10/6/2011
Keeping Your Code Current (and Other Practical Considerations) Society of Corporate Compliance & Ethics Southeast Regional Compliance Conference October 14, 2011 Jill U. Edmondson, JD, CCEP The Home Depot Manager, Corporate Compliance & Ethics
[email protected]
Questions to be answered today
Why is this important? What is a Code Of Conduct (“Code”)? Is a Company legally required to have a Code? What should be considered when updating a Code? Who should be involved in the Code update process?
What are some practical considerations for updating your Code? 2
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Why it’s Important… June 13, 2007
Wellpoint fires highly regarded CFO over “non-criminal” Code of Conduct violation
CEO states “Code of Conduct applies to everyone.”
Wellpoint insisted that its CFO, David Colby, step down due to an unspecified violation of the Wellpoint Code of Conduct. According to the company, concerns raised in “recent days” prompted Wellpoint to act swiftly by commissioning an outside legal firm to investigate. The firm then confirmed that violations had occurred. Wellpoint stated that the violation did not involve illegal conduct and was “in no way related to the business of Wellpoint.” When the CEO of the company was asked on an analyst call whether the company had considered giving Colby a second chance, he responded, “We don’t have double standards in the company. We have one Code of Conduct that applies to everyone.”
BLOOMBERG August 7, 2010
HP's Mark Hurd Resigns After Sexual-Harassment Probe
The former CEO ran afoul of the Company’s standards of conduct
Hewlett-Packard Co.’s Mark Hurd resigned as Chief Executive Officer after an investigation found he had a personal relationship with a contractor who received numerous inappropriate payments from the company. While the company found that Hurd did not violate sexual harassment policies, he did run afoul of its standards of conduct. According to HP’s General Counsel, Michael Holston, Hurd “demonstrated a profound lack of judgment that seriously undermined his credibility and damaged his effectiveness in leading HP.” Hewlett-Packard shares plunged 9.3 percent in late trading after the announcement.
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What is a Code of Conduct? Embodiment of an organization’s values and ethics
“The Home Depot has a strong commitment to ethics and integrity, and our core values define the means by which we do business.” ~Frank Blake,
Primary if not sole compliance policy for most organizations
The Home Depot Chairman and CEO
A guideline meant to detect and prevent criminal conduct within the organization while directing desired behaviors
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Regulatory Guidance Federal Sentencing Guidelines Chapter 8 Require development and distribution of a written standard of conduct The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures NASDAQ Listing Standards (Rule 5610) Require adoption of a Code of Conduct (“COC”) for all employees (directors, officers and associates) COC must address topics outlined in the Sarbanes-Oxley Act of 2002 (“SOX”) §406 Must be made publically available Any waivers for directors or executive officers must be BOD approved and disclosed via Form 8-K w/n 4 business days Guidance varies – one size does not fit all 5
Regulatory Guidance cont’d. SOX §406 Defines a “code of ethics” (“COE”) as written standards that are reasonably designed to deter wrongdoing and to promote: (1) Honest and ethical conduct; (2) Full, fair, accurate, timely, and understandable disclosure in SEC filings and other public communications; (3) Compliance with applicable governmental laws, rules and regulations; (4) Prompt internal reporting of COE violations to an appropriate person(s) as identified in the COE; and (5) Accountability for adherence to the COE Guidance varies – one size does not fit all 6
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Regulatory Guidance cont’d. SOX §406 cont’d. COE not required, however, must disclose why COE doesn’t exist Specifically refers to COE that applies to certain employees: principal financial officer, comptroller or principal accounting officer, or persons performing similar functions Requires prompt disclosure of COE amendments or waivers for these employees on Form 8-K or company’s website 8-K requires disclosure within 5 business days after COE amended or waiver granted Can opt to disclose on company’s website within 4-5 business days of occurrence Must disclose this preference in its most recently filed annual report Must remain on website for at least 12 months
Guidance varies – one size does not fit all 7
Regulatory Guidance cont’d. Sarbanes Oxley §406 cont’d. Waiver - a company’s approval of a material departure from a provision of the COE or failure to take action within a reasonable time period regarding a material departure from the COE that has been made known to an executive officer Executive Officer - president, any vice president in charge of a principal business unit, division or function), any other officer who performs a policy making function or any other person who performs similar policy making functions for the registrant. Executive officers of subsidiaries may also be deemed executive officers (See SEC Rule 3b-7)
Guidance varies – one size does not fit all 8
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Regulatory Guidance cont’d. NYSE Listing Standards (Rule 303A) Requires adoption and disclosure of a Code of Conduct & Ethics (“COCE”) for all employees Must address following topics: Conflicts of interest Corporate opportunities Confidentiality Fair dealing Protection and proper use of company assets Compliance with laws, rules and regulations Encourage reporting of any illegal/unethical behavior Requires prompt disclosure of any waivers for directors or executive officers Guidance varies – one size does not fit all 9
Frequency of Code Updates Respond to new laws or emerging risk issues After Code waivers are granted Pursuant to listing requirements or other SRO rules Post policy training and trending After technical, administrative or non-substantive changes (don’t necessarily have to be disclosed per SEC Rule 5.05)
In connection with peer benchmarking Respond to corporate compliance or hotline inquiries Enhance employee engagement (user friendly, visual enhancement, interactivity) 10
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Who Should Drive Code Updates? Cross Functional Team Corporate Compliance Legal HR Operations Other Involvement Key Stakeholders Board of Directors Audit/Corporate Governance/Compliance Committee Compliance/Risk Council Employees Customers Vendors/Suppliers Third party Contractors Shareholders Corporate Compliance should take the lead 11
Practical Code Considerations Formatting & Standardization Ensures consistency among versions Keep margins broad to allow adequate white space Avoid legalese (think am I smarter than a 5th grader)
Translation/Localization Foreign laws vary (e.g. Canada varies by province) Involve internal personnel for localization. Don’t simply rely on external translation service. Can be costly and time consuming Makes good business sense
Make Publically Available? NASDAQ SOX §406 NYSE guidelines requires posting to public website Makes good business sense
The devil is in the details! 12
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How to reach me
Jill U. Edmondson, JD, CCEP Manager, Corporate Compliance & Ethics The Home Depot E-mail:
[email protected]
Telephone: (770) 433-8211, ext. 84499 13
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