CEOs can separate their companies from the competition through grooming leaders.

Creating true two-way communication can help company heads foster a culture of integrity.

Beyond agility, the best leaders look for growth opportunities from within the shadows.

LEADERSHIP FEEDBACK RESILIENCE

The World’s Most Ethical Companies

EXECUTIVE BRIEFING

VOLUME 2 Q4: 2014

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THE WORLD’S MOST ETHICAL COMPANIES

presents

Ethisphere InstituteExecutive Director Alexander F BrighamChief Executive Officer Timothy Erblich

Executive SummaryPublisher Stefan Linssen

Managing Editor Nicole ThomasContributing Editor Kathleen Switzer

Creative Director Cory Michael Skaaren Publication Design Skaaren Design

Illustrations William Rieser

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and defining core ethics standards using data-driven insights that help companies enhance corporate character. Ethisphere believes integrity and

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EXECUTIVE BRIEFING INDEXMARK SUTTONChief Executive OfficerInternational Paper// 1JULIE BRILLCommissionerUS Federal Trade Commission// 2LARRY THOMPSONExecutive VP, General Counsel & Corporate SecretaryPepsiCo// 3TOBY COSGROVE, MDPresident & CEOCleveland Clinic// 4RODNEY MARTIN, JRChairman & CEOVoya Financial// 5DENNIS CHESLEYGlobal Risk Consulting LeaderPwC// 6PAUL McNULTYPresidentGrove City College// 7

MARK SUTTON ON:DELIBERATE LEADERSHIP DEVELOPMENTThe Chief Executive Officer of International Paper writes about the company’s unique approach to grooming future leaders, and how such practices can afford a strategic advantage

When someone asks me what separates a great company from a good company, one of the first things that comes to mind is a strong, deep leadership bench. Look at highly successful companies and you’ll usually find a very deliberate process to identify and grow future leaders.

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Leadership development can be a strategic advantage for companies that do it right, which means integrating the process into your corporate culture with mechanisms that enable people to learn, grow, and contribute to results in meaningful ways. Importantly, today’s CEOs must set the tone at the top and lead by example so that every leader in the organization understands that his or her responsibilities include purposefully developing those who will eventually lead the company to achieve even better, sustainable business results.

At International Paper (IP), we have a simple talent assessment model that defines leadership potential with three basic questions: Can you be a leader? Can you get results? Do you have the capacity to take on a chal-lenging assignment, do it well, and move to something even bigger and more difficult? It’s not about fitting people into a one-size-fits-all lead-ership mold. It’s about determining who has the character and capability to lead and to be a catalyst in shap-ing the future, enabling change, and driving results—then giving them the opportunities to do so.

International Paper’s development philosophy is grounded in the fact that what most people learn—about 70 percent—comes through direct experience, so new experi-ences and stretch assignments are a must for future IP leaders. We also know that each person’s leadership

journey is different. Our traditional career ladder has evolved into an approach where lateral movements are encouraged to provide opportu-nities for faster, deeper, and broader learning than what a person gets in one function, business, or familiar environment over long periods of time. A successful leader at Inter-national Paper may make a num-ber of lateral moves that provide a greater breadth of cross-functional, cross-business, and global learning.

While nothing beats on-the-job ex-perience as a development tool, we know that formal classroom training, coaching, and mentoring opportunities also are valuable in helping our leaders move from Leadership 101 to the highest levels of strategic thinking. We created the International Paper Leadership In-stitute with programs like IP Advan-tage, First Line Leader (FLL) training, and the Chairman’s Leadership Fo-rum to help meet the developmen-tal needs of individuals at varying stages of their careers.

Through the IP Advantage program, we identify and grow high-potential talent by connecting individuals early in their International Paper careers—five years or less with the company—with rising and senior leaders who share how work experiences and assignments have contributed to their success. Through open, candid interaction, participants gain valuable insights about the com-pany and explore strategies for maxi-mizing their own professional develop-ment and growth.

Our FLL training includes an in-depth, eight-month curriculum designed to build capability in 16 different competencies required for successful leadership. Participants apply what they learn in their every-day supervisory roles and receive regular assessments, feedback, and coaching to help them learn and develop into better leaders who can more effectively engage their teams and drive business results.

