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Tone at the TopThe critical and misunderstoodtrickle down anti-corruptioncontrolBy Peter Dent, Partner, Deloitte LLP and Gina Campbell, Partner,Deloitte LLP

The authors would like to express their appreciation toTracy Sangster, Senior Manager, Deloitte LLP and HeidiBereta, Senior Manager, Deloitte LLP for their hard workand involvement in the development of this chapter, andto all those who read, offered comments, and assisted inthe editing, proofreading and design. Without their hardwork, this chapter would not have been possible.

Table of Contents

1. Introduction .......................................................................................... 3

2. Accountabilities and behaviours – Setting the tone at the top................ 7

2.1. The board.....................................................................................................8

2.2. CEO............................................................................................................11

2.3. Chief Compliance Officer (“CCO”)..............................................................13

2.4. Mood in the Middle ...................................................................................15

2.5. Buzz at the Bottom ....................................................................................16

3. Ways that a company can establish and reinforce tone at the top....... 17

4. Summary............................................................................................. 20

Private & Confidential | Draft 3

1. Introduction

George Orwell’s Animal Farm,an allegory for RussianTotalitarianism, is an example ofhow organizational culture canbe negatively impacted by thosein positions of leadership. InOrwell’s Animal Farm theseventh “commandment,” whichthe pigs, with control, modifyfrom “All animals are equal” to

“All Animals AreEqual / But Some AreMore Equal ThanOthers”

is an important concept toconsider when establishing andevaluating the tone at the topfor anti-corruption, fraud andethics in general1. “Tone at thetop is best described as theconsistency among statements,assertions and explanations ofthe management and itsactions.”2 In other words, settingan inconsistent tone wherethose in senior positions are“more equal” than those theysupervise is detrimental to anethical culture. Ethics cannot besituational and must be bothconsistently applied and broadlyuniform.

1 Corruption is one of the three categories of occupational frauds according to the Association of Certified Fraud Examiners.Due to this categorization as a type of fraud there are instances where only fraud is referred to within the narrative howeverthe concepts discussed still apply to the matter of corruption within the context of tone at the top and compliance programs.2 Determinants and Consequences of “Tone at the Top”; Staicu, Anca Monica, Ralcuca Iulia Tatomir, Aurora Costina Linca;International Journal of Advances in Management and Economics; Vol.2 Mar. – April 2013; page 76.3 Auditing Anti-bribery and Anti-corruption Programs – June 2014: The Institute of Internal Auditors.

Establishing a strong and ethicaltone at the top is the backbonein creating, maintaining, andreinforcing a strong complianceprogram including internalcontrols, communications,training and monitoring. It is thefoundation on which the cultureof an enterprise is built. “Thetone at the top is the ethicalenvironment fostered byorganizational leadership andthe single most important factorin determining the organization’sresistance to bribery andcorruption.” 3 The concept oftone at the top is not easilytangible and, therefore,implementing actions andexpected behaviours in ameaningful way and objectivelyassessing their success issomething with which manycompanies struggle. Failure toprevent or detect issues is oftennot because the programs orcontrols themselves are lackingbut because rules are ignored.This is a failure of culture wheresenior leaders are not setting astrong or consistent “tone at thetop” about acceptable andunacceptable behaviours, justlike Orwell’s pigs in AnimalFarm.


Rarely do companies ormanagement realize or admitthat they have a poor tone atthe top prior to large scale fraud.The Treadway Commission’sreport in October 1987 stated,“The tone set by topmanagement – the corporateenvironment or culture withinwhich financial reporting occurs– is the most important factorcontributing to the integrity ofthe financial reporting process.Notwithstanding an impressiveset of written rules andprocedures, if the tone set bymanagement is lax, fraudulentfinancial reporting is more likelyto occur.”4 The infrastructure toprevent financial crime may besound, but its effectiveness stilldepends on execution, onindividuals doing the right thingat the right time – culture iswhat enables and drives thoseappropriate behaviours. Thiswas emphasized in TheSarbanes-Oxley Act of 2002,after a series of major corporateaccounting scandals occurred; itprioritized tone at the top as animportant element in theprevention and detection offraud, corruption and otherunethical financial practices

A robust compliance program isdesigned to be effective atmitigating the three elements ofthe fraud triangle – opportunity,pressure and rationalization –factors which together can leadto an individual engaging in

4 Committee of Sponsoring Organizations of the Treadway Commission (COSO); Report of the National Commission onFraudulent Financial Reporting; October 1987.

fraudulent or corrupt behaviour.However, programs and controlswill have minimal, if any, effecton the ability to defeat therationalization that accompaniesperpetrators of fraud orcorruption without a strong toneat the top to bolster one’s owninternal restraint.

