ConflictsofInterest:** AnECIBenchmarkingGroup Resource · 2019-07-22 ·...

Conflicts of Interest: An ECI Benchmarking Group Resource

Jeffrey Kaplan, Kaplan & WalkerMark Snyderman, Laureate Education, Inc.

October 19, 2016

ethics.org | © 2016 Ethics & Compliance Initiative

Our Mission

ECI empowers organizations to build and sustain High Quality E&C Programs (HQPs).

About the Ethics & Compliance Initiative (ECI)

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The Ethics & Compliance Initiative (ECI) is a best practice community of organizations that is committed to creating and sustaining high quality ethics & compliance programs. With a history dating back to 1922, ECI brings together ethics and compliance professionals and academics from all over the world to share techniques, research and, most of all, exciting new ideas. www.ethics.org

About the Ethics & Compliance Initiative (ECI)

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§ Conflicts of interest (COIs) are pervasive, and difficult to capture

§ Management requires hard work and thoughtful approaches

§ If not appropriately handled, COIs can negatively affect the sense of organizational justice generally in a company

§ Effective COI management is essential to having an HQP

The Problem

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§ Research Working Group (RWG) formed§ Major COI topics identified§ ECI Member survey designed and deployed§ 34 members join RWG§ RWG members form sub-‐committees to analyze survey

results and prepare first drafts of the report on their respective topics

§ First drafts reviewed by entire RWG § Drafts revised and consolidated into final report, which

includes various sample materials from companies

The Process

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1. Defining Conflicts§ Code and policy provisions

2. Preventing Conflicts § Training and communications

3. Identifying Conflicts § Mechanisms for identification and disclosure

4. Dealing with Conflicts§ Procedures for investigating, managing, and resolving conflicts

Overview

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§ 88% of ECI members believe their codes and policies provide clear guidance

§ COIs commonly addressed include:§ economic and family relationships with vendors, customers, and competitors

§ gifts, meals, entertainment, and travel§ hiring or supervising family members

§ Variations across organizations tend to be based on how likely a given type of COI is to occur, how harmful it is likely to be, and how difficult to identify and manage

Defining Conflicts: Codes and Policies

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Best practices for tough COI situations include:§ Rotational schedules for sales or procurement functions

§ Prohibition of family members from working in the same chain of command, or independent oversight and performance reviews

§ Tracking, disclosure, or approval forms to provide insight on gifts and hospitality offered or received


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A TABLE OF COI TYPESThe following table describes common conflicts of interest noted in Codes and policies, examples of the potential conflict, and the risk the organization seeks to mitigate in managing the conflict.


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Situation Examples Potential Risks


§ Key because lack of understanding/appreciation pervades this area

§ Common to train all employees -‐ but often it is through code of conduct training

§ Best practice organizations do not limit training to delivery of a single COI course, but view education more broadly, using multiple channels to deliver and reinforce key messages, such as embedding COI elements in formal Code training, posters, anonymized cases from the E&C office files, focused leadership training and periodic messages from leaders

Preventing Conflicts of Interest: Training and Communication

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§ Frequently training tied to certification§ Content to consider in developing general training

§ Overview of types of COIs – and nature of harm for each

§ Disclosure: why, what, when and to whom – including changes of circumstances requiring recertification

§ Consequences of non-‐disclosure§ Consider added training/communication for higher risk functions – not just procurement but also controls one (e.g., investigators)

§ Be alert to cultural differences

Training and communication


§ Frequency: map out a multi-‐year training and communication cycle that includes timing, media, and who is responsible for preparing and delivering each element of the plan § This is a good idea for any E&C area – but can be particularly useful for COIs, given the complexity of the topic

§ Measure efficacy – what areas do employees struggle with in interactive course, survey results (post training), number of disclosures

Training and communication


DISCLOSURE AND CERTIFICATION80 percent of ECI respondents use self-‐reporting certifications§ WHICH EMPLOYEES?§ Organizations may target specific groups to complete certification based on risks such as job type, geographical location

Identifying Conflicts of Interest

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§ WHICH RISKS?§ Organizations may track only certain types of COIs

§ gifts and entertainment§ financial interests§ family relationships§ outside employment§ volunteer and charitable activities

§ Certifications should be limited to comply with applicable restrictions on self-‐reporting


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§ When?§ A conflict can arise, change, or disappear at any time

§ Organizations may capture COIs at various points in the employment life cycle


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§ COI Certification (COIC) best practices include:§ Using a written or electronic COIC instead of simply requiring

disclosure § Providing guidance and training to assist employees§ Requiring new hires to sign or complete a COIC§ Evaluating the need for additional customized COICs (i.e., COIC

specific to risk area or employee group)§ Distributing a COIC annual report or summary to senior

executives and governance committees§ Establishing expectations and a schedule for periodic

recertification (semi-‐annual, annual, ad hoc self-‐reporting)


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Tracking Mechanisms§ Over 63 percent of Survey respondents use some type of computer-‐based system to maintain and track their disclosures.

§ Consider on-‐line system that provides disclosure review by various levels within an organization.

§ Consider system that allows employees to provide additional or modified information to a submission.


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Risk Assessments and Auditing§ Only 57 percent of respondents are confident they are identifying and addressing all reasonably likely COIs

§ Risk assessment should ask both “how” and “why” conflicts may occur § “How” looks at business practices and relationships that may give rise to conflicts

§ “Why” focuses on the motivations employees or others have in circumventing controls


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Risk Assessments and Auditing

§ COI audits are difficult because conflicts often arise through unobservable personal relationships

§ Basic auditing relies on trained staff to ask questions of specific groups of employees, e.g., procurement


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More sophisticated audits may include:§ Reviewing employees’ activities on social media§ Looking for matches between vendor and employee addresses§ Looking for matches between vendor and employee bank

accounts§ Matching vendors’ corporate ownership records against

employee names§ Examining employee email, telephone, and expense records for

interactions with vendors and customers§ Identifying suspicious patterns of vendor pricing that suggest

favoritism by a purchasing employee


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§ Organizations should ensure they have a process through which disclosed conflicts are reviewed quickly and thoroughly by persons who have sufficient training and experience to accurately assess the COI risk

§ Where disclosure is made to someone other than an employee’s manager, notifying the manager that the employee has disclosed a conflict, or that a potential conflict is being investigated, will help ensure that the investigation is thorough.

§ Appropriate notice also facilitates monitoring and implementation of any mitigation plan

Dealing With Conflicts of Interest

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§ Remediation – possibilities include (depending on applicable circumstances)§ Segregation of the individual from relevant decision-‐making § Transfer of supervisory roles over relevant employees to other

members of staff or transfer of role to a different area§ Disposal of assets that cause the COI§ Termination of the external activity that causes the COI§ Agreeing to a protective contractual clause with third parties§ Declining to proceed with the matter or engagement when no

resolution is possible § Otherwise prohibiting continued involvement in the activity that

creates the conflict§ Some companies have standard mitigation plans which

can be useful; but important to tailor to the situation

Dealing with conflicts of interest


Questions?

http://ethics.org/research/conflicts-‐of-‐interest

[email protected]@laureate.net

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