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Call To Action - Building Ethics Programs for Tomorrow

The Institute of Internal AuditorsNovember 16, 2004

Call To Action - Building Ethics Programs for Tomorrow

The Institute of Internal AuditorsNovember 16, 2004

Ed Dudley, CIA, CPA

Retired Vice-President & General Auditor-ABB Americas

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• Introduction & Key Issues For Today Ed Dudley• Taking the Ethics Program to the Next Level

Brian Sears• Monitoring and Assessing Corporate Governance

from the Internal Audit FunctionDonna Passal

• Annual Disclosure and Conflicts of Interest Questionnaire

Chris Yost• Break• Q & A• Summary of Main Points

Ed Dudley

AgendaAgenda

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Key IssuesKey Issues

• Examine Several new Initiatives in Ethics

• Review Ethics Tools for Leaders

• Discuss Advantages in Producing an Ethics Film Festival

• Examine an Internal Audit Review and Certification of NYSE Rules

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Key IssuesKey Issues

• Examine How to Plan for That Review and the Board Committees Affected

• Review Corporate Governance Guidelines for Board Directors

• Review Questionnaire Disclosures for Board, Corporate and Regional Leaders

• Examine an Internally Developed Web-Based Questionnaire Application

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Taking the Ethics Program to the Next Level

Taking the Ethics Program to the Next Level

Brian SearsDirector – Ethics Awareness

Lockheed Martin Corporation

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Ethics & Business Conduct Program

• Setting the Standard – Code of Ethics & Business Conduct

• Worldwide confidential Helpline• Ethics officers at all major sites• Communication and awareness campaign• Compliance training and education program• All-employee Ethics surveys• Annual Ethics awareness training for all

employees

Program Elements

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New Initiatives

• The Chairman’s Award• Ethics Tools for Leaders• Organization Ethical Maturity

Assessment• Ethics Film Festival• Ethics Minute

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The Chairman’s Award

• Recognizes a single LM employee for acts that exemplify our commitment to Ethics and Integrity

• One nominee from each Business Area and from Corporate

• Winner selected by Chairman/CEO and President/COO

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Ethics Tools for Leaders• Online, self-directed training

course– Creating an ethical environment– Responding to employees– Using the tools

• All managers will complete course in 2003

• Online support toolkit– Ethics resources– Links to policies– News & information– Search, Contact, Help

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Mission Mission SuccessSuccess

Organization Ethical Maturity ModelOrganization Ethical Maturity Model

Ad HocAd Hoc

• UninformedUninformed• Ethics Not IntegratedEthics Not Integrated

ComplianceCompliance

• EnlightenedEnlightened• Compliance TrainingCompliance Training

Values-Based Values-Based EthicsEthics

• EmbracedEmbraced• Core ValueCore Value

IntegrationIntegration

• VisibleVisible• Role ModelsRole Models

Competitive Competitive AdvantageAdvantage

• TransformationTransformation

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Self-Assessment Tool

Self-assessment Tool Hosted on the

Ethics Website

Requestor contacts Ethics Office

Reports

Next Level Director or Vice President

completes Self- Assessment

Ethics Officer consults with Requestor

Prepares Action Plan

Employees complete

Self- Assessment

Manager completes

Self- Assessment

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Ethics Film Festival: Objectives

• Promote ethics in the workplace• Opportunity for employees to present their

views, in a positive forum• Keep ethics message fresh and interesting• Multiple potential uses of videos received

– Training– Ideas for future initiatives– Internal publicity and promotions– Outside publicity

37 Videos Received to Date37 Videos Received to Date

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The “Ethics Minute”

• A series of one-minute video episodes containing an ethics message on a central theme– Delivered by email link– Three to six episodes constitute one

series– Periodic delivery after initial kickoff

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The Ethics Minute: Objectives

• To deliver an ethics message that:– Complements annual awareness

training;– Is received throughout the year;– Focuses attention on key issues;– Reaches a large segment of the

employee population;– Uses an engaging and interesting

format

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Monitoring and Assessing Corporate Governance from the Internal Audit Function

Monitoring and Assessing Corporate Governance from the Internal Audit Function

Donna Passal, Director

Global Corporate Audit Services

Office Depot

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Internal Audit Review

• In November 2003, the SEC approved the final corporate governance rules of the NYSE. These rules require that each listed company’s CEO certify to the NYSE each year that he or she is not aware of any violation by the company of these standards.

• OD had to be in full compliance by the time the May 2004 shareholders’ meeting was held and had to submit the first certification to the NYSE no later than 30 days after the meeting.

