PROGRAM MEASUREMENT FRAMEWORK - Ethics

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HIGH-QUALITYETHICS & COMPLIANCEPROGRAMMEASUREMENTFRAMEWORK

This report is published by the Ethics & Compliance Initiative (ECI).All content contained in this report is for informational purposes only. ECI cannot accept responsibility for any errorsor omissions or any liability resulting from the use or misuse of any information presented in this report. 2018 Ethics & Compliance Initiative.ISBN 978-1-5323-8575-9All rights reserved. Printed in the United States of America. For additional copies of this report,permission and licensing contact ECI: 703-647-2185 or research@ethics.org.ECI2650 Park Tower Dr., Suite 802Vienna VA 22180Telephone: 703.647.2185 FAX: 703.647.2180www.ethics.org research@ethics.orgABOUT ECIThe Ethics & Compliance Initiative (ECI) empowers organizations to build and sustain High QualityEthics & Compliance Programs (HQPs). ECI provides leading ethics and compliance research and bestThe Ethics & Compliance Initiative (ECI) is a best practice community of organizationspractices, networking opportunities and certification to its membership.that are committed to creating and sustaining high quality ethics & complianceprograms. With a history dating back to 1922, ECI brings together ethics and complianceprofessionals and academics from all over the world to share techniques, research and,most of all, exciting new ideas.

ACKNOWLEDGEMENTSWe are grateful to the following members of our Working Group for their many hours of effort incompiling this framework:CO-CHAIRSKaren ClapsaddleLockheed MartinCorporationSteven ScarpinoBP plcMEMBERSRobb CanningErnst & Young, LLPGerry DawesCon Edison Company ofNew YorkJack GiraudoOlin CorporationRodney GrandonAffiliated Monitors, Inc.Suzanne MiltonUS FoodsMaryn SigurdsonBP plcCally SwansonUS BankCourtney WallizeNorthrop GrummanPaul ZikmundBunge LimitedTim McLaughlinL3 Technologies, Inc.Linda TrevinoPenn State UniversityABOUT ECI’S WORKING GROUPSIn an effort to encourage networking and collaboration among ethics & compliance (E&C) professionals,ECI regularly convenes small groups of our members to network, share ideas, and address issues thatare of particular interest. Working groups of 20 – 25 individuals meet to identify, research, and developnew resources to help practitioners prepare for a new or emerging E&C issue. They also learn frombest practice with regard to an existing E&C program area.Several new working groups, directly related to this Measurement Framework, are now open. For moreinformation about those groups, please see the inside back cover. For other information about ECI’sworking groups, please visit: www.ethics.org.HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK 2018 Ethics & Compliance Initiativei

BACKGROUNDIn 2016, ECI published the Blue Ribbon Panel report entitled “Principles and Practices of High-QualityEthics & Compliance Programs” (the “HQP Report”). Since its publication, a number of ECI membershave expressed interest in having additional guidance and/or a measurement framework to assist withassessing an ethics and compliance program.As a result, the E&C Program Maturity Model Working Group was formed and met on a number ofoccasions to discuss developing a framework that organizations could use to measure their programsagainst those described in the HQP Report. The intent is to provide a framework that allows allorganizations, big or small, profit or nonprofit, to assess the effectiveness of their programs based onhigh-quality program (HQP) elements. The Working Group utilized a methodology based on five levelsof maturity to address each of the five HQP principles. In support of assessing the level of maturity,the Working Group has outlined suggestions on (1) what to measure/review; (2) questions to consider;(3) potential sources of information, and (4) leading practices illustrative of HQPs.ii 2018 Ethics & Compliance Initiative HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK

