Episode Transcript
[00:00:00] Speaker A: Foreign.
Hi, everyone. Welcome to another Bella Asks episode of the Ethicast. I'm your host, Bill Coffin.
[00:00:19] Speaker B: And I'm your co host, Julia Boyes.
[00:00:22] Speaker A: Here at Ethisphere, we believe there is no competition in compliance. And that's why we're using this show as a platform to answer high level questions about business, business integrity that have been posed to us by members of the Business Ethics Leadership alliance, or bella. Bella is a global ethics and compliance community that provides exclusive access to helpful data, benchmarking events and other resources to advance your ENC program.
It also provides a concierge service by which members can submit questions around best practices, and our internal experts will provide an answer, plus helpful resources with more information.
Many of these questions are particular to a specific company's needs, but many more of them speak to challenges and opportunities that face ENC professionals everywhere. So in this episode, we're going to answer three such questions as part of our ongoing mission to make the world a better place by advancing business integrity. And joining us once again to answer your questions is Bella chair Erica Salmon Byrne. Erica, it is so good to see you again. Thank you so much for joining us once more.
[00:01:19] Speaker C: Oh, Bill, I'm delighted to be here with you and Julia. And particularly since it is a thematic. Bella asks, we went for one bucket of concierge requests that has gotten a surprising number of questions over the course of the last couple of months.
You know, it is, it is fascinating to me when we see things coalesce, coalescing the way that they are around a particular issue. And so delighted to be here to unpack it with you guys.
[00:01:47] Speaker B: Yeah. So the big bucket of questions today is surrounding conflicts of interest.
[00:01:51] Speaker C: Conflicts of interest.
[00:01:53] Speaker B: Yeah.
And our first question gets to how to address these conflicts of interest at a fundamental level. So, Erica, our first question reads, when managing conflicts of interest, what should we consider between going with a disclosure based approach versus a pre clearance model?
[00:02:09] Speaker C: Yep.
So, Julia, I was really excited when we sort of started to parse out the concierge request that we've gotten over the course of the last couple of months. Because seeing this number of conflicts of interest questions come in really led me to take a step back and think about why. Right. Why are we seeing so many conflicts of interest questions come in right now? And I think it goes to a fundamental point that so many compliance officers are grappling with, which is how do I hit the right tipping point between getting the information I need from employees to be able to make sure that we're mitigating risk and putting process in place that gets in the way of the business doing what the business needs to do. Right. It's a fundamental tension that every compliance officer I've spoken to over the course of the last two and a half decades is grappling with. How do I be just enough of a break on people's decision making that they're making the right choices without being so much of a break that I stop them from making any choices at all?
So that's, I think, one of the things that's really driving this particular question.
The other thing that's happening is technology is making it easier for us to put these processes into place. So we see a lot of organizations saying, okay, is there a way that I can use some of my existing systems to make my conflicts disclosure process better? Can I move it out of legacy email and spreadsheet processes and get it into a place where it's easier to track and manage? A lot of the HRIS systems or the workflow systems or the GRC systems are adding in conflicts of interest technology into the process. And so it's a great time for the, if you're listening to the three of us to be asking yourself, is my process serving its purpose or is there a way I can make my process better? To the question itself that was asked, there's, there's really good arguments for both, both types of disclosure processes. So pre clearance would be, before I take an action, I have to certify that I don't have a conflict. So before I join a transaction team for an M and a project, I say, I certify that I have no financial interest or familial relationships with the target company that we're going after here. That would cause me to put my own interests ahead of the interest of the company. Because again, guys, that's what we're asking our employees to do with conflicts of interest, right? We are saying, I am not putting my own interests ahead of the interest of the company that is paying me a salary. That's the point.
So you could go with the pre clearance model. There's a transaction that's coming, there's a trip that's coming, there's a trade show that's coming, there's an invite that's come in from a vendor. I certify no conflicts.
That's one option. Very good reasons for following it. Very good, you know, very good potential process. Second option is a regularized disclosure process.
So instead of certifying as to the absence of a conflict or asking for permission in the presence of a conflict, you're on a regular disclosure calendar, annual biannual, something along those lines, when your position changes, again, good reasons for both processes. And so, you know, I would encourage the folks that are listening to us to not think of it necessarily as a binary either or situation, but instead say, what conflicts am I trying to manage?