The fraud triangle consists ofthree elements that are generallypresent when fraud occurs


Many boards miss the lesson onecan take from Orwell’s pigs. Asmentioned above, Animal Farm’sseventh commandment speaksto the integral role thatconsistency plays in eithercreating or destroying an ethicalculture. Environments whereeveryone is equally accountablereinforce the expectation ofethical behaviour, but wheresome are treated “more equal”ethical foundations areundermined. Differentialtreatment in the face of similarinappropriate behaviour createsconditions ripe forrationalization. Without theability to rationalize theirbehaviour ethical people remainethical as the vast majority of usare wired to avoid conditions ofcognitive dissonance. In otherwords, perpetrators of fraud orcorruption need to be able tojustify their dishonest actions sothey reduce negative feelings fordoing something they know isagainst the rules. It is commonto hear such rationalizations as;“I wasn’t doing anything thatothers weren’t doing,”, “I wasdoing it to benefit thecompany”, “There was nothingin it for me”, “No one got hurt,”or “I was just getting my share.”All of these are variations of atheme exhibited during some ofthe largest white-collar fraudand corruption cases such asEnron.

5 Report to the Nations on Occupational Fraud and Abuse – 2014 Global Fraud Study – ACFE; page 39.6 Report to the Nations on Occupational Fraud and Abuse – 2012 Global Fraud Study – ACFE; page 38.7 United States District Court for the District of Columbia, Case: 1-08-cv-02167; U.S. Securities and Exchange Commission v.Siemens Aktiengesellschaft; Complaint; December 12, 2008.

As mentioned earlier, companiesor management often do notrealize or admit that they have apoor tone at the top5 prior to alarge scale fraud being identifiedand this can lead to negativeconsequences for the companywhen attempting to resolve suchmatters. According to the 2014Report to the Nations the fourthlargest contributing factor tofrauds was poor tone at the topand in the 2012 Report to theNations, was the primary factorin 18% of cases cited for thosefrauds that resulted in a loss of$1 million or more6. The SECnoted in the Siemens ForeignCorrupt Practices Act (“FCPA”)case that the misconduct andthose involved “reveals acorporate culture that had longbeen at odds with the FCPA”and a corporate culture in which“bribery was tolerated and evenrewarded at the highest levels”7 .This is just one example of acorruption case which led topenalties because of a failure intone at the top. Similarly, theKellogg Brown & Root LLC(“KBR”) plea agreement, the USDepartment of Justice (“DOJ”)noted that “tolerance of theoffense by substantial authoritypersonnel was pervasivethroughout the organization” aspart of the culpability score fordetermining the applicable fine


range8. Both Siemens and KBRare two of the largest penaltiesenforced under the FCPA todate.

However, purposeful attentionto establishing and reinforcing astrong tone at the top canpotentially lead to morefavourable results for thecompany if faced with dealingwith such matters as acorruption investigation. In therecent case of PetroTiger, whilethree former officers ofPetroTiger pled guilty to violatingthe FCPA, the DOJ declined toprosecute PetroTiger itself. Oneof the reasons, as put forward byTimothy Treanor, partner atSidley Austin LLP and leadoutside counsel for PetroTiger,“The board was very aggressivein demanding disclosures and intrying to institute reforms to putin place a code of conduct …we were able to establish astruggle that showed that theboard members were notturning a blind eye tomisconduct. They were notinterested in profiting fromcorruption. They, in fact, werevery aggressively trying toestablish an environment ofintegrity"9. While the strongactions undertaken by thePetroTiger board to establish thetone at the top did not preventthe wrong doing fromhappening by the former

8 United States District Court – Southern District of Texas – Houston Division, Criminal No. H-09-071; United States of Americav. Kellogg Brown & Root LLC; Plea Agreement; Received February 11, 2009.9 The Overlooked Lessons of PetroTiger Trial; Tom Fox; Compliance Week; July 14, 2015.10 10 Ways to Measure The Tone At The Top; Corporate Compliance Insights; June 4, 2012

officers, these actions allowedthe company to effectively dealwith the situation and obtain amore favourable result.