METHODOLOGYAs mentioned above, the Working Group developed a template with five levels or categories of maturity.The five levels are defined as:UNDERDEVELOPED: A new e&c program or an existing one that has not progressed far in embeddingHQP elements.DEFINING: An e&c program that contains a number of HQP elements reflecting some importantattributes, but with room to further mature.ADAPTING: An e&c program that has a few HQP elements, but still lacks many important attributes.MANAGING: An e&c program that can be considered effective or good, but not an HQP.OPTIMIZING: An e&c program that contains the majority of, if not all, HQP elements.The Working Group developed this framework by first populating the Optimizing category from theobjectives outlined in the HQP Report—representing the HQPs. It then defined the other end of thespectrum by populating the Underdeveloped column, which describes the least mature level. The moredifficult steps involved assessing the intermediate categories, that is, defining the progression ofprogram maturity among the three middle levels (Defining, Adapting and Managing). While the finalcategory—Optimizing—provides indicia for an HQP, the intent of the fourth column (Managing) is todefine an “effective” or “good” program.HELPFUL HINTS AND TIPSnThis measurement framework can help when trying to assess the maturity and effectiveness of aprogram, whether it is done for the first time to identify gaps or, in the context of a more matureprogram, the assessment’s aim is to identify opportunities for further improvement.nObviously, organizations should not use this assessment framework exclusively, but as one of the waysto help validate the maturity level of a program and measure it against an HQP.nBe prepared to respond to those who want a more formulaic methodology by explaining the need to beable to make subjective, professional assessments part of the analysis.nUse the framework with other supporting functions or departments such as Legal, Human Resourcesand Internal Audit.Note: Starting from this page and throughout the rest of the report, the term “ethics and compliance” refers to the discipline of ethicsand compliance and general practices. The term “e&c program” refers to the various elements of a program to manage ethics andcompliance risks. Capitalized “E&C” denotes the E&C function/department where the program exists. Exceptions may be seen whenreferencing the titles of existing bodies of work (e.g., reports).HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK 2018 Ethics & Compliance Initiativeiii

CONTENTSAcknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iAbout ECI’s Working Groups. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iBackground. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iiMethodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iiiHelpful Hints and Tips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iiiForeword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Ethics & Compliance Program—Measurement FrameworkPrinciple 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Principle 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Principle 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Principle 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Principle 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Additional Materials to ConsiderPrinciple 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Principle 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Principle 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Principle 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Principle 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Frequently Asked Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26ECI Resources Related to HQPs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

FOREWORDThis project began with a simple question how can an organization demonstrate that it is systematicallyadvancing the breadth and impact of its ethics & compliance (e&c) program?Every day, business leaders around the world dedicate themselves to ensuring that their organizationsoperate with a high standard of integrity. There are many regulatory and enforcement expectations tohelp them get started, and as a result, in their early days many e&c programs were a reflection of thosestandards. But few, if any, frameworks exist to help guide e&c professionals as their program persists andhopefully matures over time.Hence this measurement framework. The document that follows was created with the understanding thatevery e&c program must be a reflection of an organization’s culture, industry, and the context in which itworks. It also recognizes that there are some program practices and organizational commitments that areessential if an organization is to increase its effectiveness.ECI’s research has shown that the higher the quality of an e&c program, the more effective it is in reducingrisk of noncompliance and increasing ethical conduct. Therefore, this measurement framework is intendedto help organizations identify themselves along a continuum of growth, and to offer guidance to ultimatelyreach the highest level of quality that makes sense in each organization’s context.We are indebted to a small group of practitioners and other subject matter experts who took it uponthemselves to develop this document. As a group they conceived of—and pursued—the daunting taskof mapping the maturity of an e&c program. Then they developed metrics by which an organization canmeasure its progress. The group worked from a definition of a high-quality program (HQP) previouslydeveloped by an independent Blue Ribbon Panel of practitioners, enforcement officials, and other thoughtleaders; resulting in a Principles & Practices of High-Quality E&C Programs report. Taken together, theBlue Ribbon Panel report and this measurement framework are an industry-led effort to articulate anddemonstrate e&c program quality.It is our hope that this measurement framework provides a baseline for our industry. In the days ahead,we encourage organizations to join us in an initiative to continually improve this document. We also invitebusiness leaders to assess their own program quality against this framework, and to share their bestpractices with one another. ECI will be providing further avenues and resources to help with those efforts.The intent of this framework is to provide practitioners a way to spur conversation inside theirorganizations, and to increase leadership buy-in for ethics and compliance. At ECI we stand ready tosupport you in that important endeavor.With all best wishes,Patricia J. Harned, Ph.D.Chief Executive OfficerHIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK 2018 Ethics & Compliance Initiative1i

MEASUREMENT FRAMEWORKBY PRINCIPLE

HIGH-QUALITY ETHICS &COMPLIANCE PROGRAMPRINCIPLESPRINCIPLE 1STRATEGY: Ethics & Compliance is central to business strategyPRINCIPLE 2RISK MANAGEMENT: Ethics & Compliance risks are identified, owned,managed and mitigatedPRINCIPLE 3CULTURE: Leaders at all levels across the organization build and sustain aculture of integrityPRINCIPLE 4SPEAKING UP: The organization encourages, protects and values thereporting of concerns and suspected wrongdoingPRINCIPLE 5ACCOUNTABILITY: The organization takes action and holds itselfaccountable when wrongdoing occursSource: ECI Blue Ribbon Panel Report: Principles and Practices of High-Quality Ethics & CompliancePrograms (2016).

