had the potential to receive a substantial monetary reward 43%
Bounties are not the main motivator!!!

9. Opaque Company Examples
• FCPA violation‐self reported, cooperated, responsible
• Revenue $467M 2011
• MN government contractor
• USAF suspended from future contracts for 6 months
Total Cost: $15,000,000
• Revenue $3.96B
• UK‐based: US and German subsidiaries paid Greek
doctors to use their products.
• Under the FCPA: Doctors at overseas government‐
owned or operated hospitals are 'foreign officials'.
• Paid DOJ $16.8M penalty; paid SEC $5.8M penalty;
legal fees: $9.4M in 2.2012
Total Cost: $30,700,000
Other Examples?

10. Opaque Company Examples
• 2011 Revenue $11M out Lufthansa’s $125M
• Tulsa, OK; Maintenance, Repair, Overhaul (MRO)
• Bribed Latin America foreign officials
• FCPA violation‐self reported, cooperated, responsible
• Paid DOJ $11.8M penalty; $7.&M legal fees in 3.2012
Total Cost $19,500,000
• Exton, PA; Global specialty metals distributor
• Titanium alloy & aluminum bars no export licenses
• Paid DOC $575,000 penalty 3.2011
• Price fixing guilty plea 12.2011
• Export privileges revoked
from 2.2012 till 2.2014
These examples include issues both self reported and investigation identified.

11. War Story #1 ‐ Opaque Company
Scenario
Imagine you are the CEO of a company under investigation by the
US Attorney’s office for fraud.
Two Board members accompany you to a meeting with a US
Attorney to discuss a Deferred Prosecution Agreement.
On the next slides see how this conversation unfolds for this
opaque company.
Opaque Company

12. War Story #1
Opaque Company
Assistant US Attorney: “Please describe
your ethics and compliance program.”
CEO: “We don’t have a formal
document but I have an open door
policy and our people are honest and
good.”
Opaque Company

13. War Story #1
Opaque Company
Assistant US Attorney: “How much
does your company spend annually
on office supplies?”
CEO: “I believe that we spend
between $50k and $100K annually.”
Opaque Company

14. War Story #1
Opaque Company
Assistant US Attorney: “How much
does your company spend on ethics
& compliance?”
CEO: “I do not have that number at
hand but will get back to you with
it.”
Opaque Company

15. War Story #1
Opaque Company
Assistant US Attorney: “How does
your company train its employees?”
CEO:“We do not have a training
program for ethics and compliance.”
Five days later your company is
indicted.
Transparent Company

16. War Story #2 ‐ Transparent Company
Scenario
Imagine you are the CEO of a company under investigation by the
US Attorney’s office for fraud.
Two Board members accompany you to a meeting with a US
Attorney to discuss a Deferred Prosecution Agreement.
On the next slides see how this conversation unfolds for this
transparent company.
Transparent Company

17. War Story #2
Transparent Company
Assistant US Attorney “Please describe
your ethics and compliance program.”
CEO: “We have a formal program and
annually every employee certifies they
read, understood and agree to follow
it.”
Transparent Company

18. War Story #2
Transparent Company
Assistant US Attorney “How much
does your company spend annually
on office supplies?”
CEO: “We spend $100K annually.”
Transparent Company

19. War Story #2
Transparent Company
Assistant US Attorney” “How much
does your company spend on ethics
& compliance?”
CEO: “Over the last five years we
have spent $200,000. Would you like
detail?”
Transparent Company

20. War Story #2
Transparent Company
Assistant US Attorney: “How does your
company train its employees?”
CEO: “Training based an employee's job;
initial training completed within 30 days of
hire; mandatory annual ethics training.”
Your outside counsel receives a Non‐
Prosecution Agreement for review.
Transparent Companies

21. Transparent Companies
Ethisphere 2011 Worlds Most Ethical Companies – Partial
Culture of Transparency: Elements

22. The Culture of Transparency includes:
• A written Policy for Ethics and Compliance
• Accountability for the Ethics and Compliance assigned
• Initial and annual education all employees
• All reports investigated and discipline as required
• Practices & Operating procedures aligned with the law
Culture of Transparency: Elements

23. The Culture of Transparency includes:
• Openness … not whack‐a‐mole … With good listening
skills
• No Retaliation …… No Retribution
• Accountability …… No Passing the Buck
• ‘Walk the Talk’ of Ethics and Compliance
Organizational Benefits

24. Organization Benefits
Higher gross margin and profits
With COT 7.9% increase SH value
Without COT 2.1% increase SH value
Total SH return (10 yr period)
Top Quartile +8.8%
Bottom Quartile ‐7.4%
Top outperformed Bottom by >16%
Morgan Stanley

25. HOW IT’S SUPPOSED TO WORK
FCPA violation – China Managing Director pleads guilty
• Evaded internal controls
• Web of deceit to thwart adequate controls to prevent corruption
• Self‐dealing and deception
DOJ Press Release April 25, 2012
Morgan Stanley had
• Self‐reported, cooperated with DOJ investigation
• Effective internal controls; employees not bribing government officials
• Frequent training on internal policies 2002 ‐ 2008
• Managing Director – trained 7 times; reminded 35 times
• Monitoring; Random audits
•DOJ Press Release April 25, 2012
Uncle Sam Declined To Prosecute!

26. National Business Ethics Survey
http://www.ethics.org/nbes/
“Whistleblower Experiences in Fraud Litigation against Pharmaceutical
Companies” New England Journal of Medicine
http://www.whistleblowers.org/storage/whistleblowers/document
s/DoddFrank/newenglandjournalmedicine.pdf
Charles L. Pourciau, Jr. JD

27. My Requests?
• I seek introductions to Board members & CEOs
• Speaking engagements
Contact Info: 727. 410. 4786
Email: cpourciau79@gmail.com
Charles L. Pourciau, Jr. JD