Tone at the top can drive value –not just positively but alsonegatively10. In a negative sense,a company may take a laissezfaire approach or set a negativetone at the top, whetherpurposeful or not. An examplebeing where so long as theorganization is making profits,management turns a blind eye tothe actions of their employees.This mentality can promotenegative value in the eyes ofstakeholders or lead to otherconsequences such as penaltiesshould such discretions beuncovered, both of which canharm a company’s reputationand market value. Profits canhide an enormous number ofsins so it is just as important tounderstand the underlyingreasons for profits as it is forlosses.

In order to set the tone at thetop Orwell’s pigs maintainedcontrol by creating andpreserving their roles on thefarm. Each pig had a veryimportant role to play in order tokeep up the “culture” that theywere trying to cultivate.Accountabilities and behavioursare also important for setting anethical tone at the top in anyorganization. In addition, the


individuals assigned theseresponsibilities need to be giventhe appropriate tools, and beheld accountable.

2. Accountabilities andbehaviours – Settingthe tone at the top

“Culture eats strategyfor breakfast”

– Peter DruckerAll individuals in an organizationand those charged withgovernance must be setting anethical tone that matches theculture envisioned or thecorporate strategies will beundermined. Tangible steps tocreate an ethical culture must beconsidered when developing thefoundation of the company’sstrategy. By aligning candembedding the ethical culturewith corporate strategies, ethicalbehaviours will have an easiertime enduring in setting theorganizational culture.Otherwise, regardless of acompany’s strategy, culture willdictate the direction of thecompany if they are notcohesively joined.

The DOJ utilizes the UnitedStates Sentencing Guidelines toassess and calculate anypenalties for those companiesthat have been found to violatethe FCPA. Companies that showthey exhibited some or all of theidentified elements of an

11 United States Sentencing Commission Guidelines Manual; November 1, 2014; page 511; Section 8B2.1.

effective compliance and ethicsprogram as outlined in theguidelines may receive lowerpenalties or the opportunity for adeferred or non-prosecutionagreement. We therefore oftenutilize the sentencing guidelinesas a way of measuring acompany’s compliance andethics programs by ensuring theyhave incorporated elements thatthe DOJ views as part of aneffective compliance and ethicsprogram. The 2004 amendmentsto the United States SentencingGuidelines provide someguidance into the roles andresponsibilities that eachindividual in the organization hasfor setting the tone. It states that“an organization shall promotean organizational culture thatencourages ethical conduct anda commitment to compliancewith the law.”11 Section 8B2.1 ofthe guidelines provides furtherguidance on promoting a culturethat encourages ethical conductat all levels of the organizationincluding the following:

• The governing authorityshould exercise reasonableoversight over theimplementation andeffectiveness of thecompliance and ethicsprogram.

• High-level personnel shallensure that the organizationhas an effective complianceand ethics program and atleast one individual will be


assigned overallresponsibility.

• Day-to-day responsibility forthe program will be assignedto specific individuals who willreport to the high-levelpersonnel and the governingauthority.

• The program will bepromoted and enforcedthrough appropriateincentives and disciplinarymeasures.

In addition the UK Bribery Act’sSix Principles of AdequateProcedures states “The top-levelmanagement of a commercialorganization (be it a board ofdirectors, the owners or anyother equivalent body or person)are committed to preventingbribery by persons associatedwith it. They foster a culturewithin the organization in whichbribery is never acceptable.”12

The board, CEO, and CCO playcritical roles in establishing thetone at the top. The process ofestablishing the tone at the topentails addressing such questionsas “What role should the boardplay? What actions should CEOstake to establish the tone at thetop? What role can the CCO playin helping cascade the tone atthe top to the middle andbeyond?” Leslie R. Caldwell,assistant attorney general for the

12 The Bribery Act 2010 – Guidance; Ministry of Justice; page 23.13 “Didn’t comply? Then fully cooperate”; Fraud Magazine; Carozza, Dick; May/June 2015.14 Risk and Compliance Journal – Deloitte risk and Compliance – Wall Street Journal – How Boards Can Raise the Bar on Ethicsand Compliance; October 23, 2014.15 Ibid.

