Compliance and Ethics: Ideas & Answers. Edition 123

Dear friends,

Welcome to the 123rd edition of Compliance and Ethics: Ideas & Answers.

This week, Adam Balfour shares a simple but striking insight from a recent trip past the kids’ dentist, revealing how small, well-timed incentives can shape behavior and build long-term trust. He explores how the same logic can apply to compliance, where meaningful incentives (even minor ones) can drive alignment with your organization's values.

Jeff Kaplan then dives into the nuanced world of conflicts of interest, exploring the often-overlooked impact of apparent COIs. Through a thoughtful hypothetical, he unpacks why perception matters as much as reality, and how your code of conduct should address both.

And in Compliance Lite, Karen M. Leet returns with No! I Don’t Go!, a story of doubt, solidarity, and rediscovering purpose in the face of failure.

Here’s a suggestion: if something in this issue sparks a useful thought, why not share it with one colleague who could put it to good use?

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Thank you,

The Editors

Incentives: Learning from the Dentist

by Adam Balfour

Yesterday, there was a surprising moment of excitement as we drove past our kids' dental office - and it got me thinking about the power of incentives. Rather than the usual dread most of us might feel about the dentist, they immediately talked about the small rewards they get from each visit when they redeem their clean teeth tokens.

Incentives are, in the words of the U.S. Department of Justice, "another hallmark of effective implementation of a compliance program." The right incentives can be incredibly effective at driving desired behaviors (and, conversely, the wrong incentives can equally drive inappropriate ones). Incentives can include things such as bonuses and other financial benefits, but even small and/or non-financial incentives can also be incredibly effective.

Compliance isn't just about getting people to not do certain things; it's often more about helping people do the things they can and should do to achieve strong business results in a way that's aligned with your organizational values and compliance program.

If dentists can use small incentives to drive the right behaviors in kids, what would a well-structured incentives program do for your organization’s culture, business results, and compliance program?

Codes of conduct: Actual, apparent and potential conflicts of interest

by Jeff Kaplan

Preventing and mitigating conflicts of interest (COI) is a mainstay of many  corporate compliance and ethics (C&E) programs.  And because there is no all-embracing COI legal regime (the way there is for, e.g., antitrust), particular attention should be paid to drafting and enforcing  COI provisions of codes of conduct.

In a prior posting we explored standards of waiver  in codes for COIs .See  Standards for waivers of conflicts of interest – Compliance and Ethics: Ideas & Answers. In today’s posting we address apparent COIs.

An apparent COI is a set of circumstances that can  be reasonably believed to constitute  a conflict of interest  even if there is in fact no conflict .Codes generally – indeed, almost universally – prohibit apparent as well as actual COIs.

Apparent COIs are sometimes seen as less serious than  the harm from actual ones. In my view this is a mistake, because the harm from an apparent COI can be just as great as the harm from an actual one.

Moreover, actual COIs can – given their nature – be particularly difficult to prove.  That is because, more so than with some other types of wrongdoing, key acts or circumstances in COI cases are often known only to the wrongdoers, particularly matters going to wrongful intent.

A hypothetical case

X Company is considering using Y Company as a supplier because Y offers the best goods on the best terms. But Y is owned and operated by A, whose twin brother A Plus is a senior manager of X. A Plus has nothing directly or indirectly to do with purchasing anything for X, and rigorous controls are put in place at X to ensure that A Plus does not in any way help Y in its dealings with X. Does the fact that X has mitigated any actual conflict mean that it has done so with the apparent one?

The analysis in such situations turns in part on the question: Apparent to whom? For instance, is it well known among X employees and the company’s other suppliers that A and A Plus are brothers? If so, then the employees and other suppliers—two groups whose trust, as a general matter,   companies have strong reasons to maintain—would likely need to know the particulars of the mitigation measures to believe that there is no actual conflict. But for various understandable reasons, companies in this sort of situation are often reluctant to publicize their mitigation measures in any detail. And even if they did, there would be a good chance that the parties to whom conflict is apparent would be skeptical of the effort’s sincerity and efficacy.

Not all apparent conflicts raise significant challenges of this sort. However, some present even greater mitigation difficulties than our hypothetical, such as where the apparent COIs become known to shareholders, who are typically a more distant and dispersed group than are employees or suppliers and thus presumably harder to provide comfort to.

Continue reading on our website...

No! I Don’t Go!

by Karen M. Leet

I’ve been so full of doubts and fears. I felt I’d totally failed. At the job I love. At the tasks facing me. At the staff counting on me.

What good is a compliance officer who misses all the signs? Overlooks hints? Totally lets a bad situation get worse?

I almost decided to quit. To give up on myself and the work I do – the job I love – the people I care about.

But guess what? Guess what happened to help me decide whether to stay or go?

Aggie Rose happened. With what looked to be most of the staff I work with surrounding her.

I came in to work, weary and discouraged, halfway convinced I needed to turn in my resignation as a compliance professional and leave in disgrace.

But there was Aggie Rose. Blocking the hallway to my office. With our whole compliance team behind her.

“We know you,” Aggie Rose told me with her hands on her hips, as belligerent as I’ve ever seen her. She pointed at me, her expression stern and a bit scary. Aggie Rose can be a force of nature – like a hurricane.

“We know you,” she said again, shaking a finger in my face, her voice fierce and firm. “We know you made a mistake. So what? Everybody makes a mistake some time or other. But we knew you’d be hit hard. We knew you’d feel you’d need to resign. We knew you’d be ready to sacrifice yourself for our company.”

Aggie Rose almost growled at me. Behind her, staff members nodded along, agreeing with her.

“So, we are here to stop that right here and now. I’m the leader of our group, and I’m speaking for us all. Think of all you’ve done for us, for our company, for our honesty and integrity. You have helped us all in so many ways.” Aggie Rose stared hard at me as if she could see into my heart.

She pointed at a few of the group with her, reminding me of specific ways I’d helped so many of them. The others nodded their heads in agreement.

“And so,” Aggie Rose told me, her voice strong and firm and clear. “We don’t want you to go. We all need you. We all trust you. We are not gonna let you leave us, and that’s that.”

She spread her arms wide to include them all. “We took a vote, and we’ll all stand up for you and with you. We’ve all benefitted from your caring, your wisdom, your help. We want you to stay. Think of all you’ve accomplished here.”

Aggie Rose paused a moment. Then she boldly announced in her strong, loud voice, “All in favor of keeping the best compliance professional we’ve ever known, say ‘Stay!’” And they all did.

Then all my co-workers were crowding around me, all talking at once, all offering support and encouragement, all thanking me for my help and caring.

After that how could I go? I was not a failure after all. Sure, I’d made a mistake. I’m human like everyone else. But I’d also made a difference for a lot of people I worked with.

How could I walk away from that?

No. I don’t go.

© 2024 K. Leet

What do you think?

Is there anyone who never makes a mistake?

How do you recover after a mistake?

Think of all you’ve done right in your work.

These are stories (usually fictional, but not always), based on insights and experiences from the world of compliance & ethics. To explore more stories and reflections from the world of compliance & ethics, visit our website.

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