And the reality is you're probably trying to manage different conflicts depending upon what part of the business you're talking about. In some parts of the business, you might be talking more about family relationship conflicts. Hey, don't hire your cousin. It's a bad idea. Right. In some parts of the business, you might be talking about financial interest conflicts. In some parts of the business, you might be talking about interlocking board directorates, which is something we're seeing more and more of. Right. Where you've got a board member that sits on both your company and a competitor's company. Well, guess what? We have no faith that that's going to work out. Okay. Right. And, and we're seeing the Department of Justice now say you have to pick. Right. You can't have a director on both of these two companies that compete with each other because of the possibility for inappropriate use of information that you get from one side or the other. So think about your risks.
And ultimately, as long as you design a process that your employees actually use such that you are getting your hands on the conflicts in a way that you can mitigate them, that's what really matters.
[00:06:26] Speaker B: Thanks, Erica. I'm going to toss this next question over to Bill.
[00:06:31] Speaker A: Well, thank you, Julia. This next question is around board positions. So, Erica, you set us up beautifully for this one. The question reads, how should we assess and manage potential influence or decision making conflicts for employees who accept highly compensated board positions?
[00:06:46] Speaker C: Yeah.
Yeah. So highly compensated board decisions are going to, for most organizations, be something that you are navigating at either the CEO level. Right. Or C suite level because a member of your leadership team has been invited to join the board of another organization.
In that event, there's two things that need to happen. One is you need to do an analysis as the business as to whether or not your executive actually has the time to take on this responsibility. Right, right. Because again, when we think of conflicts of interest, am I putting my own interest ahead of the company that is paying me? One of the ways I put my own interest ahead of the company that's paying me is I take on outside jobs or other responsibilities that mean I can't spend the time my company needs me to spend to run the business. So what is the meeting expectation? How large are the pre reads? How much time is this person going to have to spend traveling to board meetings? Do they have the capacity to take this on at the same time that they're effectively running the organization?
And if you're a publicly traded company, you need to be asking yourselves those questions in a way that you are very comfortable with the answers because your stakeholders, your investors are going to ask you those questions, right? If the company is running into challenges, and some of those challenges are related to leadership team time, does your leadership team really have the time to be taking on these outside director responsibilities? So that's one of the things you're going to have to navigate. The other place you could run into highly compensated director position situations is employees sitting on the startups or sitting on the boards of startups as advisors where they are then going to be compensated when a transaction happens.
So think RSUs or UARs or whatever sort of stock grant that might be given to somebody that's sitting on an advisory board that's going to pay out when a transaction happens again, really understanding what are the obligations, what are you getting paid for, right? Are you getting paid for advice? Are you getting paid for introductions? Are you getting paid for consumer relationships or customer relationships? Are you going to be lending your name to this particular startup, writing on their behalf, speaking on their behalf? All of those things could potentially implicate the relationship you have with the organization.
So this, both of these circumstances are ones where this is not a one and done analysis, right? You've got to spend some real time thinking about what's actually required, what's actually expected, what are we exchanging compensation for in terms of, you know, what's going to be required. And then is the company comfortable that, that, that there's room in the world of the employee for both of those things to happen on the startup piece in particular.
Also make sure that you are effectively tracking that relationship, particularly if you're a very acquisitive business, so that you don't inadvertently go and buy the company that your employees on the startup board of without knowing that it's happening and understanding what potential reputational challenges that might involve.
[00:09:51] Speaker A: Well, Erica, a great answer to a really interesting question. Thank you very much for that. And I think we have one more question. So Julia, back over to you.
[00:09:59] Speaker B: Thanks, Bill.
Erica, I really like this last question.
It's surrounding moving conflicts of interest from the compliance function to the business. And we were asked, we are considering changing our conflicts of interest disclosure review and approval responsibility from the compliance team to the respective business leader. What best practices should we bear in mind?
[00:10:20] Speaker A: Yep.
[00:10:21] Speaker C: So a couple of best practices to bear in mind here. And this is again, a place where technology is going to be your friend. So. So if you are still tracking conflicts disclosures solely in email and spreadsheets, please don't make this move.
Right. Fix that first. Because if you make this move and you're counting on the business unit leader to track this particular conflict and make sure that it's appropriately mitigated as this employee moves through their career at your organization, the likelihood of that happening successfully is very low.
[00:10:51] Speaker B: Right.
[00:10:52] Speaker C: If you, if you give managers the responsibility to put a disclosed conflict onto a spreadsheet that they are maintaining, you don't have any, you know, meaningful way of tracking whether or not that's actually happened or not and whether that particular conflict is traveling with the employee. So make sure that if before you make this, this move, that you can track the disclosed conflicts.