DOJ’s Criminal Division stated inan interview “Managementshould make sure that everyoneunderstands that the company isserious about compliance. Andit’s very important to putresources into the complianceprogram and to empower itwithin the company. Those twothings often are not givenenough priority.”13 Having aboard which focuses efforts oncompliance and giving the CEOand CCO the mandate andresources to focus oncompliance will giveorganizations a boost inestablishing a strong tone at thetop.

2.1. The board

“If companies aren’tmanaging culture,culture is managingthem”14

Increasingly boards arerecognizing culture as aneffective framework to allowthem to address compliance,ethics and integrity risks15. Nosingle decision drives tone at thetop more than the selection ofthe CEO. That process mustnecessarily focus oncompetence, character, andchemistry and raises questionssuch as the following:


• Does the prospective CEOhave the requisite skills andexperience to move theorganization forward?

• Does this person possess thecharacter and moral fiber tomodel and contribute to thedevelopment of a values-centered enterprise andstrategy?

• Does the CEO have thechemistry and communicationskills necessary to rally othersto successfully andconsistently deliver on theorganization’s valueproposition to all stakeholders

The governing authority mustensure that ethical objectives arebuilt into the actions andstrategy of the organization, andthat they are not merely astatement of good intentions.All personnel in the organizationare treated equally.

There are various methods anorganization can employ tounderstand whether the “moodin the middle” and the “buzz atthe bottom” are consistent withthe “tone at the top”. Thefollowing are examples of waysin which the board can gain anunderstanding:


a. Board questionsThe role of the board isimperative in influencing theculture and tone of theorganization. According to theDeloitte 2014Reputation@Risk survey, aglobal risk survey of more than300 business executives, 87%of executives rated reputationrisk as more important thanother strategic risks, withethics/integrity (fraud, bribery,corruption) identified as one ofthe top three reputation riskdrivers of concern (55%).

Therefore it is important thatboard members not only havea process for oversight ofcorruption risks but alsobecome involved in obtaininga periodic view into theorganizations culture throughhands-on observations andworking with management.Valuable insights can begarnered by the boardthrough simple inquiry,including the followingquestions that boards maywant to ask:

Does the organizationsupport the ethical cultureand anti-corruptioncompliance programthrough training andcommunication whichincludes allowingemployees to raise ethicsand corruption complianceissues without fear ofretaliation?

What is the process forassessing ethics andcorruption compliancerisks within theorganization? Have theyupdated their policies,procedures and internalcontrols to addressemerging risks (i.e., cyberrisk, anti-corruption)?

Does the current ethicsand anti-corruptioncompliance program coverthe organization’s globaloperations, includingmanagement, employees,shareholders, customers,subcontractors, businesspartners and vendors?

Does the organizationhave an ethics andcompliance officer?

Does a reporting andmonitoring process keepthe board of directorsinformed of key ethics andcorruption complianceissues, as well as theactions taken to addressthem? Are ethics andcorruption complianceissues a regular item onthe board agenda?


b. Employee exit interviews

An often overlooked but usefulavenue to understand if thereare any tone at the topchallenges is through employeeexit interviews. In some cases,ethical concerns may be thecatalyst behind an employees’decision to leave the companyand while not all departingemployees may be vocal withtheir concerns, with specificallytailored questions, you may havethe opportunity to understand iforganizational culture or specificunethical acts were acontributing factor.

c. Open lines ofcommunication

The board should have openlines of communication withboth top and middlemanagement. While a companycannot control the actions ofevery employee, reinforcing aculture of ethics and integritywill go a long way in influencingemployee actions that will beseen in a positive light. Due tosocial media it is important thatcommunications and actionsmatch as information regardinginappropriate actions will travel

quickly through the masses,whether that be employees orthe general public. If the pigs inAnimal Farm had open lines ofcommunication, they most likelywould have been wise to thediscontent among the otheranimals. This concept centers onconcern by those governing withthe impact of culture onbehaviour, and the principles oftone at the top enduring. Iffollowed by Orwell’s pigs, thenperhaps so too would theidealistic 7 original tenets ofanimalism prevailed.

d. Site visits

Site visits can give the boardinsight into what is happening inthe “office”. They will have ahands on experience of theorganizational culture and heardirectly from lower levelemployees how programs can beimproved.