The Chairman’s Leadership Forum includes our best leaders with the potential to become senior officers of International Paper. Participants gain valuable perspectives on cur-rent and future leadership challeng-es facing the company through a va-riety of experiences, from evaluating the impact of key decisions made by past leaders to participating in activi-ties that require them to operate suc-cessfully in ambiguous and unfamil-iar circumstances. Participants then apply lessons learned to current and future leadership challenges.

Clearly, being a great leader doesn’t just happen—it takes practice and hard work. To cultivate great lead-ers who consistently deliver im-proving, sustained business results, companies need to actively provide

opportunities for people to learn and build capability. CEOs must set enterprise priorities and expecta-tions, then empower people to ex-ecute. Companies need to invest in building leadership skills today for the leadership challenges of a more competitive business environment tomorrow. You also need mecha-nisms in place to let people know how they’re doing and that their efforts are appreciated. And lastly, you need an incentive system that recognizes pay for performance, reinforcing that leaders who get re-sults succeed and those who don’t get results do not.

From experience, I can say that ro-bust leadership development efforts are well worth the investment. With strong, effective leaders around the globe, International Paper contin-ues to improve safety performance, manufacturing efficiency, cost man-agement, and business results that create value for our shareowners, customers, employees, and the com-munities in which we operate.

LOOK AT HIGHLY SUCCESSFUL COMPANIES AND YOU’LL USUALLY FIND A VERY DELIBERATE PROCESS TO IDENTIFY AND GROW FUTURE LEADERS.

JULIE BRILL ON: HOW COMPANIES CAN HELP US RECLAIM OUR NAMESThe current Commissioner at the US Federal Trade Commission writes about measures that may result in a more ethical use of data by corporations and a more empowered consumer culture

We are in the age of “big data.” The massive and growing amount of data available to businesses, researchers, and governments is sparking a search for new and improved algorithms that could help solve challenges in healthcare, education, energy management, and financial services.

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But when big data contains information about consumers, there are privacy and securi-ty risks that companies must address in order to realize its full potential. Much of what consumers do every day—what they buy, where they go, what they do on the web, and what an increasing array of connected devices such as wearable fitness devices and household devices say about them—is available for collection and analysis.

Entities known as data brokers gather this data—without interact-ing with consumers—into detailed, individual-level profiles. These pro-files are ripe for data miners to use or sell for marketing and an expanding array of other purposes. Information contained in these profiles, or infer-ences made from them, may reflect our health conditions, financial sta-tus, ethnicity, race, sexual orientation, or other sensitive characteristics.

Data broker profiles generally fall outside of specific laws that protect health information, financial infor-mation, and other highly sensitive personal information. As a result, the requirements in these laws—including providing some level of transparency about what is in these profiles and giving consumers some control over how they are used—do not apply.

To be sure, some uses of big data are subject to specific privacy laws. For example, the Fair Credit Reporting

Act (FCRA) requires certain protec-tions when information is provided to third parties and used to make key decisions about consumers’ eligibility for employment, credit, insurance, housing, or to reach a va-riety of other substantive decisions.

The Federal Trade Commission has warned marketers of mobile back-ground and criminal screening apps that their products and services may come under the FCRA. The Commission has also entered into consent decrees with companies that allegedly violated the FCRA’s re-quirements of providing access and correction rights to consumers, en-suring the accuracy of information in their records, and requiring their customers to use their records only for purposes that the FCRA permits.

A central challenge of the big data era is to provide some of these same safeguards—transparency, individ-ual control, and accountability—to the detailed profiles that data bro-kers have amassed about nearly all of us. Although legislation would be helpful, there are several steps that big data analytics firms could take right now to address the loss of con-trol over consumers’ most private and sensitive information. These steps are the focus of my “Reclaim Your Name” initiative.

Reclaim Your Name would give con-sumers the knowledge and tech-nological tools to reassert some control over their personal data—to be the ones to decide how much to

share, with whom, and for what pur-pose—to reclaim their names.

The concept is simple. Through the creation of consumer-friendly on-line services, Reclaim Your Name would: empower consumers to find out how brokers are collecting and using data; give them access to in-formation that data brokers have amassed about them; allow them to opt out if they learn a data bro-ker is selling their information for marketing purposes; and provide them with the opportunity to cor-rect errors in information used for substantive decisions.

