Compliance Management
Episode 9: Reporting system, investigations, sanctions, and incentives

Lady Justice carries not only scales, but also a sword. Compliance programs are designed to avert problems, but they do occur. When they do, they must be monitored and handled professionally. The range of measures extends from introducing of a reporting system to launching investigations and imposing sanctions. Incentive systems can also be a powerful tool, yet they are used only by a few companies.

Reporting System

A reporting system can be designed in many ways and is typically composed of different elements. Most people are familiar with the “Whistleblower Hotline”, i.e. a whistleblower system which employees or external parties can use for reporting suspicious actions. The EU Whistleblower Directive has brought new momentum to this area. It requires that companies with more than 50 employees or an annual turnover of more than EUR 10 million establish an internal procedure for dealing with whistleblower reports, creating reporting channels as well as reporting obligations, and providing for protection against retaliation. A reporting system can be web-based, but there are other possibilities available as a supplement or alternative, for example the appointment of a confidential advocate or ombudsman whom employees or external parties can contact, and who is empowered not just to receive, but also to evaluate information. This considerably reduces the burden on legal and compliance departments.

Investigations and Sanctions

These are a central part of processing tips about improper conduct but are hardly popular among compliance officers. Often the conduct of investigations is perceived as a conflict with consulting work and avoided if possible. But the expectations are clear. The FCPA Guide states: “(…) companies should have in place an efficient, reliable, and properly funded process for investigation the allegation and documenting the company’s response, including any disciplinary or remediation measures taken.”

Leading internal investigations professionally is a specialist matter, where inexperienced compliance officers would be well-advised to stay in the background and seek external consultation. The following critical aspects typically require careful assessment and decision-making:

• Employment law issues (hearing, involvement of the works council or union representatives, warning, and dismissal, if necessary, coordination of measures with investigating authorities)
• Rights of accused employees or external parties (data protection, admissibility of evidence, e.g. from interviews)
• Pros and cons of filing criminal complaints
• Interaction with police, prosecution, and courts
• Fact finding in the context of criminal law against companies (internal investigations, cooperation with prosecution authorities, separation of corporate defense, etc.)

A Compliance Committee like the one mentioned in previous blog posts can also be especially useful in handling tips and making consistent decisions. The compliance function can coordinate with other departments such as legal, internal audit, data protection, human resources, IT, etc. to determine the appropriate course of action. Important: The compliance officer should only propose measures, while the specialist departments, such as human resources, will make the final decisions regarding actions which have implications under employment law.

Incentives

“Compliance can’t be incentivized, because everyone is expected to obey the law” is a typical objection to positive compliance incentives. With a little imagination, however, it is certainly possible to develop incentives which suit the company: The integration of compliance milestones into annual objective agreements is particularly effective. An example would be the implementation of compliance training or workshops by managers or active participation in a specific compliance project. Special efforts can also be rewarded, such as the optimization of compliance-relevant processes in a sales department.

What’s Next

Does your company have relationships with distributors, customs agents, consultants, or other business partners? Our journey through the most important elements of a CMS will continue in the next episode with the topic “Business Partner Management”.

If you are unsure how to set up your CMS successfully, please feel free to contact me.