ETHICS & COMPLIANCE PROGRAMMEASUREMENT FRAMEWORK*PRINCIPLE1DEFININGSTRATEGYETHICS &COMPLIANCEIS CENTRALTO BUSINESSSTRATEGYUNDERDEVELOPEDPROGRAM ELEMENTS:e&c program activities do notexist or they are notfoundational to theorganization; where e&cprogram activities do exist,they are decentralized. E&C is not formalized as a functionwithin the organization. Where e&cprogram elements (e.g., helpline,investigation process) exists,accountability is decentralized.* Illustrative model for measuringethics and compliance high-qualityprograms (HQP). It is acknowledgedthat HQPs must be tailored to theorganization and industry in thatwhich they exist and size, complexityand degree of regulation of theindustry will drive the design andfunction of any program.“ethics and compliance” thediscipline of ethics and complianceand general practices An e&c program is not well definedor understood and is very much anadd-on (not embedded) feature ofthe organization.PROGRAM ELEMENTS:E&C is established, butis not embraced by theorganization andoperates tactically. E&C is found as a function on allorganizational charts, but is notconsidered an essential elementwithin business operations. An e&c program is a recognizedfeature of the organization and isdesigned to support or complementcertain day-to-day business operations, but it is not yet integrated withbusiness objectives. E&C exists as a resource to helpleaders across the organizationunderstand the organization’sstandard for integrity. There is no identified resource andadvocate to help leaders across theorganization understand their criticalrole in setting the standard forintegrity. If a code of conduct exists,it is very much rules-based.“e&c program” the various elementsof a program to manage ethics andcompliance risks“E&C” the E&C function/departmentwhere it exists4 2018 Ethics & Compliance Initiative HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK

MAG ROP RADAPTINGPROGRAM ELEMENTS:E&C is beginning toembed with accountabilityassigned for key ethicsand compliance risks;consistency is lacking.T YIRUM A TOPTIMIZING (HQP)MANAGINGPROGRAM ELEMENTS:E&C is embedded with e&cprogram controls andprocedures operating asan integral part ofbusiness processes. An e&c program is substantiallyintegrated with business objectivesand is designed to support strategicobjectives. An e&c program is integrated withday-to-day business objectives, but isnot yet designed to complement orsupport strategic objectives. E&C is a frequent participant in keystrategic discussions. The board has high-level knowledgeabout the e&c program, but onlymonitors its implementationperiodically. E&C serves as a resource andadvocate to help leaders across theorganization understand their criticalrole in setting the standard forintegrity. An e&c program is integrated withbusiness and strategic objectives. E&C has the resources and access tomaintain independence to ensureproper integration in all operations. E&C has the resources and access tomaintain independence, but is notadequately resourced to ensureproper integration in key operations. E&C is rarely included in key strategicdiscussions.PROGRAM ELEMENTS:The organization followsbest practice in e&cprogram management andleads the field externally. E&C has the resources and accessneeded to ensure proper integration in all operations and has anindependent voice to leaders. E&C is a consistent participant inkey strategic discussions. e&c program is continuouslyimproved through leadership,innovation and feedback loops. The board is knowledgeable aboutthe e&c program and activelymonitors its implementation. An e&c program is continuouslyimproved through leadership andfeedback loops. The organization shares itslearning externally to positivelyinfluence other organizationstoward responsible practices and acommitment to integrity. The board is knowledgeable aboutthe e&c program and routinelymonitors its implementation. The organization shares its learningexternally to positively influenceresponsible practices and a commitment to integrity in other organizations. The organization shares its learninginternally, but only on an ad hoc basis.HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK 2018 Ethics & Compliance Initiative5