Improving the handling of sensitive data is another part of Reclaim Your Name. Data brokers who participate in Reclaim Your Name would agree to tailor their data handling, and no-tice and choice tools, to the sensitiv-ity of the information at issue. As the data they handle or create becomes more sensitive—relating to health conditions, sexual orientation, and financial status, for example—the data brokers would provide greater

transparency and more robust no-tice and choice to consumers.

The user interface is also critical. It should be user-friendly, and indus-try should provide a one-stop shop so consumers can more easily learn about the tools all data brokers pro-vide, and the choices they, as con-sumers, can make about the use of their data.

Taking up the challenge of Reclaim Your Name will require companies to draw on the full range of engi-neering and design talent that they devote to creating ever more de-tailed consumer profiles. I am en-couraged that some companies are already moving in this direction. As it becomes clearer that appropri-ate privacy and data security safe-guards are necessary to strength-ening consumer trust in big data analytics, I expect others will follow their lead.

RECLAIM YOUR NAME WOULD GIVE CONSUMERS THE KNOWLEDGE AND TECHNOLOGICAL TOOLS TO REASSERT SOME CONTROL OVER THEIR PERSONAL DATA—TO BE THE ONES TO DECIDE HOW MUCH TO SHARE, WITH WHOM, AND FOR WHAT PURPOSE.

LARRY THOMPSON ON:EMPLOYEE HOTLINESThe outgoing Executive Vice President, General Counsel, and Corporate Secretary at PepsiCo writes about how this essential workplace tool helps foster a sense of organizational justice

I’ve long been concerned about the trend towards over-criminalizing corporate entity misconduct at the expense of holding accountable the individuals whose decisions and actions subjected the corporation to criminal liability1.

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My experiences as a prosecutor, defense attorney, Deputy Attorney General, law professor, and corporate General Counsel have led me to conclude that the imposition of individual criminal sanctions for corporate misconduct is, in most instances, the strongest and most effective deterrent against future wrongdoing. For similar reasons, individual accountability is the bedrock foundational element of any effective corporate compliance program.

Individual accountability starts with senior leaders embracing and mod-eling the company’s guiding princi-ples, values, and policies, which are then cascaded down through the organization to the middle and front-line ranks. It includes making exec-utives and managers as responsible for ethical leadership as they are for financial and operational results. That’s why, for example, PepsiCo’s Chairman and CEO, Indra Nooyi, announced at a senior leadership meeting earlier this year that ethical conduct and leadership was one of PepsiCo’s top 10 key business priori-ties for 2014.

This kind of leadership at the top is invaluable and necessary, but it is not sufficient. One of the most im-portant ways that companies can foster a culture of integrity is through the administration of an employee hotline. Hotline programs receive reports of everything from alleged foul language in the workplace to

possible fraud and corruption. They are an essential monitoring tool. But they are also an important means of creating and sustaining a sense of “organizational justice”—the belief by employees that violations of the corporate code of conduct and other policies will be promptly investigat-ed and appropriately disciplined, regardless of the nature of the alle-gation or the seniority of the alleged malefactor.

Employees who observe possible misconduct will not report it if they lack confidence in the follow-up, no matter how many times they are as-sured of confidentiality and non-re-taliation. When it comes to corporate compliance, fewer reports are not better. If the hotline is not getting the “routine” complaints, it’s also less likely to be receiving the reports of possible serious misconduct that a company needs to avoid coming under the scrutiny of regulatory and enforcement agencies.

But bolstering employees’ sense of organizational justice with re-spect to hotline investigations and discipline is not a straightforward process. Unlike prosecutors, com-pliance officers cannot call a press conference to announce the launch of an investigation into allegations of an employee’s misconduct, or issue a self-congratulatory press release if an allegation is substantiated. Written warnings, last-chance agree-ments, adverse bonus decisions, and even the reasons for terminations must remain confidential under ap-

plicable employment law. So com-panies must consider other ways to promote organizational justice.

One frequently used method is to publish company newsletter articles explaining the process from report intake through investigation and res-olution. Another is the publication of statistics demonstrating that all lev-els of employees have been subject to various forms of discipline. Some companies even internally publish a kind of “Compliance Blotter” con-taining case studies of real compli-ance investigations that have been edited to avoid identifying details.

Of course, all the messaging in the world will not increase or sustain employees’ sense of organization-al justice unless hotline calls and other reports of misconduct are, in fact, acted upon promptly and ob-jectively. The goal is for employees to be willing to, and, in fact, report,

all instances of misconduct they observe, but have very little miscon-duct to observe.