• Global Corporate Audit Services performed a detailed review of OD’s compliance with the rules, and provided the results to the CEO.

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Planning the Review

• Final NYSE and SEC corporate governance rules

• Current year proxy statement/10K• OD’s conflict of interest policy• Completed director’s questionnaires• Charter, meeting schedule and minutes

for board committees:– Corporate Governance Committee– Compensation Committee– Audit Committee

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Board Of Directors

• Independence of directors– Basis for determining independence

disclosed– No material relationship with OD– Independent after three years of condition

• Director is officer of a charity

• Executive sessions for non-management

directors

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Corporate GovernanceCommittee

• Member independence

• Written charter– Director selection– Corporate governance principles– Board evaluation– Committee evaluation– Member qualification, structure,

operations

• Search Firms

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Compensation Committee

• Member independence

• Written charter– CEO compensation and evaluation– Non-CEO compensation plans– Report for proxy statement– Committee evaluation– Member qualification, structure, operations

• Compensation consultants

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Audit Committee• Member number, qualifications and independence• Written charter• Oversight functions

– Annual and quarterly financial statements, MD&A, press release, analyst guidance

– Risk assessment and risk management– Meetings with management, external auditors and internal auditors– Internal accounting controls, accounting and audit matters

• Responsibility for external auditor– Quality control– Hiring, firing and compensation– Audit and non-audit services– Partner rotation and auditor independence

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Corporate Governance Guidelines

• Director qualification standards

• Director responsibilities

• Director compensation

• Director orientation and continuing education

• Management succession

• Annual performance evaluation of board

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Office Depot’s Corporate Governance Website

WWW.OFFICEDEPOT.COM

Select company information, then investor relations, and finally corporate governance

• Company values• Board independence• Board training• Committee charters• Governance

documents

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Code of Business Conductand Ethics

• Directors, officers and employees covered

• Waivers approved and disclosed

• Compliance standards and procedures

• Available on website

• Addressed in annual report and 10K

• Key areas

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Annual Certification

• CEO certification

• Annual report

• Non-compliance

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Annual Disclosure and Conflict of Interest

Questionnaires

Annual Disclosure and Conflict of Interest

Questionnaires

Chris Yost, CIA, CPA

Director of Internal Audit, Whole Foods Market

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About Whole Foods

• Founded in 1980 in Austin, Texas • Largest natural and organic foods

retailer • Sales of $3.1 billion in fiscal year 2003 • 160 stores in the United States, Canada

and the United Kingdom • 10 operating regions • High level of autonomy in decision-

making processes

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Code of Conduct & Ethics

• Approved by the Board in November 2002

• Requires completion of annual questionnaires by – Board members – Executives – Other leadership including store and

regional personnel

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Types of Questionnaires

• Disclosure – Board – Corporate leadership– Regional leadership

• Conflict of Interest – Corporate leadership– Regional leadership– Store leadership

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Electronic, internally developed web-based application

• Easy to complete• Easy to follow up on non-responses• Easy for Ethics Committee to review

responses• Users can review prior year responses

and update• Facilitates data retention

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Form A

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Form C

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Questionnaires

• Questionnaires complement other elements of the Whole Foods ethics program:- Whistleblower tip line- Awareness materials- Communications with vendors regarding the Company’s gift acceptance policy.

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Questions?

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Q & AQ & A

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Summary of Main PointsSummary of Main Points• An Online Self-Directed Training Course can

help Create an Ethical Environment• Online Support Tool Kits can aid Ethics

Resources, Links to Policies and Provide Contact Help

• An Ethics Film Festival Promotes Ethics in the Workplace and is an Opportunity for Employees to Become Involved with the Message

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Summary of Main PointsSummary of Main Points• An Ethics Minute Program can Focus

Attention on Key Issues Throughout the Year• Internal Audit Reviews of Compliance with

Internal and External Rules can Provide Valuable Assurance to your CEO

• A Corporate Governance Board Committee Should Have a Written Charter Providing for Member Qualifications, Structure and Operations

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Summary of Main PointsSummary of Main Points• Compliance Reviews can Cover your Corporate

Governance, Compensation and Audit Committees• Code of Conduct Questionnaires Should Cover

Board Members, Company Executives, Store (Unit), Regional Leadership and Other Employees

• Web-Based Questionnaires are Easy to Review and Compare to Prior Years and Follow Up on Non-Responses

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Summary of Main PointsSummary of Main Points• Code of Conduct/Ethics Questionnaires

can Compliment Other Elements of your Compliance Program, Including Materials Awareness, Gift Policy and Others

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