2.2. CEO

The Organisation for EconomicCo-operation and Development(OECD), of which Canada is asignatory, stated in its GoodPractice Guidance thatcompanies should have:


“Strong, explicit andvisible support andcommitment fromsenior management tothe company’s internalcontrols, ethics andcompliance programs ormeasures for preventingand detecting foreignbribery”16

The CEO is the face of theorganization, the figurehead towhom employees ultimately lookfor vision, guidance, andleadership. Leadership derivesfrom trust, and trust is built upona common understandingbetween people.17 Leaders mustfind ways to connect withpeople inside and outside theorganization on an ongoing andtransparent basis, using differentplatforms and distributionsystems.

Both communication andbehaviour tells employees whatcounts and what’s rewarded andpunished. A CEO should showthrough actions that he or she iscommitted (e.g. not acceptinggifts from vendors or seekinglegal advice on ethical questions)and accountable for the tone atthe top. The CEO must showthat he or she will suffer thesame consequences for wrongdoing. There are no “sacred

16 OECD; Good Practice Guidance on Internal Controls, Ethics, and Compliance; Adopted February 18, 2010; Annex II page 1.17 Darcy, K.T. A Companion to Business Ethics, edited by Robert E. Frederick, “Ethics and Corporate Leadership,” BlackwellPublishers Inc., 1999: 405.

cows” in the organization thatare above the rules. As with thepigs in Animal Farm the CEOcannot just talk a big game.

CEOs should use various types ofreporting to assess whether theappropriate tone is beingreinforced within theorganization including thefollowing:

• Whistleblower hotlinestatistics - statistics from thewhistleblower hotline helpassess whether theappropriate tone at the top isbeing reinforced

• Surveys – results of ethics orcultural pulse surveysperformed help to determineif there are any indicators orconcerns regarding theculture and tone at the top. Ifindicators or concerns exist,the CEO can utilize theseresults to determine ways thatthey can improve the tone atthe top

• Open lines of communication- appropriate communicationpractices and open lines ofcommunication are importantto strengthen and assess toneat the top. Lines ofcommunication should bediverse, including practices


available to externalcustomers and stakeholdersas well, in order to allow formessaging to be received bythe appropriate parties in atimely manner

2.3. Chief ComplianceOfficer (“CCO”)

The person selected for this rolemust be someone whoseintegrity is clear and who canearn the respect of personnel atall levels to establish andreinforce the tone at the top.The CCO and their team, play acrucial role in creating a “speakup” culture. In addition, theCCO helps convey key ethics andcompliance messages in bothinternal and externalcommunications and assists theboard in both understanding andexecuting their role inestablishing the tone at the top.

Compliance programs are foundto be far more effective whenthe CCO reports to the board. Itshows the importance of theCCO role and the issues at theorganization18. At a minimumthe CCO should have directaccess to the board. It allowsthe CCO to undertake their roleand responsibilities in acollaborative manner with theboard’s confidence, the respectof management and enhancedtransparency

While not all organizations mayfeel they can support the specific

18 Griffin, Aimee; MakingWaves Blog – The 2014 Ethics & Compliance Program Effectiveness Report: Reporting Structures andTone at the Top; May 23, 2014.

role of a CCO, whether it is dueto the size of the organization ora lack of resources, it is essentialfor an organization tothoughtfully assign theresponsibilities that a CCO wouldnormally retain to othermember(s) of managementwithin the organization and becommitted to holding theseindividuals accountable forimplementing and sustainingthese activities in the absence ofa CCO. It will be up to the boardand management to decide ifassigning these roles to membersof management will achieve thesame effectiveness in theabsence of a CCO.