Approaching that goal requires eth-ical leadership by senior manage-ment, an investment in the resourc-es needed to investigate reports quickly, and the fortitude to hold individuals accountable consistent-ly across business units, geographic sectors, and seniority levels.

WHEN IT COMES TO CORPORATE COMPLIANCE, FEWER REPORTS ARE NOT BETTER. IF THE HOTLINE IS NOT GETTING THE ‘ROUTINE’ COMPLAINTS, IT’S ALSO LESS LIKELY TO BE RECEIVING THE REPORTS OF POSSIBLE SERIOUS MISCONDUCT THAT A COMPANY NEEDS TO AVOID COMING UNDER THE SCRUTINY OF REGULATORY AND ENFORCEMENT AGENCIES.

1See, e.g., Larry D Thompson, “In-Sourcing Corpo-rate Responsibility for Enforcing the Foreign Corrupt Practices Act,” 51 Am. Crim. L. Rev. 199 (2014); Larry D Thompson, “The Reality of Overcriminalization,” 7 Journal of Law, Economics and Policy 577 (2011); Larry D Thompson, “The Blameless Corporation,” 46 Am. Crim. L. Rev. 1323 (2009). See also Memorandum from Larry D Thompson, Deputy Attorney General, US Department of Justice, to Heads of Department Com-ponents and US Attorneys (January 20, 2003), avail-able at http://www.americanbar.org/content/dam/aba/migrated/poladv/priorities/privilegewaiver/2003jan20_privwaiv_dojthomp.authcheckdam.pdf.

TOBY COSGROVE, MD ON:THE WHO, WHAT, WHEN, & WHERE OF WELLNESSToby Cosgrove, MD, President and CEO of the world-renowned Cleveland Clinic makes a powerful case in favor of preventative healthcare as a moral and ethical responsibility

In the past, healthcare providers didn’t traditionally get involved in prevention. Our business started when the patient got sick. But as time went on, we realized preventative care is the front-line defense in keeping patients healthy, leaving us with the reality that our approach had to change.

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Chronic disease is out of control, and in order to combat these epidemics, we had to move from a system of “sick care” to one of “well care.” In order to do that, we made some decisions, and along with those decisions came the ethical questions related to the who, what, when, and where of “well care.”

Before we start discussing the ethics of getting involved in preventative care, I would like to tell you about a family, who we’ll call the Blaines. Jean Blaine was 50. She weighed 216 pounds. Her husband Bud was also obese. Their daughter, Lily, was seriously overweight. They had high blood pressure, high cholesterol, joint pain, and kidney stones—all related to their weight. Anyone could see what was coming for this fam-ily: diabetes, heart disease, stroke, osteoarthritis, and possibly one or more forms of cancer. Charming people, but from a healthcare per-spective, they were a runaway train.

Sadly, families like the Blaines are be-coming all too typical. More than 34 percent of Americans are now obese. Obesity puts you at higher risk of dia-betes, heart disease, stroke, osteoar-thritis, and cancer. These conditions are all what we call chronic diseases. They are long-term conditions that require regular medical manage-ment and they are responsible for an estimated 75 percent of American healthcare costs. Paying for chronic diseases related to obesity and poor lifestyle choices threatens the fiscal integrity of government in coming

years. Clearly, something needs to be done to reverse chronic disease. But who should do it—and how? Here are some of the questions we had to ask ourselves:

Who is responsible for lifestyle choic-es? The answer is, ultimately, the individual. But healthcare providers, government, employers, media, and other influencers should also feel a moral and social obligation to sup-port healthy lifestyle choices.

What are healthy lifestyle choices? That’s easy enough. Not smoking is the single best thing any individual can do for his or her health. Good habits like exercise, good nutrition, mindful eating, and stress reduction have got to become second nature in our social and individual lives.

When should healthcare providers intervene? At what point does a healthcare provider’s obligation to patient wellness begin? Should we begin early in the patient’s life? Or should we wait until the first signs and symptoms of disease?

Where should wellness intervention take place? Should caregivers wait until a patient’s regular checkup to advise patients on healthy habits, or should we be aggressively proac-tive—pushing the wellness message to patients, families, and the com-munity on a regular basis?

