Managing Risk from the Top to Bottom: How to Safeguard Against Misconduct from C-Suite Level to Regular Employees – and Using HR as a Gatekeeper. Presented at American Conference Institute’s 3rd Asia Pacific Summit on Anti-Corruption, Compliance and Risk Management December 3, 2014, at the Hilton Singapore

1. Managing Risk from the Top to Bottom
Arrows designed by André Luiz Gollo from the Noun Project
http://thenounproject.com/term/arrows/32495/

2. How to Safeguard Against
Misconduct
From C-Suite Level to Regular
Employees – and Using HR as a
Gatekeeper

3. Presented at American Conference Institute’s
3rd Asia Pacific Summit on Anti-Corruption,
Compliance and Risk
Management
December 03-04, 2014, Hilton Singapore

4. Eric Pesik
Associate General Counsel and Compliance Officer
Seagate Technology International
Bradley Klein
Partner
Skadden, Arps, Slate, Meagher & Flom
Thiru Sethuraman
Director, Ethics and Compliance
Cummins Distribution Business

5. Defining Your Legal Universe
Telescope designed by Claudiu Sergiu Danaila from the Noun Project
http://thenounproject.com/term/telescope/9777/

6. Legal Universe
• Local vs Home
Jurisdiction
• Collateral Laws and
Related Issues
• Territorial vs Personal
Jurisdiction
Judge by Luis http://thenoun Pprraodjeoc ftr.coomm T/theer mN/ojuudng Per/o3j9ec5t3 /

7. Risk Mitigation Actions From the Top
Hierarchy designed by Murali Krishna from the Noun Project
http://thenounproject.com/term/hierarchy/31709/

8. 86% of corporate fraud is
known or perpetrated by senor
executives
Data: Corporate Executive Board, 2006
86%

9. If you wanted to design an
incubator for generating
misconduct, it would look a lot like
the C-Suite
Quote: RAND Symposium
Culture, Compliance and the C-Suite
Image:: Team designed by Wilson Joseph from the Noun Project
http://thenounproject.com/term/team/35432/

10. Median Loss (USD) to Fraud
by Position of Perpetrator
$130,000
$75,000
$500,000
Executive/Owner
Manager
Employee
Data: 2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.

11. CEOs are prone to viewing
the company’s success as indistinguishable
from their
own.
Quote: Scott Killingswroth, Partner Bryan Cave LLP
“C” is for Crucible
Superhero designed by Juan Pablo Bravo from the Noun Project
http://thenounproject.com/term/superhero/23556/

12. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
0.00%
-0.50%
-0.10%
-0.20%
-0.40%
-1.20%
-0.60%
Net Profit Margin
Companies that bribe have poorer net profit
margin (net income divided by sales revenue)
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris,
How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

13. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
2.70%
5.10%
3.20%
0.90%
2.30%
1.40%
Sales Growth
Companies that bribe have greater sales growth
compared to control firms
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris,
How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

14. Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3
-2.90%
0.50%
1.50% 1.60%
0.30%
-4.60%
-6.80%
Cumulative Abnormal Returns
Companies that bribe have poorer cumulative
abnormal returns (difference between the sum of the
monthly returns for bribing firms versus control firms)
Data: Cheung, Stephen Yan-Leung, Rau, Raghavendra and Stouraitis, Aris,
How Much do Firms Pay as Bribes and What Benefits do They Get? Evidence from Corruption Cases Worldwide (March 30, 2012)

15. From the Top
• Tone From the Top
• Risk Management
Oversight
• Establishing Internal
Controls
• Guiding Middle
Management

16. Risk Mitigation Actions From the Middle
Image:: Group designed by Tonielle Krisansk, public domain
http://thenounproject.com/term/group/7771/

17. From the Middle
• Tone From the Middle
• Anticipate and Recognize
Ethical Dilemmas
• Communicate Ethical
Values
• Report to Top

18. Risk Mitigation Actions At the Frontline
Worker designed by Kris Khoury from the Noun Project
http://thenounproject.com/term/worker/2156/

19. Occupational Fraud Frequency
by Position of Perpetrator
42.0%
18.6%
26.2%
Executive/Owner
Manager
Employee
Data: 2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.