ETHICS & COMPLIANCE PROGRAMMEASUREMENT VELOPEDETHICS &COMPLIANCERISKS AREIDENTIFIED,OWNED,MANAGED ANDMITIGATED* Illustrative model for measuringethics and compliance high-qualityprograms (HQP). It is acknowledgedthat HQPs must be tailored to theorganization and industry in thatwhich they exist and size, complexityand degree of regulation of theindustry will drive the design andfunction of any program.“ethics and compliance” thediscipline of ethics and complianceand general practices“e&c program” the various elementsof a program to manage ethics andcompliance risks“E&C” the E&C function/departmentwhere it existsPROGRAM ELEMENTS:A formal risk assessmentprogram is not fullyestablished or does notyet exist. The organization does not have anestablished risk management process. Risk identification/assessment processis performed ad hoc and not wellunderstood or communicated. Where risk management is performed,it is done by only a few people and isconducted in isolation from the rest ofthe organization. Even if E&C exists (as an organizationalfunction), it does not formallyparticipate in the risk identification/assessment process. Communications about risk management are infrequent or nonexistent. Ethics and compliance risks arenot well understood and are onlyconsidered in risk assessments onan ad hoc basis. No formal documentation is producedor maintained.PROGRAM ELEMENTS:A formal risk assessmentstructure is established andoperating in a few departments or functions, butoperates tactically. Ethics and compliance risks areassessed only at the business unit,functional levels and/or geographicregions; results are not shared orcommunicated. Where risk assessment may beperformed, it does not include riskprioritization or measurement ofresidual risk. Risk assessment process doesnot consider both internal andexternal information and metricswhen identifying inherent risks. Minimal guidance is provided toemployees about the nature of riskmanagement. E&C may participate informallyduring the risk assessment process. Where risk assessment trainingis provided, it is provided inconsistently, is not targeted to employeeson a risk-based approach, and doesnot always involve E&C. E&C is not involved in the development of risk assessment andmitigation processes for ethics andcompliance risks. 2018 Ethics & Compliance Initiative HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK

MAG ROP RADAPTINGPROGRAM ELEMENTS:A formal risk assessmentprocess is in place with accountability assigned for ethics andcompliance risk management,but is not consistently performed. E&C conducts risk assessment of manykey ethics and compliance risks, but notconsistently. Ethics and compliance risk assessment isnot fully integrated in the enterprise riskmanagement (ERM) process. Many key functions have identified aleader for risk management, but consistency is lacking. Targeted risk management training isprovided based on perceived organizational risks, but is not always targeted to anindividual employee’s exposure to aspecific ethics and compliance risk on arisk-based approach using an effectivemechanism (e.g., online or in-person). The organization communicates about riskmanagement on a need-to-know basis. Organization conducts third-partydue diligence, but is not consistent in itsimplementation or in information sharing. Risk assessment involves the determination of inherent risks, but does notinclude the development of key riskindicators to manage the risks. Risk assessment metrics aredeveloped, but not well communicatedthroughout the organization.T YIRUM A TOPTIMIZING (HQP)PROGRAM ELEMENTS:Risk assessment follows bestpractices and includes allaspects of a leading riskmanagement program.MANAGINGPROGRAM ELEMENTS:A formal risk assessmentprocess is developed andembedded as an integral partof business processes. An e&c program is calibrated tokey risk areas identified through arobust, continuous risk assessmentprocess. Risk assessment is carried out byorganizational units and supportedand endorsed by organizationalleadership; key risk indicators aredetermined for key ethics and compliance risks and results are sharedacross the organization. Appropriate resources are assigned tothe risk assessment process. The risk assessment is conductedannually or on a frequent basis and ispart of the ERM process. Feed-back loops exist to informmanagement and the board of keyrisk areas. Risk assessment and mitigation plansinclude quantitative and qualitativemeasures and are assigned properownership by organizational personnel. The organization conducts thirdparty due diligence with consistencyand sharing of information across theorganization. Leaders across the organizationare assigned responsibility for theongoing identification and mitigation of risks that are endemic totheir operations. The organization recognizes andrewards self-assessment, earlyissue spotting and prompt remediation of compliance gaps. Ethics and compliance, bothan e&c program and the state ofthe organization from an E&Cperspective, are regularlymonitored as risk areas. Guidance and support for handlingkey risks are provided to employees according to their role. The organization maintainsrigorous third-party due diligenceprocesses that screen for integrity. Ethics and compliance training iseffective and targeted to employeesbased on their role and risk exposure. Risk leaders are assigned andwell trained for risk mitigation. E&C participates in cross-functional riskmitigation efforts. E&C partners with other functions toimprove control environment. Results of the risk assessment are notconsistently shared with the businessunits to determine the potential impacton achieving strategic goals and objectives; no formal plan to mitigate the riskis developed.HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK 2018 Ethics & Compliance Initiative7