Cleveland Clinic has given a lot of thought to these questions since 2004. That’s the year we began a se-

ries of major wellness initiatives that have transformed our institution and the community. We’ve also learned a lot from trial and error. One of the most important rules: clean up your own backyard and practice what you preach, so that’s what we did.

In 2005, Cleveland Clinic went smoke-free. In 2006, we offered free smoking-cessation counseling and tools to our employees and the community. In 2007, we began hiring only non-smokers. Yes, we have zero tolerance for tobacco. But for those who want to quit, we offer smoking-cessation assistance.

In 2007, we eliminated trans fats from our patient and cafeteria foods and added fresh fruits and vegeta-bles. Vending machines were emp-tied of sugary candy and fried chips and restocked with healthy snacks.

In 2008, Cleveland Clinic committed to a serious upgrade of its fitness centers, and now offers members of the employee health plan free membership. These fitness centers include a full-sized basketball court, indoor and outdoor running tracks, a swimming pool, weight rooms, exercise classes, cardio equipment, lockers rooms, and showers. We also have signs near elevators re-minding caregivers that taking the stairs is free exercise.

Positive incentives predominate. Our healthy food offerings are fun, varied, and tasty. Our fitness cen-ters are clean, well-staffed and up to

date. We offer free yoga classes and memberships in Curves and Weight Watchers. Caregivers with employee insurance can save money by fol-lowing chronic disease care guide-lines, exercising regularly, and los-ing weight. Since we started these programs, caregivers have lost more than 700,000 pounds.

Among those who’ve changed their health for the better is the family I called the Blaines, cited above. Jean Blaine is a Cleveland Clinic employee. In 2011, she enrolled in a supervised weight-loss regimen offered through our employee health plan. Her hus-band and daughter also got on board. Within two years, Jean lost 92 pounds, Bud lost 100 pounds, and Lily lost 72. “I feel so much better now,” Jean told me. “My knees don’t hurt, I have more energy. I’m happier, and people tell me that I carry myself differently.”

Do I think healthcare providers should take the lead in preventing disease and keeping people healthy? The answer is yes. They should sponsor neighbor-hood cooking classes, exercise class-es, and local fitness runs. They should take an active role in supporting gov-ernment initiatives to reduce smoking and promote healthy eating.

The ethics here should be clear. Healthcare providers have a moral obligation to address the causes, as well as the consequences, of the dis-eases that threaten human life and the ability of government to provide services. It’s our personal, profes-sional, and patriotic duty.

RODNEY MARTIN, JR ON:LETTING YOUR VALUES GUIDE YOUThe Chairman and CEO of Voya Financial writes about the crucial interplay between values, building trust with stakeholders, and fostering a culture of integrity

Our values define who we are, what we stand for, and how we connect with our customers, distribution partners, shareholders, and employees. All of our stakeholders entrust us to center our decisions and actions around a highly personal and hard-earned issue—helping our customers prepare for a secure financial future—and values play a significant role in this.

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Our core values at Voya Financial™ are a foundational element for our strategies and actions as we set out to be America’s Retirement Company™ and to maintain our reputation of integrity. Our solid financials, strong businesses, and clear strategy all position us well to succeed. But our most important attributes, the attributes that lie behind the numbers and drive exceptional behavior and execution, are our people and our values.

We are at an unprecedented time in our company’s history. In just more than a year, we became a publicly traded company and have rebrand-ed to Voya Financial. This has pro-vided us with a unique opportunity to define what Voya represents and to ensure our values are expressed in a voice that tells the world we are optimistic and approachable and have the experience, knowledge, and ethics to help people with asset accumulation, protection, and dis-tribution at each stage of their lives.

Our values are designed to align with the culture we are building and drive us toward helping our clients with their retirement readiness—both emotionally and financially. They are:

• We have customer passion. We believe strongly that our success is driven by a deep pas-sion for helping customers. For us, this passion comes from our desire to empower our custom-

ers to achieve a secure financial future and feel retirement ready. This means listening to our customers, responding with a sense of urgency, and providing thoughtful and objective advice.

• We do the right thing. We define this by saying what we mean and meaning what we say. We are transparent. We uphold both the letter and the spirit of the law and regulations that guide both financial and publicly traded companies. Most importantly, we treat everyone with respect.

• We are the “We.” I find this im-pactful because, in its simplest form, it means all of us at Voya are accountable, both individ-ually and collectively, for the well-being of our customers and for achieving our strategic goals. And we will work as one team to constantly refine what we are doing, and how we do it, as we continue on our path.

