Ethics and compliance monitoring is on the rise, according to a 2017 report by the Ethics Research Center (ERC), the research arm of the Ethics & Compliance Initiative (ECI). It is on the rise both as a mandatory compliance requirement and as a voluntary risk assessment tool.
Federal and state agencies and professional boards often require monitors for companies that are complying with terms in deferred prosecution agreements, non-prosecution agreements, compliance-related administrative agreements, or other settlements (Feldman & Kallens, 2017). What do monitors do in these situations?
According to the “Morford Memo” (as cited by Feldman and Kallens), “a monitor’s primary responsibility is to assess and monitor a corporation’s compliance with the terms of the agreement specifically designed to address and reduce the risk of recurrence of the corporation’s misconduct, and not to further punitive goals.” The monitor should also “oversee a company’s commitment to overhaul deficient controls, procedures and culture.”
The rise in the number of organizations choosing to voluntarily engage a monitor is especially interesting. As stated in the ERC report, corporate culture has become increasingly recognized as a critical component of operational success, and so much so that organizations are electing an ongoing monitor-managed risk assessment. The reasons are either strategic (anticipated M&A or IPO) or are in response to an issue or event focused on operational performance and an ethical culture.
The report and a related webinar by Feldman and Kallens define an “engagement lifecycle” for voluntary monitoring: selection–contracting–engagement–performance–transition. The following suggestions, pulled from the report’s executive summary, outline what to look for in each of these lifecycle stage. “For voluntary monitoring, the emphasis is on philosophy – culture vs. controls focus and a clear alignment with management’s objectives.”
- Experience and capability
- Approach of monitor
- Adherence to rates/rate structure
- Willingness to perform under attorney-client privilege
- Review process for reports
- Scope of work and permitted additional work
- Confidentiality and records
- Attorney-client privilege issues
- Dispute resolution
- Establishing the project team
- Communications – protocol, expectations, points of contact
- Duration of monitoring
- Detailed work plan
- Reasonable deadlines
- Document review requirements
- Surveys, focus groups, site visits, and employee access
- Reporting and resolving new issues and scope of issues management
Performance—during which the plan developed during the contracting and engagement phases is carried out.
- Executing the plan for a final set of activities the monitor will conduct
- Detailed progress reporting and identifying ongoing risk areas
- Close-out meetings with the company’s executives and, if appropriate, board members
The full report contains much more. As identified by Pat Harned, ECI’s CEO, you will find:
- Guidelines for selecting a monitor in both mandatory and voluntary circumstances
- Questions to ask when interviewing monitor candidates
- Staff resources that will be necessary to manage the monitor
- Thoughts about working under attorney-client privilege
- How much you should expect to pay a monitor
- Elements of a good contract
- Components of a work plan
- Makeup of a good project team to manage the engagement
- Tips for maximizing the value of the monitorship
- Approaches for smaller organizations
- Suggested processes for managing disputes
- Guidelines for transitioning out of a monitoring relationship
Risk assessment is part of the process for continuous improvement of business processes. A risk assessment can be stronger when done by impartial reviewers, such as when voluntarily engaging an independent monitor to review and assess the ethics and compliance program. ECI’s best practices report provides a guide.
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Ethics Research Center (ERC). ECI Benchmarking Group on Monitors: Best Practices Paper, Executive Summary, 2017. http://ethics.org/research/monitors-report
Feldman, Eric and Michael Kallens. “Independent Monitors Benchmarking Group Best Practices Paper” (webinar and webinar slides), 2017. Available from http://ethics.org/research/monitors-report
Harned, Pat. “Your Independent Monitor: The BFF You Didn’t Want but Likely Need.” ECIConnects (blog), May 22, 2017. https://connects.ethics.org/blogs/eci-connector/2017/05/22/your-independent-monitor-the-bff-you-didnt-want-but-likely-need