ETHICS & COMPLIANCE PROGRAMMEASUREMENT FRAMEWORK*PRINCIPLE3DEFININGCULTURELEADERS ATALL LEVELSACROSS THEORGANIZATIONBUILD ANDSUSTAIN ACULTURE OFINTEGRITY* Illustrative model for measuringethics and compliance high-qualityprograms (HQP). It is acknowledgedthat HQPs must be tailored to theorganization and industry in thatwhich they exist and size, complexityand degree of regulation of theindustry will drive the design andfunction of any program.“ethics and compliance” thediscipline of ethics and complianceand general practices“e&c program” the various elementsof a program to manage ethics andcompliance risks“E&C” the E&C function/departmentwhere it exists8UNDERDEVELOPEDPROGRAM ELEMENTS:Leadership does not promoteethics and compliance, ordoes so on an individual, adhoc, basis. Leaders may be generally aware ofthe code of conduct (to the extenta code exists), but do not takeactive steps to promote an ethicalwork culture. Leaders do not take ownership forcultural integrity and instead mayrely on others (e.g., HR, Legal) tobuild the company’s ethical culture. Employees do not feel supported toraise concerns and are unclear ofthe consequences for conduct thatis inconsistent with the organization’s values, code of conduct and/or policies.PROGRAM ELEMENTS:The organization has in placea code of conduct and relatedpolicies, but only seniorleadership makes the effort topromote ethics andcompliance. Senior leaders speak about ethics,but are not visible in ethics andcompliance awareness activitieswhen they occur, and their actionsmay not appear to reflect identifiedorganizational values. Leaders hear concerns, butquickly route employees to otherfunctions (e.g., E&C, HR, Legal)without attempting to discussvalues or resolve the issue. Policies exist but are not clear; codeof conduct is primarily rules/compliance-based and is distributed but not translated or adapted forglobal employees. Ethics and compliance training isrequired but not engaging; a “checkthe box” attitude is allowed topermeate the organization. Formal policy/process to raise(either internally or externally) andresolve concerns/suspected wrongdoing exists but is not widely knownor used, and/or there is high fear ofretaliation or belief that no actionwill be taken. Lack of non-retaliation policy. 2018 Ethics & Compliance Initiative HIGH-QUALITY ETHICS & COMPLIANCE PROGRAM MEASUREMENT FRAMEWORK

MAG ROP RADAPTINGPROGRAM ELEMENTS:Leaders are beginning to embede&c program with accountabilityassigned for key ethics andcompliance risks. Leaders at all levels promote ethicalconduct, but may tolerate misconductfrom “high performers.” Leaders support and lead ethics andcompliance training requirements, butrarely self-initiate ethics discussionslinking values to performance. Employees are aware of the code ofconduct and policies, but lack sufficient understanding how they applyto their work responsibilities. Leaders encourage employees to raiseissues, but do not always take action toaddress the concern; employees maybecome discouraged and unlikely toreport again.T YIRUM A TOPTIMIZING (HQP)PROGRAM ELEMENTS:Organizational leadership iscommitted to best practice ine&c program managementand leading the fieldexternally.MANAGINGPROGRAM ELEMENTS:Leaders are engaged inpromoting ethics andcompliance, with e&c programcontrols and proceduresoperating as an integral part ofbusiness processes. Leaders are expected andincentivized to personally actwith integrity and are heldaccountable if they do not. Leaders across the organizationown and are accountable forbuilding a strong ethical culture. Leaders actively promoteorganizational values and holdthemselves and subordinatesaccountable for ethical behavior. Values and standards arecommunicated effectivelythrough many channels. Leaders lead ethics and compliancetraining and integrate contentworkplace discussions and activities. Leaders take an active role in promoting a positive tone at the top throughwords and actions. All employees are supportedand expected to act in line withorganizational values and areheld accountable if they do not. Policies and the code of conduct areclear and include the consequencesfor conduct that is inconsistent withthe organization’s values; the code ofconduct and/or policies are knownand enforced. Most employees a

The Ethics & Compliance Initiative (ECI) is a best practice community of organizations that are 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,

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