• We have a winning spirit. We are building a brand that stands for who we are as a company, and that means operating with an optimistic attitude. We are agile and adapt to meeting our stakeholders’ needs. We do not settle for less because our customers, shareholders, and employees deserve the best.

• We care. These are two simple words that together mean so

much. For us, this is about making products and services that add value to people’s lives. It is about being inclusive and incorporating diverse perspec-tives into all that we do. It is also about positively impact-ing our communities through volunteerism and corporate responsibility, and our planet by implementing sustainability measures at our facilities. On the community side, I am proud to say that, this past May, we celebrated our first- ever Voya Financial National Day of Service, with almost 3,000 of our employees across the US volunteering more than 9,000 hours of community ser-vice. And, we have dedicated each September to our em-ployees’ generosity through our Employee Giving Campaign.

Being selected as a 2014 World’s Most Ethical Company underscores our commitment to maintaining the highest level of standards that are essential to building and maintain-ing trust with our stakeholders. We

have codified these standards in our policies and our values. Most impor-tantly, we practice them in the way we conduct our business every day.

By many financial measures, Voya Financial has achieved much in a short period of time. Our public of-fering became one of the best per-forming IPOs last year. Today, we are investing in our new brand, we are developing new tools to help our customers better plan for their financial futures, and we are creat-ing new products and services to help them achieve their goals.

All of this is possible because of the values that guide each of our em-ployee’s decisions and serve as our compass. Perhaps the best thing we have done as an organization is to identify the values that will define us, guide us, and enable us to help our customers feel financially se-cure and retirement ready so they can achieve what they value most.

OUR VALUES ARE DESIGNED TO ALIGN WITH THE CULTURE WE ARE BUILDING AND DRIVE US TOWARD HELPING OUR CLIENTS WITH THEIR RETIREMENT READINESS—BOTH EMOTIONALLY AND FINANCIALLY.

DENNIS CHESLEY ON:HOW TO BUILD RESILIENCERecapping results from the most recent Global CEO Survey, the Global Risk Consulting Leader at PwC offers strategies and best practices to help executives keep pace with change and grow their businesses into the future.

When “the future” means a world in permanent flux, it’s not enough to be agile in how you manage risk. Resilient organizations look for the growth opportunities hiding in the shadows—and have strategies to capture them. These advances promise exciting potential benefits for consumers and society.

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In PwC’s 17th Global CEO Survey, Chief Executives identified three seismic shifts that will have a huge impact on their businesses over the next five years: technological advances, demographic changes, and shifts in economic power.

The results also illustrate that busi­nesses vary vastly in their prepared­ness for these three megatrends. Many are pausing and pondering. Others are marching ahead. Why the difference? Is a lower risk appetite holding back many businesses after recent econom­ic shocks? Or is there a lack of aware­ness of what the risks really are?

We’re better equipped today to model the future, but can’t know all the eventualities or remove all the risks. That’s why risk resilience is the best route for navigating a future in flux. How can you become risk re­silient and create opportunity from the megatrends identified by CEOs?

1. Draw innovation from technological advances

Four out of five CEOs ranked tech­nological advances as one of the top three drivers of transformation; however, only 27 percent had ac­tually completed or initiated an innova tion­focused change pro­gram. What’s behind the apparent disparity? Few CEOs seem confident about which technological break­throughs will take off or how they might impact business and operat­ing models long term.

The problem is that those delaying or avoiding innovation risk adapting to the wrong changes, falling behind competitors, or ending up with obso­lete products or services. Slow inno­vators risk being seen as unattractive partners or employers. It’s tough, though, as technology proliferation across business processes increases the risk of exposure to cybercrime, and not protecting digital assets can destroy trust in business.

How to build resilience: Implement disciplined innovation procedures to enable “breakthrough” innovation and collaborate more externally, such as with clients and supply chain part­ners. Identify benefit­ and risk­sharing models with partners and use new digital channels to enable collabo­ration. While collaborating, ensure IT risk and strategic alliance strategies protect what needs to remain confi­dential. Make cyber­resilience a stra­tegic priority, as it pivots on your IT, people, and processes.

