[00:00:00] Speaker A: Hi everyone. Today we'll take a look at how Japanese motor vehicle manufacturer Morelli has advanced its ethics and compliance program by working with Ethisphere. I'm your host, Bill Coffin, and this is the Ethicast.
When organizations look to advance their overall business integrity efforts, Ethisphere can determine areas of improvement and devise winning strategies to bring their ethics and compliance program, and by extension, their entire organization, to the next level.
In this episode, we'll hear from Craig Moss, EVP Measurement at Ethisphere, as he interviews Yasayoshi Goto, SVP Global Compliance and APAC Legal at Morelli, a motor vehicle manufacturer based in Tokyo, Japan.
Craig and Goto San provide a compelling case study on on how Morelli has made significant steps on its compliance program's maturity journey, including launching a Compliance Champion program and examining its supply chain due diligence, all while partnering with Ethisphere, which has fueled that work. And now, here's Craig and Goto San.
[00:02:39] Speaker B: Hi, I'm Craig Moss. It's great to be here with my friend Gothisan from Morelli Automotive Group.
What we're going to talk about today is really looking at the program that we've been running with kkr, the private equity firm for the last eight or nine years where we help their portfolio companies to measure the maturity of their controls or management systems that are in place for managing compliance and ESG topics. And then we Work with them to help them make rapid improvement in the most important areas. So today I'm joined by my friend Goto San from Morelli Gotason. Let's hear a little bit about your background and then we'll get going.
[00:03:18] Speaker C: Okay, thank you Craig. I'm super excited this opportunity today. I'm Yasuoshi Go to head of Global Complex merely. I've been with this company since April of 2020 and before that I have couple of experiences in large multinational corporations such as IBM and Jira Electric.
[00:03:37] Speaker B: Tell us a little bit about Morelli Group and the challenges that you face as an organization in compliance and esg.
[00:03:44] Speaker C: Morelli is a first tier supplier for automotive industries with lots of footprints in many countries. And the challenge for us is since we have many factories in many countries, some of them are in very challenging countries with lots of complex challenges and with the relatively limited internal resources we have to do a compliance. That's the challenge of Merle.
[00:04:12] Speaker B: Yeah, that's a big challenge. And because you're in the manufacturing sector a lot of other factors come into place around that. So when we started off with you, the work we did initially was you went through our, what we call our holistic compliance and ESG maturity assessment.
Tell us a little bit about how, how that process went and then I know from that Gotasan we then started to prioritize certain areas for improvement. But tell us a little bit about that opening stage of the maturity assessment.
[00:04:42] Speaker C: Yes, I think there was a 2022. We started that compliance assessment with your support and that was a very interesting exercise.
We've got some questionnaire you prepared and we answered but that was very well made. So as a result of self assessment we've got scores, my overall scores together with the scores of each section that identifies the development opportunities of compliance merely and that was a very interesting exercise.
[00:05:16] Speaker B: In the beginning your maturity was sort of in the lower middle level overall and there were some specific areas that we flagged as areas for improvement.
Prioritization is something that we think is really important because you as an organization you can't really work on everything at once. So talk to us a little bit about how we use that initial measurement to prioritize. And then from that what we started to work on first as you mentioned.
[00:05:44] Speaker C: If we tried to do everything then view was nothing we can achieve. Instead we had to focus on certain chosen areas and then focus on certain areas for that year. Then next year we may come up with different prioritization. That's what we did.
[00:06:05] Speaker B: I like how we use the maturity assessment. We started to look and then prioritize. And I remember the first thing that we worked on, we decided that a champion program would be something that would be effective for your organization.
Tell us a little bit about just how that worked in your organization and where you started and how that's been going over the last couple years.
[00:06:29] Speaker C: Yes, the Compliance Champion program was a big success for merely together with your support, Craig, we created Compliance Champion Program. And the reason why chose the program is as I mentioned, we have many plans in many countries and many countries we don't have any compliance or legal dedicated resources, but lots of challenges. So we chose certain countries with challenges and with a lot of employees. So certain sides of business where we see a lot of challenges.
In particular, we chose countries where we haven't received any hotline cases or either zero or one case per year. And we came up with Turkey, in which we have more than 1,000 employees and either zero or one hotline cases in the last couple of years. So we thought that Turkey is the best country to start the pilot program of this complex champion program we created together.
[00:07:35] Speaker B: And how did you go about selecting the champion? Do you have one champion in Turkey or multiple people? How did that process take place?
[00:07:43] Speaker C: Yes, since it was a pilot program, we wanted to make sure make it right.