The CCO should report on aregular basis to the board andother members of seniormanagement regarding theeffectiveness of the complianceprogram based on measuressuch as the whistleblowerprogram, employee surveys, andfindings from investigationswhere applicable. The CCOshould also send out regularcommunications to middlemanagement and employeesstating the importance of astrong culture of compliance andreinforcing the values of thecompany. Tools that a CCO canutilize to assess and report acompany’s tone include thefollowing:


a. Clear code of ethics

A good starting point forestablishing tone at the top is toissue a code of conduct and ananti-bribery and anti-corruptionpolicy endorsed by the boardand included as part of theorganization’s strategy.Organizations can potentially doa disservice to themselves byimplementing vague policies orcommunications that leave roomfor misunderstandings ordecisions with potential anti-corruption implications (e.g. gift-giving, facilitation payments) upto individual employees wheretheir decision may underminethe intended message of thecompany, even if inadvertently.Management and employeesmust all be held accountable.

b. Whistleblower hotline

A whistleblower hotline providesanother avenue ofcommunication for allstakeholders, both internal andexternal. If promoted effectively,it can provide early insight intoconcerns that internal andexternal stakeholders may havethat could be reflective of a poortone at the top before thesestakeholders escalate theconcern beyond the control ofthe company.

Employees with the courage tostep forward with ethicalconcerns must also beappropriately recognized andrewarded to help encourageothers to follow suit.

c. An ear to the ground

It is critical for companies tounderstand how theorganization is perceived byemployees, customers, and otherstakeholders of the organizationby “keeping an ear to theground”.

Customers / other stakeholders

It is important to connect withcustomers outside theorganization to understand howthe culture of the organization isperceived by outsiders. This canbe done via various methods,some of which may involvecustomer feedback surveys,social media, or the companyhotline. With the prevalence ofsocial media, valuable insightinto a company’s reputation canbe obtained by reading whatindividuals are saying about thecompany in online media.Regardless of how anorganization chooses to obtaincustomer insight, the CCOshould consider what kind ofcustomer feedback is beingreceived or communicated andhow, if at all, could this beimpacted by the internal cultureof the organization.

If customers or otherstakeholders perceive theorganization as lacking integrityor communicate significantcriticisms and concerns aboutthe actions and behaviours ofemployees, a positive tone at thetop may be lacking or noteffectively translatingdownwards to those employees


in customer-focused roles.Organizations should consider ifthese perceptions or criticismsare indicative of the need to takenecessary actions to reinforcethe ethical culture desired.

Employees

More than just customers andother stakeholders, CCOs needto connect with employees.Employee surveys involvingquestions around employeeengagement, the perception ofculture and managementintegrity can provide insight intohow tone at the top is actuallyperceived. Do employeesperceive the company values asmerely a statement withoutintention or do employees feelthat those in managementpositions “walk the talk”? Anexample of a survey tool whichDeloitte has developed is theDeloitte Team Assessment whichmeasures goals, people,behaviour and leadership andbenchmarks these factors toeffective teams.

The further away fromheadquarters, the greater thelikelihood that the ethicalmessage gets lost in translation.Organizations withinternationally locatedsubsidiaries or business units canoften have a more challengingtime establishing tone at the topif efforts aren’t made to engagethe subsidiary or business unit.

19 In Focus: Compliance Trends 2014; A collaboration between Deloitte and Compliance Week; May 2014.20 Risk and Compliance Journal – Deloitte risk and Compliance – Wall Street Journal – How Boards Can Raise the Bar on Ethicsand Compliance; October 23, 2014.

Mergers and acquisitions canalso pose a unique challenge.Using survey results, the CCOcan also compare how variousbusiness units or subsidiariescompare and may help toidentify areas of the businesswhere the messaging may notbe resonating or communicatedas effectively and the CCO canput in place the appropriateprocedures.

2.4. Mood in the Middle

“the one slice of theorganization whereCCOs fear the biggestgap between culture andvalues: middlemanagement”19

There is often the misconceptionthat tone at the top can beachieved with only the boardand executive managementmaking efforts at stating theethical values and intendedcorporate culture of thecompany. Management andboards tend to undercommunicate values by a factorof 1020. Middle managementtherefore plays a critical role inmaking sure that message iseffectively reinforced withemployees as they are therepresentatives of theorganization that employees dealwith on a day-to-day basis andare primarily their direct


employees take their cues fromcorporate leaders. Thus, the DOJand SEC consider thecommitment of corporateleaders to a “culture ofcompliance” and look to see ifthis high level commitment isalso reinforced and implementedby middle managers andemployees at all levels of abusiness.”21 Middle managementmust not only clearly establishthe tone in fraud riskmanagement policy documentsbut they should also reinforcethis tone through propercommunication to theiremployees. Organizations shouldalso pay attention to how middlemanagement are acting, notonly at work but also in theirpersonal lives, as behaviouroutside of work is generallyrepresentative of how theybehave in the workplace. Ifmiddle management is notaligned with the board andexecutive management or notactively living the corporateculture and compliance programinitiatives, the message beingreceived by employees could bedrastically different from whatwas intended.

