How does a company train and enforce ethics among 123,000 employees in 43 countries? Carefully and thoroughly. Perry Minnis describes how Alcoa manages ethics and compliance so that infractions don't grow into irregularities that could morph into threatening frauds. Here are practical lessons for all of us.
What is ethical behavior? Two standard philosophical answers: words and action that (1) produce the greatest good or (2) conform to moral rules and moral principles. But difficult situations arise when two or more rules conflict or when a rule and the criterion of "greatest good" conflict.
As director of ethics and compliance at Alcoa Inc., a global aluminum company with divisions in 43 countries, Perry Minnis daily grapples with the philosophical and rubber-meets-the-road aspects of "doing the right thing." He's charged with interpreting and enforcing standards for more than 123,000 employees so that infractions don't grow into irregularities that could morph into threatening frauds.
Fraud Magazine spoke to Minnis in his office at Alcoa's headquarters in Pittsburgh, Pa.
Can you briefly describe your responsibilities in directing ethics and compliance objectives at Alcoa?As director of ethics and compliance, I am responsible for overseeing deployment of our corporate business conduct program. Our program consists of publishing the employees' "Guide to Business Conduct," deploying global business conduct training and communications for all employees, administering the annual Business Conduct & Conflict of Interest Survey, and managing the global Ethics & Compliance Line. We also manage the internal compliance and fraud investigations, coordinate the fraud and non-compliance risk assessment process, administer the records retention program, and serve as a resource to business units in addressing ethics and conduct matters.
Organizations have always confronted ethics problems, but it seems that only in the last 25 years or so that ethics has grown from an academic discipline into a mandatory department at most corporations. How has this happened?I believe the heightened awareness can be attributed to several factors: the defense contracting scandals during the Reagan Administration; the issuance, in the early 1990s, of the Federal Sentencing Guidelines, which established criteria for assessing the completeness of ethics and compliance programs; the emergence of high profile scandals -- Enron, Tyco, WorldCom, etc.; and the passage of the U.S. Sarbanes-Oxley Act and the associated provisions of the New York Stock Exchange and SEC requirements. Plus companies now have a general sense that a reputation for ethical behavior is a competitive advantage. It engenders customer loyalty and employee allegiance.
Can you talk about your company's journey through the years in implementing ethics, compliance, and anti-fraud measures?Alcoa has always had a very strong values-based culture. Many employees feel they know they are an Alcoan when every decision they make and every thing they do has the parameters of the values of the company. In 1985, Fred Fetterolf (then president of Alcoa) decided that the company needed to document the values that we live by. The Executive Committee confirmed the values and they haven't changed much over time. Recently we added the customer value.
Paul O'Neill, Alcoa's CEO from 1987 through 1999, began to define values management beginning with safety. He defined accountability for safety when he decentralized the company into business units.
Alain Belda became COO of the company in 1994 and is now CEO and chairman. Alain started to define such things as customers and what it means to move quickly -- rates of change. More, better, faster, smarter -- the "soft values" that you will feel in this organization -- Mr. Belda continually stresses the fact that these rates of change must be accomplished within the framework of our values and business conduct principles.
At what point did Alcoa realize that it needed to focus more on appropriate business conduct and ethics? Were there some events that led to that point?As I said, we have always had a strong values orientation. While we had not experienced any significant breaches in values, management decided, in the late 1990s, to take a proactive approach and review our compliance programs. Several groups were formed to look at the deployment and effectiveness of various compliance initiatives in areas such as environment and ethics and compliance. I was asked to head up the team that reviewed our global ethics and compliance initiatives. The results of this review were mixed. Our values were well-known and followed but our deployment of ethics and compliance program was found to be limited to basically the United States. We made several recommendations that we felt would enhance our global ethics and compliance awareness. Other review teams did the same for the environmental initiatives. Management endorsed these recommendations and formed the Global Compliance Department to implement the recommended actions. Global Compliance has oversight responsibility for environmental and trade compliance as well as the ethics and compliance area.
How does your department work with internal and external fraud examiners and forensic accountants? What can Certified Fraud Examiners do to further fit into the ethics and compliance structure?I currently have one full-time CFE on my staff and our Internal Audit Department has some also. We work very closely with the internal auditors. We share responsibility for conducting investigations and we review all audit results to see if there are opportunities to further strengthen our ethics and compliance program.
CFEs have a specific skill set that makes them an integral part of the ethics and compliance effort by reinforcing our global financial standards and by conducting investigations of suspected violations of not only financial issues but also other areas that are reported through the ethics and compliance office.
Additionally, we will utilize external consultants and CFEs if the need arises. Through exposure to other areas of compliance, CFEs will broaden their focus beyond fraud to areas of education, prevention, and promotion of company values.