Once you can track the disclosed conflicts, moving the manager into the approver role, provided that the manager has the tools they need to approve it, is no problem. Right. We have seen very good training of the managers. This is what it looks like. You're able to track it. So no problem at all. Now, the one thing would be there's probably going to be certain categories of disclosures that you're going to want compliance oversight. You're either going to want compliance oversight before it's approved and mitigated, or you're going to want compliance oversight in some sort of audit trail capacity.
So thinking through what are the kinds of conflicts, potential conflicts that we're comfortable with a manager approving, how do we know that that mitigation, whatever mitigation is needed, is actually going to carry forward? So hypothetically speaking, Bill is my manager, Julia is my daughter.
We hire Julia. I can't supervise her. Bill knows that relationship is disclosed. Totally fine type of conflict for Bill to say, yep, here's the mitigation plan. Eric is never going to be in Julia's management chain. I'm going to document that in the system so that her both of their HRIS records say, don't ever let these two work in the same department. It's not okay.
[00:12:23] Speaker B: Right.
[00:12:24] Speaker C: But then Bill's going to need, as my manager to make sure that I'm not, you know, interfering to make, you know, smooth the waters for Julia and, you know, otherwise being a snowplow parent on her behalf. Right. So that's going to be part of his responsibility. As a manager, so really thinking through, am I comfortable with my managers engaging the behaviors I need them to be and what kinds of conflicts are going to be ones that we're comfortable with the manager potentially approving and mitigating without the input of the compliance team. And we actually created because we've gotten so many conflicts of interest questions. For anybody out there listening to Bill and Julia and I, that is a Bella member we have created and it's live on the platform now, a great checklist that you can use to give to your managers on the conflicts of interest approval process. So if you're thinking about making this move, we have some, some pre existing resources that you can just repopulate with your own specific controls and guidance and policy links and send out to your managers to make sure that they really understand what are they doing, why are they doing it, what are the rules, what are the parameters and where, most importantly, where do they go when they feel like they're over their skis and they shouldn't be making these choices?
[00:13:35] Speaker B: Yeah. Thank you, Erica. You know, I'm just always struck by how conflicts of interest disclosures are really just rooted in really being intentionally transparent.
So thank you so, so much for all of your expertise today.
[00:13:50] Speaker C: Oh, no problem at all. I mean, as Bill is very fond of saying, when in doubt, disclose. Right. I mean, that's really, that's the thing when it comes to conflicts of interest, even if you don't think it's disclosable, what's the harm? Just tell somebody. Right? Just tell somebody, hey, here's this thing.
Because that way, you know, in the event that something goes south, you've got, you've got the evidence and the capability to say, I made the best choice I could and here's all the sources I relied on.
[00:14:20] Speaker B: Yeah. Well, thanks, Erica. And as we wrap up this episode, we also want to thank and give a shout out to our Bella community for their great questions. Yes, Erica, one more question for you. For those who are unfamiliar with Bella, with the Business Ethics Leadership alliance, what's something you love about Bella that might not be on everyone's radar yet? And where can folks go to learn more?
[00:14:42] Speaker C: So I, you know, I've been fortunate enough, Julia, to be part of the Bella community pretty much since its founding. And, you know, I am very proud of the fact that the community as a whole has stayed thoroughly true to its founding ethos that there is no competition and compliance.
And I think that if you are someone who is listening into the three of us and you feel like you are solving every problem on your own and starting, you know, starting from a small knowledge base, tackling some giant problems, please stop and call us. Because that's what Bella is for, right? We are, we are your people.
And you can, you can, you can come and solve problems as part of the collective.
That's what the Bella community at its heart really does. And it's part of the reason why, you know, I'm so proud to and privileged to chair it now, just to be able to see how much it's grown and all of the resources that we now have available as a community. So anybody who is interested in Learning more, my DMs are always open here on LinkedIn.
And you can also hop on over to ethysir.com and check out all the things that Bella can bring to you.
[00:15:57] Speaker B: Thanks so much, Erica.
[00:16:01] Speaker A: If you have a question that you would like answered on this program, contact the Bella Concierge Service and we'll get to work on it for you right away. This has been another Bella Asks episode of the Ethicast. Thank you so much for joining us. We hope you've enjoyed the show. For new episodes of the Ethicast each week, be sure to subscribe to us on YouTube, Apple Podcasts, and Spotify. Also, if you haven't already pleased, please follow Ethisphere on LinkedIn to learn more about how we help organizations measure and improve their ethics and compliance programs. Together, we can make the world a better place by advancing business integrity. That's all for now, but until next time, remember, strong ethics is good business. See you soon.
[00:16:36] Speaker C: By all.