2.5. Buzz at the Bottom

The buzz at the bottom canprovide important insight intowhether or not an organizationhas established and reinforcedthe ethical culture intended.Consider what employees aresaying about management

21 FCPA – A Resource Guide to the U.S. Foreign Corrupt Practices Act; Criminal Division of the U.S. Department of Justice andthe Enforcement Division of the U.S. Securities and Exchange Commission; November 14, 2012; Page 57.

pressures to meet performanceexpectations, ethical concernsaround other management oremployee actions, or how arethey responding to the ethicsand compliance initiatives suchas training attendance.

It is important for anorganization’s culture to createopen lines of communication, toencourage employees to raiseconcerns without fear ofretribution. Not only shouldthere be an ability for staff toreport incidences of fraud andcorruption, but staff should alsobe held responsible for thefollowing:

Understand their role withinthe internal controlframework

Read and understand policiesand procedures, includingfraud policy, code ofconduct, whistleblowerpolicy as well as otheroperational policies such asprocurement manuals, etc.

Participate, as required, inthe process of creating astrong control environment,designing and implementingcontrol activities, andparticipate in monitoringactivities

Have, at least, a basicunderstanding of fraud andcorruption and an awarenessof the associated of red flags


Organizations should create aseamless integration, beginningwith orientation followed bycontinuous training on ethicalbehaviours including anti-corruption. Comments heardduring training can be valuablein objectively assessing whetherthere is room to improve thetone at the top (i.e. areemployees receiving themessage that is intended?).

To enforce a culture of anti-corruption the organizationneeds to enforce a strong toneat the top so that employeeshave the confidence to do theright thing. Empoweringemployees by providing themwith knowledge of theapplicable regulations, policiesand procedures, as well as casestudy examples and involvingthem in discussions regardingfraud and anti-corruption risksand mitigating controls will helpentrench the culture. Embeddingthese activities throughout theyear into the culture of theorganization and not just payinglip service to the activity orfollowing a check the boxmentality will reinforce inemployees the importance andcommitment to ethical behaviourby the organization.

3. Ways that a companycan establish andreinforce tone atthe top

Beyond the roles describedabove, the board and executive

management help translate the“tone at the top” to a healthy“mood in the middle” bycreating accountability. Theorganization must have “trickledown integrity”. Uppermanagement must be just asaccountable as front lineemployees.

Organizations can establish andreinforce tone at the top byembedding activities throughouttheir general everyday practiceswith more tangible actions thanjust training employees. Forexample, hiring employees basedon their character, competenceand chemistry can make it easierfor these employees to buy-in toculture and help to develop acorporate reputation forintegrity; hiring individuals thathave a history of wrong-doingwill not reinforce an ethical toneat the top. Other examples ofways that companies canestablish and reinforce tone atthe top throughout their generalpractices include:

3.1. Walk the talk

Despite the concept that“culture eats strategy forbreakfast”, many organizationscontinually spend adisproportionate amount of timedeveloping and improving theirstrategy, or celebrating financialsuccesses, often assuming that acode of conduct or infrequentstatements about acting ethicallywill suffice in setting up anethical culture. Organizationsmust do more than just


communicate the importance ofacting ethically and withintegrity; executives and seniormanagement need to “walk thetalk”, on an ongoing basis, andin their personal lives as well.

Policies and messaging providingclear direction and processes foremployees to take whenencountered with ethicalsituations or situations of risk tothe organization will assist inestablishing the appropriate toneof the organization. Howeverfurther to this, organizationsmust ensure that the messagingand processes are notcontradicted by the actions thatexecutives and seniormanagement undertake whenencountered with these samesituations. If employees feel likethe “rules” only apply to them,employees may becomedisengaged or take their ownliberties when it comes toquestionable decisions.Organizations must askthemselves whether or notexecutives and seniormanagement are demonstratingthe organizational objectivesexpected of employees.