CFEs also play an important role in assisting our suppliers through ongoing training sessions in understanding Alcoa's ethical expectations and peripherally assisting them in establishing their own fraud awareness programs.
Can you describe some of the ethics breaches you've seen and how you've dealt with them? Have you seen a change in ethics violations since the company's renewed emphasis? I don't know that we have any breaches that are unusual and fortunately, none that have been significant, but we continually follow up on any information provided regarding potential violations of our rules. We respond to 100 percent of all ethics and compliance line calls we receive, and to the extent possible, we provide a response to any inquiries we receive from other sources.
I don't think we have seen any significant change in ethics violations but I believe that as the awareness of our department and its responsibilities have grown, we are now capable of centralizing and thus becoming more knowledgeable of this type of activity in the company. In prior years, when these issues arose, they were dealt with at the individual business-unit level, but not necessarily raised to the attention of corporate management. This is no longer true. We have implemented new reporting processes that require the business and resource units to inform us immediately when they suspect there may be some financial impropriety or other type of fraud.
What are the ethics violations that employees often unwittingly commit?Because employees are often not experts in the laws of their countries, it can unwittingly lead them into encountering issues such as harassment and conflicts of interest. This further requires us to continually encourage employees to ask for advice, to provide adequate training in these areas, and to follow up in an audit and risk assessment environment to determine where we need to have additional focus.
How do you measure the effectiveness of your program?As with any administrative area, determining appropriate metrics to measure the effectiveness of a program can be an elusive target. We have initiated several measures to assess the effectiveness of our program. We have implemented tools such as an independent survey of employees worldwide using the extensive expertise of the Ethics Resource Center. In its 85th year, the Ethics Resource Center is a nonprofit, nonpartisan organization dedicated to the study and promotion of ethical behavior in organizations worldwide.
We quarterly canvas training participants to obtain feedback on the effectiveness and value of our training activities. While we do not consider the number of calls received through our ethics and compliance lines to be an effective measure, we do track the number of process changes that were required as a result of receiving and investigating the issues raised in those calls. To further gauge program effectiveness, we also track the number of violations that we were able to verify from the issues reported to us. Also, we are completing an internal assessment which will be followed by a review of our program utilizing external experts as another step in gauging the effectiveness of our program.
At a simplistic level, of course, one of the best ways to ensure solid ethics is to hire ethical people. How has your company's hiring processes developed through the years? Do you do extensive background checks?As is typical of most large organizations, Alcoa continually strives to find ways to improve its processes. One of the enhancements to our hiring process has been the strengthening of our requirement for mandatory background checks on new hires, especially in North America, including executives. Where search firms are used, they conduct additional reference checking on potential hires. Background checks not only ensure employment of legitimate and honest candidates, they help mitigate the delegation of substantial discretionary authority to any individual who has shown a propensity to engage in illegal activities. They also help protect the company from unnecessary risk from both legal and workplace perspectives. A significant part of the interview process is focused on Alcoa's values and their application to employee responsibilities.
Do you counsel other non-competitor companies on installing or renewing an ethics program?Alcoa is a sponsoring partner of the Ethics and Compliance Officers' Association, of which I am on the board of directors. As we present various features of our program at association meetings, there is generally follow up from other companies' representatives requesting advice on how they can best implement some of our programs. We believe that process improvement in both our company and in other non-competitor companies can only take place by sharing best practices and collaborating with others. Through my association with the ECOA and the Ethics Council for Manufacturers Alliance/MAPI, I take advantage of the opportunities that these organizations provide to ensure our program is on the right track and that we remain on top of emerging issues.
The "Alcoa Guide to Business Conduct" is an extensive, 22-page document for employees, revised in April of last year. What are the major points you want to communicate through the booklet?The purpose of our guide is to clarify responsibilities that Alcoans have to our worldwide business partners, communities, and each other. We want to alert individuals to potential ethical and legal issues that they may encounter in their roles as Alcoans. The basic theme of our program is Do What's Right. Our guide is designed to be easily read -- at a 10th grade language level -- and has been translated into over 20 languages. It is our intent that the guide will be a meaningful tool that employees can look to in order to help them do what is right. By giving "what would you do?" question-and-answer scenarios, we hope to provide good examples of real-life situations that can and do occur in business. In order to continue to make this meaningful to all employees, we have issued an abridged guide to our manufacturing-level employees that focuses on issues or policies relevant to their job responsibilities in the company thus eliminating areas such as anti-corruption policies which have little relevance to production employees.