2. Be ready for tomorrow’s workforce

It’s harder than ever for CEOs to find and keep the right people in the right place at the right time; 63 percent say they are somewhat or extremely concerned about the availability of key skills, yet 61 percent haven’t act­ed on their plans for change.

CEOs face a clash of risks: the de­crease in working­age population reduces the availability of desir­able talent; the aging workforce

can mean healthcare, benefits, and productivity issues; and some jobs have been eliminated by technol­ogy, creating social risks. Rapid in­dustrialization in emerging econo­mies is wooing educated nationals home, increasing labor costs for de­veloped economies. In short, there’s a mismatch of skills, needs, and lo­cation that requires adaptability in talent, cultures, and attitudes—and government support. Those corpo­rates that resist cultural change risk repelling desirable younger talent.

How to build resilience: Use big data modeling to understand demo­graphic trends and risks, and identify sources of talent in new or old mar­kets. Work on attracting that talent. You can use technology to reimag­ine the workplace and create greater flexibility, mobility, and “virtuality”. Engage with educational institutions to nurture the skills and talent of to­morrow. Adapt your ERM processes to encompass social risks.

3. Align with changing consumers

Consumers are evolving, both geo­graphically and demographically. To­day, CEOs know they must compete for a faster­moving, more diverse, and more demanding tar get. Fifty­two percent said they are concerned about shifts in consumer spending and behavior, while 46 percent wor­ry about new market entrants. And no two consumer markets are alike in challenges, opportunities, growth speed, competition, or dynamics—even among economic subsectors.

Companies that approach consumers in a non­differentiated way risk mar­ket­entry failure. In existing markets, new entrants and low barriers to entry are in­creasing the risk of market share erosion.

Reputational risk is higher than ever, as consumers demand and share more corporate information, and judge companies that don’t align with their values harshly. Reputational risk can arise from your product or service or, more unexpectedly, from operational or financial practices, tax strategies, a lack of support for local communities, or from supply chain partners. The latter is very real with today’s complex global supply chains.

How to build resilience: Big data mod­eling can help you understand chang­ing consumer needs and transform to keep pace. Become more client­cen­tric by engaging with consumers across multiple channels, nurturing loyalty and trust. Knowing more about customers will illuminate where you can remove unnecessary complexity from your value chain, while keeping the flexibility needed to deliver to dif­ferent segments in different ways and different geographies.

When entering emerging markets, know all the major risks beforehand so you can tailor market­entry strat­egies. Otherwise, focus on growth in known markets. Earn and protect your license to operate in all mar­kets by investing in local communi­ties. Finally, embed assurance into your contracts, exercise control, and build trust among stakeholders.

PAUL McNULTY ON:GOVERNANCE AND BUSINESS ETHICSThe President of Grove City College and Of Counsel at Baker & McKenzie Outlines the Questions Every Director Should Be Asking

Governance is at the heart of business ethics. An organization’s directors and senior managers are unavoidably positioned to affect the ethical tone and culture through their initiatives and communications. In particular, it falls upon the company’s leadership to assess the nature and extent of the various ethical risks and ensure that robust risk management programs have been properly designed and implemented to mitigate those risks.

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For the largest global companies, effective ethical governance is easier said than done. Employees, routinely operating in dozens of high-risk countries, face almost daily challenges in attempting to achieve business outcomes while avoiding ethical lapses. Count-less decisions are made by local mid-level managers who may not share the values of their senior managers. Far worse, these man-agers may perceive that miscon-duct is condoned by supervisors if it advances profit-generating objectives.

And then there’s the problem of third parties. A company may have a com-mendable ethical culture but struggle to find business partners who share its values. Local laws often mandate the use of local businesses, and this can create serious risks. Ethical chal-lenges may also arise through merg-ers and acquisitions when differing business cultures are combined into new organizations. In addition, even in the strongest corporate cultures, risks can change quickly as a result of emerging regulations and shifting en-forcement priorities.

Thus, for corporate governance to be successful in relation to business eth-ics, constant vigilance is necessary. Best practices now require directors and senior managers to review con-tinuously the effectiveness of ethics and compliance programs. Failure to exercise such oversight can be di-sastrous for both a company and its leaders. With the surge in corporate

prosecutions over the past decade, those in governing roles must know the right questions to ask.

Here are five sets of questions direc-tors should raise with senior man-agement and compliance personnel:

1. Risk Assessment: How have we identified our most significant ethi-cal risks? By what process have we determined the extent of these risks as we allocate resources in our com-pliance program?