A common challenge companiesface, especially in areas wherecorruption concerns can beheightened is that legalitydoesn’t always mean ethical.Executives and seniormanagement that maintainprofessionalism and avoidpotentially compromising

22 In Focus: Compliance Trends 2014; A collaboration between Deloitte and Compliance Week; May 2014; page 5.

situations go a long way indemonstrating the values of theorganization to both internal andexternal stakeholders.

3.2. Reward for principledperformance

Recognition and rewards shouldbe aligned with desired valuesand behaviours. According tothe “In Focus: ComplianceTrends Survey 2014”, only 27%of respondents indicated thatcompliance is considered in themeasurement of seniormanagers’ performance anddiscretionary compensation.22

One of the supporting elementsto obtaining buy-in to anorganizations’ ethical values bysenior management and gettingthem to “walk the talk” is byestablishing goals involvingethics and compliance into theirvariable compensation plans.Incorporating targets involvinganti-corruption or anti-fraudcompliance, for example, willhelp to balance to pressure thatsenior management may feel tomeet certain performancetargets. Making the targetsrealistic and providing areasonable balance to variablecompensation between the twosometimes competing objectives,organizations can reduce theincentive to focus solely onfinancial performance metrics.Otherwise, if financialperformance metrics arefavoured by senior management


over acting ethically, employeeswill have less consideration forthe organizations ethicalobjectives as the tone tricklesdown the line.

Organizations should alsoconsider the current and pastethical behaviour of employeesbeing promoted into seniorleadership roles or even generalpromotions. If these employeesexhibit indifference or disregardfor the ethical values of thecompany yet receive rewards orpromotions, other employeesmay not feel that focusing onethical values is a valued aspectof their performance when it infact it is a critical component.

3.3. Penalties orpunishments

“If you give an inch,they’ll take a mile”

While organizations shouldreward principled performance,there must be consistentdiscipline of ethical violations orindividuals whose actions arecontrary to the organization’sbeliefs. “Consistent disciplinerequires a well-defined set ofsanctions for violations and strictadherence to the prescribeddisciplinary measures. If oneemployee is punished for an actand another employee is notpunished for a similar act, themoral force of the company’s

23 Tone at the Top: How Management Can Prevent Fraud in the Workplace; Association of Certified Fraud Examiners

ethics policy will bediminished.”23

While the punishment should fitthe crime, organizations shouldconsider the appropriateness ofterminating employees whoconsistently or severely violatethe rules or fail to abide by thecompliance program (e.g.repeated failure to take anti-corruption training, failure tocommunicate conflicts of interestor enforce conflict of interestrules). Employees that showcomplete disregard for theculture of the organization byengaging in these consistent orsevere violations can have adetrimental impact on otheremployees who may start tomirror their behaviour.Organizations should alsoencourage vendors to follow thecompany ethics and complianceprogram, followed-up withconsequences if they do not.Failure to hold employees andvendors accountable creates atone at the top that is at oddswith its intent.

People talk, whether you wantthem to or not. Unethicalbehaviour and how you respondwill likely be widely knownthroughout the organization,therefore organizations mustconsider what messaging theywant to send when disciplining,or not disciplining an ethicalviolation. Will it conflict or alignwith communicated values?


4. Summary

“Creating a culture ofintegrity begins withtone at the top, but ithas to include the moodin the middle and thebuzz at the bottom. . .As important andessential as complianceis, in the strugglebetween culture andcompliance, culturealways wins”24

Tone at the top is one of the most important elements that anorganization needs to establish to maintain an ethical culture. Anorganization must maintain roles and responsibilities that build cultureinto the strategy. No one in the organization should be treated “moreequal” and the board, and upper management should be heldaccountable to maintain the ethical environment. Tone at the top is adifficult element of an ethics and compliance program to measure - itisn’t tangible. Organizations shouldn’t assume they are doing a passablejob; they should assess the factors discussed above and benchmarkthemselves against their industry peers and others of a similar size. Tonedrives behaviour and is imperative to effectively managing organizationalrisk.

24 Risk and Compliance Journal – Deloitte risk and Compliance – Wall Street Journal – How Boards Can Raise the Bar on Ethicsand Compliance; October 23, 2014

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