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Lessons from an Independent Corporate Monitor

It’s not just about “checking the boxes”. Presence of a watchdog can help to change the tone in the organization.

Posted by Dawn Lomer on November 1st, 2011

Let’s hope your company never finds itself requiring the services of an independent corporate monitor. If it does, it means that you, or someone in your organization, has breached your code of ethics and been caught.

But there are worse things than being ordered to engage an independent corporate monitor as part of a settlement agreement with government regulators. Being shut down is one. Continuing to operate without an effective compliance and ethics program is another, as this is bound to land you in hot water again, and this time the government might not be as inclined to defer or avoid prosecution.

“The purpose of a monitorship is to verify an organization’s compliance with the terms of their settlement agreement,” says John Hanson, Executive Director of Artifice Forensic and an independent corporate monitor with 20 years of fraud investigations, forensic accounting, corporate compliance and audit experience. “In verifying their compliance it’s not as simple as checking the box to say yes they did a, b, c and d, but that they did it timely and effectively,” he says, adding that a monitor is not an investigator, but more of an advisor to the company.

Teach a Man to Fish

“As the company is mediating things, they may not know what they’re doing. They may have just picked somebody from HR and said ‘you’re the new compliance officer’ … so we are a resource,” says Hanson. “As a monitor you can’t do it for them, because then you’re in a position where you’re evaluating your own work. But you can give them all the resources they need so that they can do it themselves.”

Some corporate monitors see this as the problem with allowing some companies to self monitor. If they just “check the boxes” to show they are compliant, without learning how to implement a robust compliance and ethics program, the company culture won’t change and they’ll find themselves in crisis again.

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Even with the help of an independent corporate monitor, a company may still struggle to implement an adequate compliance and ethics program, depending on how the settlement is written. Effective settlement agreements need to be comprehensive and hit the areas that are the most relevant to an effective corporate compliance and ethics program, says Hanson.

They also need to provide a long enough time period “to assure that the program’s been not only designed and implemented but that it’s being effective. Some monitors are appointed for only a one-year term. How can any company design and implement a compliance program in one year and say it’s been effective?” he asks.

“If you’re going into a company that already had a decent compliance program, you might be able to get out of there in a year and a half, two years, because you’re just fixing it. If it’s a company that had nothing, they have to build it. It may take them a year to build it. Then it’s going to take them a year to get it implemented. And you need a year to see it work and begin to take hold,” says Hanson.

Changing the Tone

If a company is in a particularly difficult industry or has a history of poor ethics, a monitor can be used to affect the tone of the company. Hanson provides an example of a company operating in the building materials industry, not known for its high ethics, with operations in a part of the country not known for its high ethics that had been assigned a five-year monitorship.

“As the monitor we had an on-site office. We would sit in on executive management meetings. You weren’t the fly on the wall at those meetings, you were the elephant in the room initially,” he says. But as the relationship progressed, it affected the way that they spoke and the way they behaved.

“As time progressed, you shrunk from the elephant down to the fly, but the behavior remained the same,” says Hanson. “The idea is that if you condition them, it perpetuates itself. It begins to take hold, but it takes time to do that.”

Dawn Lomer
Dawn Lomer

Manager of Communications

Dawn Lomer is the Manager of Communications at i-Sight Software and a Certified Fraud Examiner (CFE). She writes about topics related to workplace investigations, ethics and compliance, data security and e-discovery, and hosts i-Sight webinars.

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