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Managing Risk from the Top to Bottom
Arrows designed by André Luiz Gollo from the Noun Project http://thenounproject.com/term/arrows/32495/
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How to Safeguard Against Misconduct From C-Suite Level to Regular Employees – and Using HR as a Gatekeeper
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Presented at American Conference Institute’s 3rd Asia Pacific Summit on Anti-Corruption, Compliance and Risk Management December 03-04, 2014, Hilton Singapore
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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
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Defining Your Legal Universe
Telescope designed by Claudiu Sergiu Danaila from the Noun Project http://thenounproject.com/term/telescope/9777/
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Legal Universe • Local vs Home
Jurisdiction • Collateral Laws and
Related Issues • Territorial vs Personal
Jurisdiction
Judge by Luis Prado from The Noun Project http://thenounproject.com/term/judge/3953/
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Risk Mitigation Actions From the Top
Hierarchy designed by Murali Krishna from the Noun Project http://thenounproject.com/term/hierarchy/31709/
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86% of corporate fraud is known or perpetrated by senor executives
Data: Corporate Executive Board, 2006
86%
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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/
If you wanted to design an incubator for generating misconduct, it would look a lot like the C-Suite
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$75,000
$130,000
$500,000
Employee
Manager
Executive/Owner
Median Loss (USD) to Fraud by Position of Perpetrator
Data: 2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.
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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/
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0.00%
-0.50%
-0.10% -0.20%
-0.40%
-1.20%
-0.60%
Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3 Net Profit Margin
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)
Companies that bribe have poorer net profit margin (net income divided by sales revenue)
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2.70%
5.10%
3.20%
0.90%
2.30%
1.40%
Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3 Sales Growth
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)
Companies that bribe have greater sales growth compared to control firms
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-2.90%
0.50% 1.50% 1.60%
0.30%
-4.60%
-6.80%
Year -3 Year -2 Year -1 Year 0 Year +1 Year +2 Year +3 Cumulative Abnormal Returns
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)
Companies that bribe have poorer cumulative abnormal returns (difference between the sum of the monthly returns for bribing firms versus control firms)
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From the Top • Tone From the Top • Risk Management
Oversight • Establishing Internal
Controls • Guiding Middle
Management
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Risk Mitigation Actions From the Middle
Image:: Group designed by Tonielle Krisansk, public domain http://thenounproject.com/term/group/7771/
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From the Middle • Tone From the Middle • Anticipate and Recognize
Ethical Dilemmas • Communicate Ethical
Values • Report to Top
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Risk Mitigation Actions At the Frontline
Worker designed by Kris Khoury from the Noun Project http://thenounproject.com/term/worker/2156/
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42.0%
26.2%
18.6%
Employee
Manager
Executive/Owner
Occupational Fraud Frequency by Position of Perpetrator
Data: 2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.
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Pressure
Fraud Triangle
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/
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Top Behavioral Red Flags
Data: 2014 Report to the Nations on Occupational Fraud and Abuse. Copyright 2014 by the Association of Certified Fraud Examiners, Inc.
Living Beyond Means
Divorce/ Family Problems
Financial Difficulties
Unusually Close Association with Vendor/Customer
Control Issues, Unwillingness
to Share Duties “Wheeler-Dealer”
Attitude
Control Issues, Unwillingness
to Share Duties
Employee
Executive Manager
“Wheeler-Dealer” Attitude
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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/
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At the Frontline • Implement Tone From
the Top and Middle • Anticipate and Recognize
Ethical Dilemmas • Internalize Ethical Values • Whistleblower Hotlines
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Gatekeeper: Human Resources
Office designed by Luis Prado from the Noun Project http://thenounproject.com/term/office/26565/
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Human Resources • New Hires • Align Performance and
Compensation • Structural Alignment • HR Policies • Training • Communication
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Case Study JP Morgan
Friend designed by Megan Sheehan from the Noun Project http://thenounproject.com/term/friend/6808/
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Case Study: GlaxoSmithKline
Pill designed by Diego Naive from the Noun Project http://thenounproject.com/term/pill/16599/
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Key Areas of Focus for Compliance
Zoom-In designed by Garrett Knoll from the Noun Project http://thenounproject.com/term/zoom-in/28614/
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Focus for Compliance • Policies • Education • Enforcement • Remediation
Diversity designed by Luis Prado from the Noun Project http://thenounproject.com/term/diversity/52927
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1. Mandate and Commitment
4. C
omm
unic
ate
and
Cons
ult Risk Identification
Risk Analysis Risk Evaluation
2. Risk Assessment
6. Tools and Resources
5. M
onito
r an
d Re
view
3. Risk Treatment
Risk Management Model (ISO 31000, modified)
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Issues and Control Points
Hand designed by Luis Prado from the Noun Project http://thenounproject.com/term/hand/30823/
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Issues and Control Points • Using Third Parties • Expense Reimbursement • Events and Hospitality • Other Key Areas
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Questions?
Hand designed by Luis Prado from the Noun Project http://thenounproject.com/term/hand/30823/
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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/
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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