maximum impact: high-yield investments in e&c program effectiveness

©2014 LRN Corporation. All Rights Reserved

Maximum Impact: High-Yield Investments in E&C Program Effectiveness


Among Regulated Industries, Program Effectiveness Varies

• Aerospace & Defense 0.70• Healthcare 0.63• Insurance 0.62• Life Sciences 0.59• Oil & Gas 0.59• Financial Services 0.56

All-Industry Mean 0.60

©2014 LRN Corporation. All Rights Reserved3

Compliance-Related Outcomes Are Up Compared to Three Years Ago

Overall compliance

Compliance with the company Code of Conduct

Levels of speaking out/speaking up

Dialog on ethical dilemmas

Levels of retaliation

Litigation costs

Employee engagement

Middle management support and participation as ethical envoys

Emphasis on the company’s values as a framework for making decisions

Pharmaceuticals, Medical Devices & BiotechnologyAll IndustriesAerospace & Defense


But More So for Some Than Others


Corporate Priorities Differ

Cash M

anage

ment

Cost Reducti

on

Coustmer S

ervice

Culture an

d business

values

Emergi

ng mark

ets exp

ansio

n

Employe

e engagement

Growth

Innovation

Leadersh

ip development

Mergers

and ac

quisitions

Risk m

itigation

Susta

inabilit

y0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Aerospace & Defense All IndustriesPharmaceuticals, Medical Devices & Biotechnology

*

*Survey data collected during US government sequestration program


And, For Better or Worse, Priorities Matter


Risk Profiles Differ

Antitrust

Bribery

and Corru

ption

Conflicts o

f Interest

Data Priv

acy

Envir

onment, Healt

h, and Sa

fety

Gifts and En

tertainment

Government C

ontracti

ng

Intellectu

al Property

Insider T

rading

Labor a

nd Employm

ent

Money Lau

ndering

Political

Donations

Data In

tegrity

Records Man

agement

Retaliati

on

Socia

l Media

Socie

ty, Community

, and Gove

rnment

Supply C

hain

Trade Contro

ls0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Aerospace & Defense All Industries Pharmaceuticals, Medical Devices & Biotechnology


As Do E&C Program Priorities . . .

0%10%20%30%40%50%60%70%80%90%

100%Aerospace & Defense All Industries Pharmaceuticals, Medical Devices & Biotechnology


Progress on the “Hallmarks” Identified by US Regulators Is Also Uneven

Commitment from senior management along with a clear anti-corruption policy

Code of Conduct with associated policies and procedures

Appropriate oversight, autonomy, and resources

Risk assessment-driven program

Ongoing training and advice

Incentives for self-policing, reporting of potential violations, and contributing to a culture of compliance, as well as appropriate and effective sanctions for compliance violations and lapses

Due diligence of third-parties including monitoring of third-party payments

Confidential reporting and internal investigations

Continuous improvement along with periodic testing and review

Pre-M&A due diligence of an ethics and compliance program with associated post-M&A integration

A secure and anonymous channel for reporting concerns

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%

Pharmaceuticals, Medical Devices & Biotechnology All IndustriesAerospace & Defense


Perceived Benefits of an Ethical Culture

0%10%20%30%40%50%60%70%80%

Aerospace & Defense All IndustriesPharmaceuticals, Medical Devices & Biotechnology


Celebration Makes a Huge Difference


And is a Significant Differentiator

Awards Job promotions Recognition in company communications vehicles

Recognition in team meetings0%

5%

10%

15%

20%

25%

30%

Aerospace & Defense All Industries

Pharmaceuticals, Medical Devices & Biotechnology


Above and Beyond: Context Matters


The Impact of the Tone at the Top is Reflected in Many Ways


0%10%20%30%40%50%60%70%80%90%

100%Aerospace & Defense All Industries Pharmaceuticals, Medical Devices & Biotechnology


The PEI Impact of Tone at the Middle and Tone at the Top


There Are Economies of Scale, But Neither Size nor Spend Matters in Terms of Impact

Total Annual E&C Budget Per Capita:


Program Goals: Everybody Wants to Build an Ethical Culture, Not as Many Know How

Strengthen the ethical culture

Increase employee comfort with speaking up

Adapt E&C program to changing business needs

Build E&C into performance reviews and comp

Improve E&C program metrics

Strengthen ethical leadership

Innovate design and delivery of E&C education

Meet regulators' definition of ''effective'' E&C programs

Promote company values as decision-making framework

Improve 3rd-party oversight and management

Deepen skills of the E&C staff

Promote alignment of core values and operations

Improve risk management capabilities

0% 20% 40% 60% 80% 100% 120%Bottom Quintile

Top Quintile


Program Goals Focused on “Embedding”

Ranked by PEI


Why: Context Matters


When the Business “Does Compliance”

Corporate Priorities


Challenges in Education

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Aerospace & Defense All Industries Pharmaceuticals, Medical Devices & Biotechnology


Many Aspects to Impact:Differences Between Programs with High-Impact and Programs with Low-Impact Education

Get middle managers to address E&C issues

Integrate values as tool for employee decision-making

Influence employee behavior and ethical climate

Demonstrates ethical leadership

Refers to company values as decision-making framework

E&C Program

CEO

Print materials (posters, brochures, etc.)

Intranet

Education completion rates and certification

Code of Conduct violations

Employee feedback

0% 20% 40% 60% 80% 100% 120%

Low High

Metric for Effectiveness

Reported Metrics

Awareness Methods

Drivers of Culture

CEO Behaviors

Education Goals

Company Focus


Many Levers Are Within Reach

Frequently and publicly celebrate ethical leadership

Implement theme-based ed/com campaigns quarterly

We do not roll out theme-based ed/com campaigns

Conduct annual E&C program assessment

Measure ed/com effectiveness on corporate outcomes

Measure ed/com effectiveness on behavioral outcomes

Have made substantial progress on continuous improvement

0% 10% 20% 30% 40% 50% 60% 70% 80%

Bottom QuintileAllTop Quintile

maximum impact: high-yield investments in e&c program effectiveness

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