Corporate Conduct Quarterly, Vol. 5 No. 2

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NEWS & NOTES

COMPLIANCE FRUSTRATIONS. Have you had this experience: The company's compliance program has been in place for years now; the requirements are clearly stated. All new hires must receive and review the code of conduct. So why is it you just found out this morning that the company has a marketing vice-president who joined the executive team six weeks ago, and he doesn't even know there is a code? You check with Human Resources, and find there is also no conflict of interest form for him, either. What is even more frustrating is that this is not the first time such a lapse has happened. What do you do? Certainly you will talk to the now-not-so-new officer and give him his copy of the code and the conflicts form. But you know it is not his fault; how was he to know that he was supposed to read the code, if the officer who hired him failed to mention it?

Some would say that frustration goes with the territory if you handle compliance and business ethics. Even when you spend years on training and booklets, you may find important requirements ignored by managers, including the most senior in the business. Is the answer to do more of what has not worked - training, cajoling, issuing policies?

This raises a tough issue that cannot be ignored. If a manager hires a new person into a responsible position - one where a wrong move can mean serious jeopardy for the company - and fails to brief the person about the code of conduct and other compliance requirements, why should this failure be treated any more leniently than any other serious management failure? If a senior officer fails in this duty, at some point the company must seriously consider discipline. Otherwise, how can the company expect its employees to take the compliance program seriously?

Is this advice practical? What will happen when a mid-level compliance manager suggests that an executive vice president be disciplined because he hired a marketing vice president without covering the code of conduct? In reality, such a suggestion is likely to mean serious career jeopardy, unless the compliance program has been well designed to strengthen the position of the compliance officer and the compliance staff. The staff must have the "clout" to be able to take such steps. If they do not have this power in dealing with the compliance program, then they will also be impotent when it comes time to face down a senior manager who insists on conduct that violates the code. (See Braithwaite & Murphy, "Clout and Internal Compliance Systems," 2 CCQ 52 (1993)).

Does this mean you must fire an executive for this mistake? No. A disciplinary system in an effective compliance program must have the flexibility to deal with a range of conduct. Written warnings, retraining, suspension, pay and bonus treatments, probation - these and other measures may be appropriate, depending on the circumstances. There is no cookie-cutter answer. But if your compliance program has no history of imposing discipline to enforce the program, you should ask yourself whether the program really works, and whether it could really convince a skeptical prosecutor.

BIAS AT MAJOR CORPORATIONS. The problems of racial bias at major corporations have arisen again to catch national attention. A few years ago Denny's was forced to change its corporate ways in its treatment of minority employees and customers. In late 1996, Texaco and Avis have been hit by allegations of racial bias which could result in massive litigation or costly settlements. The Texaco case is still making headlines, the corporation has reached a settlement of the massive discrimination cases against them that includes training for dealing with different racial groups. This plan includes sensitivity training and also changes minority hiring practices. These stories just keep popping up, suggesting that racial bias may be deeply embedded in some corporations.

Late in November 1996, a former manager of an Avis Rent-A-Car franchise claimed that the owner gave detailed instructions on ways to deny car rentals to black customers. The franchise owner regularly docked the pay of employees who refused to comply, according to the former employee.

These allegations were made at a press conference on November 12. The briefing was organized by a lawyer representing plaintiffs in a class action lawsuit against Avis and franchise owner John Dalton. Dalton owns five Avis franchises in North and South Carolina, including Wilmington, where the lawsuit was filed.

So far, more than 80 people have joined the original three plaintiffs.

The policies, dubbed "Dalton's Rules" by employees, were well-known to top management at Avis, according to the plaintiffs. One manager said that he was trained by Dalton to select customers based on their appearance and race. There were also alleged to be strict policies against hiring blacks.

Avis has been asked to turn over its company records on consumer complaints. It is believed that Avis keeps a computerized database that would show if consumers lodged discrimination complaints at other Avis franchises and what management level was aware of the problem. In its first comment on the accusations, Avis said in a written statement from corporate headquarters in Garden City, N.Y., that it "does not tolerate discriminatory practices."

The statement adds, "Avis is not responsible for any discriminatory practices that may have been carried out by a franchisee or his/her employees. However, the corporation is extremely concerned about this report and wants the truth to be determined quickly."

CCQ believes that these situations will have to be watched carefully. Corporate cultures infected with elements of racist attitudes may be attributable to top management failures, including failure to implement effective compliance programs. Serious attention to diversity training is only one step towards an appropriate corporate culture.

ONLINE BIDDING FOR GOVERNMENT CONTRACTS. CCQ has always taken note of techniques promoting improved business-government relationships. For that reason the use of the Internet by governments seeking to ease the process of the purchases of goods and services from private vendors is a new trend deserving comment. In September, 1996 the Commonwealth of Massachsetts created an Internet site called Comm-PASS (Commonwealth Procurement Access and Solicitation System) which allows businesses easy access to all of the information needed to bid on state contracts for everything from paper clips to accounting services. The state spends more than $1 billion each year buying those goods and services, and the Internet site opens the process to all, rather than a few favored state vendors or those otherwise in the know.

The previous practice had been to distribute such information to subscribers in a bulletin mailed every twice weeks. Comm-PASS averaged 5,600 "hits" or inquiries each month during its first two months. In looks like the number of hits will rise to at least 20,000 each month, reaching many more potential vendors than ever before.

This is a "win-win" situation if ever there was one in business-government relations. Governments get more bids in a more open marketplace. More vendors get a chance to make profits. The public is served by lower prices produced by more competition. There are a few other state procurement sites on the Internet, but none as comprehensive as in the Commonwealth of Massachusetts. Dial up the "Comm- Pass" site on the World Wide Web at http://www.magnet.state.ma.us/demand.htm. The person chiefly responsible for this innovation is Charles Baker, the Massachusetts Secretary of Administration and Finance.