I was lucky to visit there. I had a chance to go there and I spent two days in there interviewing all the direct reports of that country leaders. And I found one person who is really passionate and enthusiastic about compliance and we started from there. So my, from my experience, the key is to find the right person to make the program successful. Yeah.
[00:08:20] Speaker B: And I like your point about. It's about the passion and the commitment.
Did they have a lot of background in it or it was just more the passion and commitment and then you train them on the background that was needed.
[00:08:32] Speaker C: Yes, that person was a human resources and he. He doesn't have any particular legal background, he doesn't have law degree, I remember. But he is really passionate and he believes the value of integrity.
That's the key.
[00:08:47] Speaker B: I think it's really interesting that the one of the indicators that you chose was that they had a thousand employees or more and no hotline cases.
That shows clearly that there's a gap. Either there's a lack of awareness about how people report. There might be a concern about reporting and retaliation. You don't know why, but all you know is that that's an indicator that the communication isn't flowing as it should. So I love the way that you approach that and then you roll it out to some other countries. I recall, right?
[00:09:20] Speaker C: Yes.
After Turkey, we expanded this program in Poland, Slovakia and now expanding to Germany and Morocco.
[00:09:31] Speaker B: That's fantastic. And the same approach where you're identifying one key passionate person in each location.
[00:09:38] Speaker C: Yes.
Instead of going there this time, I used the teams meeting because of the many reasons, but it was successful. So we used teams meetings and we obtained support from our human resources colleagues. We started from there and try to identify the right candidate. After interviewing a couple of people.
[00:10:03] Speaker B: That's fantastic. And I want to transition to the next topic. But that was. I know that we at, at the sphere had put together a champion guide, a guide to really build the program step by step. And was that guide, was that a useful tool in you rolling out your program?
[00:10:21] Speaker C: Yes, that guide was very useful. So of course we tailored the program considering marriage business, but it was very helpful.
[00:10:34] Speaker B: So from that, then the next thing that we worked on in terms of the improvement phase was we started to look at your risk assessment process.
And in the beginning, I look back in 2022, when you first started on a zero to five scale, your risk assessment level or maturity was relatively low at a beginning stage, 1.5. And then I noticed most recently when you redid the assessment, it had elevated to 4.0. Really significant improvement. Talk to us a little bit about the process that you went through for risk assessment and then how you went about implementing it in a global organization.
[00:11:16] Speaker C: Yeah. So during this process we identified three areas, I remember. And these areas are policies and procedures, governance and risk assessment. So we focused on these three areas at the early stage of this program.
And for policies and procedures, we developed a supplier code of conduct. And then followed by that we created new code of conduct. These two areas we had opportunity to develop considering the legal and customer requirement, particularly in Europe.
[00:11:50] Speaker B: And then when, when I. We worked with you to develop a risk assessment framework. And I remember from. Instead of focusing on. On eight or nine different risk topics, my recollection is that we decided to focus on environmental compliance, social compliance, anti corruption and protection of intellectual Property were the four topic areas that were most important to Morelli.
One, because you get a lot of IP from your customers, the major auto OEMs that you need to protect corruption because of all this global sourcing that you do, and then environment and social because of the manufacturing sector. So tell us a little bit and I know then you rolled it out by different business units. Talk to us a little bit about that process. The risk assessment process.
[00:12:42] Speaker C: Yeah, the risk assessment process was interesting because I had to involve seven presidents of seven business lines, all of them a very busy person.
And I was successfully obtained one hour from each of them. And the reason I could do that was because the template you gave us was very well made. It made as simple as possible. Instead of, let's say 50 pages questionnaire, it was just a couple of pages of worksheet that looked very simple, easy to deal with, and helped my meeting with them within one hour. And it was very easy for them to be prepared because it was just a couple of worksheets.
[00:13:29] Speaker B: Yeah, I think that that's such a key thing when you look at trying to get other business units involved in risk assessment. I think scoping it down to the right level to make sure that you're getting the key information is really a key thing. You know, a lot of organizations, in my opinion, overthink the level of detail they need in a risk assessment. It's better to have one that is good than never do it at all. Because risk assessment is absolutely critical to having an effective program.
But I think some companies wait until they try to make it perfect and you're never going to get like days and days of time from each business unit president. So the ability to do it in an hour, how much better visibility do you have of the risk in each business unit after that one hour conversation with them? Because it was so structured, the meeting.
[00:14:23] Speaker C: Itself was just one hour. But I'm sure some presidents spend a couple of hours to prepare together with their colleagues. And some, some of them might have spent a bit less, but it gave them a very good opportunity to review their business, review their risks in the point of view. So I think it gave them very good opportunities.