A compliance program must be well designed to manage signifi-cant risks. For example, a global company operating in jurisdictions where bribery of public officials is commonplace must do more than simply establish an anti-corrup-tion policy and mandatory training (both of which are good steps). Fail-ure to address the larger set of risks connected to the use of agents and other third parties would be a seri-ous shortcoming. The best risk as-sessments utilize outside experts to review global business operations, interview key personnel, review pre-vious compliance problems, and formulate priorities and recommen-dations for program enhancements.

2. Benchmarking: How does our compliance program stack up against those of other companies with similar risk profiles? If we pre-sented our compliance program to enforcement officials, would it meet or exceed their expectations for an enterprise of our nature?

Government attorneys have learned a lot about compliance from compa-ny presentations and frequent sem-inars and conferences on the topic. They can now quickly spot anemic or “paper programs.” Directors should insist on knowing the basis for the company’s confidence in the ade-quacy of its compliance program.

3. Resources: Do the people work-ing in ethics and compliance have what they need to get the job done? Do they have the ear and support of the C-suite? Are the business units cooperative?

The elevation of compliance with-in corporate organizational struc-tures is one of the most significant changes in business ethics within the past decade. It is now standard practice for compliance officials to make regular reports to corporate boards, a practice not so common before the collapse of Enron, the 2008 financial crisis, and the FCPA enforcement surge. Of course, board reports are not sufficient for managing risks. Being equipped to follow through with compliance plans is critical for preventing mis-conduct.

4. Monitoring: How do we know our program is working? In what ways do we test our compliance systems? What are the results of our monitoring efforts?

This is a common question from government officials and regulators. It helps them gain needed assur-

ance that the compliance program is more than just an impressive presentation. Directors should also be confident that what they hear in the boardroom is making a positive difference in the corporation’s far-flung business enterprise.

5. Oversight: How do we handle allegations and information about potential misconduct? Do we have a reliable system to ensure that reports of possible wrongdoing re-ceive a thorough review?

This is an area where directors face some potential personal risk. The worst situation would be when a director learns about an allegation of misconduct but has little, if any, basis for believing that an appro-priate review of the allegation will occur. Confidence about sufficient follow-up sits at the core of a direc-tor’s fiduciary duty.

There are many other questions that corporate leaders can ask to promote strong ethics within their organizations. Certainly, issues in-volving strategic direction, messag-ing, recruiting good people, and self-reporting are among these im-portant topics. The five question sets listed above are essential for ensuring that the compliance pro-gram is capable of fulfilling its mis-sion. Ultimately, for any governance to drive strong ethics, those at the top must be personally committed to the highest standards of integri-ty. If a company is so blessed, good things will undoubtedly follow.

ABOUT THE WORLD’S MOST ETHICAL COMPANIESEXECUTIVE BRIEFING

The World’s Most Ethical Companies Executive Briefing is a quarterly publication featuring ideas from senior executives and thought leaders representing both the private and public sectors. The articles in each Executive Briefing are designed to inspire further conversation among CEOs, board members, and executive committee members on the important role of ethics in driving business performance.

Participation in The World’s Most Ethical Companies Executive Briefing is on an invitation basis. To learn more, or to be considered for inclusion in a future edition, please contact

Nicole Thomas at: nicole.thomas@ethisphere.com

© 2014 Ethisphere LLC. The World’s Most Ethical Company trademark and logo are owned by Ethisphere LLC. All Rights Reserved. No part of this publication may be reproduced in any form

or by electronic means without written permission from Ethisphere.

In times like these, knowing where to start the conversation in helping to address complex issues is vital. So, there is a process to everything we do and it starts with listening and identifying the right questions. Knowing where to start and what to ask comes from experience and discipline of thought. This is just the beginning of what we provide to our clients.

Through our global network of firms with more than 184,000 people in 157 countries, we provide quality assurance, tax and advisory services to many of the world’s most successful companies. Tell us what challenges you are facing or find out more by visiting us at www.pwc.com, or contact:

Erik SkramstadUS Advisory Forensics Leader(617) 530 6156 erik.skramstad@us.pwc.com

Dennis ChesleyGlobal Risk Consulting Leader(202) 730 8036dennis.l.chesley@us.pwc.com

The questions become the opportunities

© 2014 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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