20. Fraud Triangle
Pressure
Donald R. Cressey, Other People's Money (Montclair: Patterson Smith, 1973)
Image:: Deep-Web Designed by Matt Brooks, Public Domain, http://thenounproject.com/term/deep-web/62765/

21. Top Behavioral Red Flags
Divorce/
Family Problems
“Wheeler-Dealer”
Attitude
Living
Beyond
Means
Financial
Difficulties
Control Issues,
Unwillingness
to Share Duties
Unusually Close
Association with
Vendor/Customer
Employee
“Wheeler-Dealer”
Attitude
Control Issues,
Unwillingness
to Share Duties
Executive Manager
Data: 2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.

22. When the big people
get in trouble, the little people
get ethics training.
Quote: RAND Symposium
Culture, Compliance and the C-Suite
Image:: Education designed by Chris Matthews
http://thenounproject.com/term/education/3012/

23. At the Frontline
• Implement Tone From
the Top and Middle
• Anticipate and Recognize
Ethical Dilemmas
• Internalize Ethical Values
• Whistleblower Hotlines

24. Gatekeeper: Human Resources
Office designed by Luis Prado from the Noun Project
http://thenounproject.com/term/office/26565/

25. Human Resources
• New Hires
• Align Performance and
Compensation
• Structural Alignment
• HR Policies
• Training
• Communication

26. Case Study JP Morgan
Friend designed by Megan Sheehan from the Noun Project
http://thenounproject.com/term/friend/6808/

27. Case Study: GlaxoSmithKline
Pill designed by Diego Naive from the Noun Project
http://thenounproject.com/term/pill/16599/

28. Key Areas of Focus for
Compliance
Zoom-In designed by Garrett Knoll from the Noun Project
http://thenounproject.com/term/zoom-in/28614/

29. Focus for
Compliance
• Policies
• Education
• Enforcement
• Remediation
Diversity designed by Luis Prado from the Noun Project
http://thenounproject.com/term/diversity/52927

30. Risk Management Model (ISO 31000, modified)
1. Mandate and
Commitment
4. Communicate and
Consult
2. Risk Assessment
Risk Identification
Risk Analysis
Risk Evaluation
6. Tools and
Resources
5. Monitor
and Review
3. Risk Treatment

31. Issues and Control Points
Hand designed by Luis Prado from the Noun Project
http://thenounproject.com/term/hand/30823/

32. Issues and
Control Points
• Using Third Parties
• Expense Reimbursement
• Events and Hospitality
• Other Key Areas

33. Questions?
Hand designed by Luis Prado from the Noun Project
http://thenounproject.com/term/hand/30823/

34. Please like and
share!
View other presentations:
http://www.slideshare.net/ericpesik/presentations
Like designed by Marwa Boukarim from the Noun Project
http://thenounproject.com/term/like/1297/

35. Additional Resources
• Ethics Resource Center
www.ethics.org
• International Business Ethics Institute
www.business-ethics.org
• Ethics Web Resources
http://www.ethicsweb.ca/esources/index.html
• ISO 31000 standard
http://www.iso.org/iso/home/standards/iso31000.htm
• Association of Certified Fraud Examiners
http://www.acfe.com/
• RAND Corporation: Culture, Compliance, and the C-Suite
http://www.rand.org/pubs/conf_proceedings/CF316.html
• How Much do Firms Pay as Bribes and What Benefits do They
Get? Evidence from Corruption Cases Worldwide
http://ssrn.com/abstract=1772246
• Bribes and Firm Value - Evidence from Anti-Bribery Regulation
http://ssrn.com/abstract=2179437