And without that tools, as you mentioned, we tend to be perfect in doing that, achieving nothing. But instead, that simple tool gave them a very good opportunity for just a couple of hours thinking over their compliance risks. I think it was a very good opportunity for them.
[00:15:08] Speaker B: Gotusan, after you collected the information from the different business units. I know we worked together to aggregate it and have a global perspective of Mirelli's risk in those four topics.
How did you use that aggregated information and how did that change what you decided to work on going forward?
[00:15:28] Speaker C: After the exercise, we realized and we identified that risks are more on our supplier side, not Mari itself.
And so that helps us to create a plan going forward.
So this year and for coming years, we will be more focusing on our supplier risks.
[00:15:51] Speaker B: And I know the next thing we're going to be working on together. Is supply chain due diligence specifically related to social and human rights from your perspective as a manufacturing organization, what is driving that? Is it regulatory pressure? Is it customer pressure? Why do you feel that that's an important area for Morelli?
[00:16:15] Speaker C: I think we see the two risks there. One is of course regulatory and customer requirement point of view and they are really focusing on a supply supply chain. And the other one is of course, as manufacturing.
In manufacturing businesses, supplier is where we often see certain compliance. Ms. That's the global thing. So for these two reasons, I think we are focusing on more on suppliers.
[00:16:50] Speaker B: And you mentioned to me in one of our conversations that some of your customers, the major automotive companies, are putting more pressure on you as a company, as a Tier 1 supplier, to be able to meet certain social and environmental requirements. Tell us a little bit about that and what you see happening in that space in the auto sector.
[00:17:11] Speaker C: As time passes, their requirements are becoming much more real, much more effect on us. And unless we strictly follow what they're asking us to do, then perhaps we may not be able to any business from them. That's the reality.
[00:17:32] Speaker B: And that, that's really a harsh reality too is is that they're starting now to use social compliance or environmental compliance as a mechanism for weeding out certain suppliers or giving more business to certain suppliers. So I think that's really a transition as we start working together on supply chain due diligence. Are there certain areas that you are most interested in learning about or areas that you're most concerned about right now?
[00:18:06] Speaker C: I think that most area I'm interested in is about human rights protection.
And that too is really detailed about a process of making sure that human rights are protected in the old supply chain.
For us, that part is the most interesting one.
[00:18:31] Speaker B: Okay. And that's what we're going to be working on together. So overall, I think it's been tremendous to be working with you.
I looked again at the improvement process that you've undergone and when we started together, your overall maturity was a 2.6. And the last time that we did an assessment, it was a 4.4.
Really, really significant improvement across the board. And it's just tell us a little bit about internally at Morelli, not only in legal and compliance, but with senior management.
How has that transition or improvement been changing things inside Morelli?
[00:19:14] Speaker C: I think. Let me explain in this way. That tool giving us scores, we started from 2.4, as you mentioned, and then now 4.4. That was very helpful to form our behavior of our team towards the goal.
So here's the things in mar we have paid for performance culture.
So our goals should be made something that can be measured and our human resources doesn't approve any past or fail goal. For example, create a new code of conduct cannot be a goal because that is pass or fail goal. Instead, we need to use certain numbers and we are lucky to have you because you and your tool give us that score every year. So in other words, if the score was X then 50% achievement, if the score was Y 100% achievement and if the score was Z then 150% achievement. That's how it worked. And together with ATIS fair scores plus hotline data coming from our hotline database, these numbers are something we use. Our compliance teams go and that made us possible to achieve that 4.4 because we have to.
I mean it allowed us to be very effective in achieving goals.
[00:20:47] Speaker B: And I think that's why it's been such a good partnership with you because our whole philosophy is measure and improve.
The work we've done with kkr. KKR is not so concerned with where you start. They're concerned as the process that you go through to improve.
With that, we're going to wrap up this episode. Gothisan. It's been great to be able to talk to you about this. I look forward to continuing our work together.
For those in the audience, this is something that we're really engaged with with companies. We've done this kind of work with hundreds of companies.
And if you have any interest in understanding the whole philosophy behind Measure and Improve and how you use maturity assessments to try to drive that improvement, please feel free to get in touch with us. Thank you very much. Gota San, always a pleasure. Bye bye.
[00:21:39] Speaker C: Thank you Craig for having me. Bye.
[00:21:41] Speaker A: To learn how Ethisphere can chart a path to excellence for your organization, please visit ethysere.com solutions for free articles, reports and videos on Compliance Champion programs, supply chain due diligence and other related topics, please visit the Ethisphere resource
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[00:22:42] Speaker C: Sam.