Can you describe Alcoa's Ethics & Compliance Line? Is it self-contained within the company or is it contracted to an outside vendor? Has it been useful? Our Ethics & Compliance Line is contracted to an outside vendor, and we have one individual whose primary responsibility is managing and monitoring that relationship. As calls are received by this vendor, they are sent to specific ethics liaisons in various regions of the world, depending upon the origin of the call. All calls are investigated and an appropriate response is posted to keep the caller informed as to the ultimate results of the investigation. The line is available in approximately 20 different languages. Our compliance line has highlighted issues that in and of themselves, may not be significant, but when put in a broader perspective, will often indicate trends in a particular area that require substantive changes. Also, we have averted significant safety hazards as a result of safety issues being raised via the ethics and compliance line.
The U.S. Sarbanes-Oxley Act stringently protects the rights of corporate whistle-blowers (or as the ACFE calls them, corporate sentinels). Besides the Ethics & Compliance Line, what kind of mechanisms do you have to aid internal corporate sentinels?We try to promote our message through a variety of mechanisms at Alcoa. We encourage individuals to raise issues in other ways too: through their supervisors (if they feel comfortable -- Human Resources, Legal, and Internal Audit Departments. We also provide mechanisms such as a postal address and e-mail account employees can send information to and individuals can address concerns during our annual Business Conduct Survey process. Through the survey, employees certify that they are in compliance with our business conduct policies.
Finally, we have initiated a renewed focus and campaign against retaliation. We deployed a concentrated global training program to all locations worldwide -- 350 plus locations -- to ensure that employees and supervisors understand Alcoa's non-retaliation policy and the serious consequences that can arise from violating this policy.
In other ways, how has Sarbanes-Oxley changed your company and the emphases of your department? Sarbanes-Oxley has helped Alcoa strengthen its controls assessment process. Alcoa actually had a self-assessment tool in place long before SOX was implemented. The SOX legislation reiterated the importance of this tool, which became a driving force in our compliance with the act. One other thing I should mention is that our external auditors actually perform an annual review of our department focusing on internal control procedures associated with the ethics and compliance line, the annual business conduct survey, and a review of certain accounting issues that have been investigated to ensure we have followed corporate procedures for dealing with such issues.
As you know, the U.S. Foreign Corrupt Practices Act forbids U.S. citizens or their agents from bribing foreign officials to secure or retain business and requires accurate recordkeeping and adequate controls for company transactions. It must be difficult for a global company to conduct business within cultures that have differing standards. How does Alcoa work to train its employees worldwide to abide by the FCPA? What counsel would you give other global companies based in the United States in this area?This is one of our focused areas of training within the Ethics and Compliance Department. Additionally, Alcoa's Legal Department conducts very thorough education and training targeted on anti-corruption provisions worldwide. I also cover this as part of my orientation process when visiting new locations and bring them on board with Alcoa's business conduct expectations and review our ethics and compliance process.
I would advise other companies to provide very specific focused training on all anti-corruption provisions, not just the FCPA, through a variety of mechanisms -- Web-based and face-to-face training. Additionally, this is further emphasized through our annual Business Conduct Survey, which requires certification of compliance with anti-corruption and other policies. As with all such investigations, it is important to take appropriate visible action, where warranted, based on the results of the investigation.
The FCPA contains an explicit exception to the bribery prohibition for "facilitating payments" for "routine governmental action" such as obtaining permits, licenses, or other official documents; processing governmental papers, such as visas and work orders; providing police protection, mail pickup and delivery, etc. How does Alcoa train its employees on ways to deal with these exceptions?Alcoa has implemented a global policy related to anti-corruption. Our policy explains the concept of "facilitating payments" and is very explicit in what the requirements are: these should only be needed in a limited number of circumstances, they should be of a small amount (less than US$100), and should only be made to expedite the performance of routine, non-discretionary government action. Of course, we prohibit payments of any kind if they violate local country laws. Additionally, they must be reported to the Legal Department and properly accounted for. Our long-term objective is to eliminate these payments entirely.
In your ethics manual, it states that the company's position on gifts and entertainment is clear: "no gift, favor or entertainment should be accepted or provided if it will obligate or appear to obligate the person who receives it." The rule is straightforward, but the application worldwide is often complicated. For many non-U.S. corporations, corporate gift giving is normal policy. How do you train your employees worldwide to do the right thing?We do not provide or accept gifts to or from any government official. As you said, our policy states that gifts are not permitted if they obligate or appear to obligate the individual who receives it. Where it is deemed customary business practice and a gift that could be considered significant could be involved, it is required to be reported to and approved by executive management. Gifts also must be denoted separately on expense reports. And receiving or giving gifts of cash or cash equivalents is never permitted.
What are some of the measures that Alcoa has done to protect the theft of corporate intelligence from within? What are companies doing in the United States and globally to stanch the flow of proprietary information to competitors?We ensure that those with a "need to know" have access to the information. These privileges should be reviewed on a periodic basis to ensure that appropriate individuals still have the same level of requirement for the information.
Alcoa has a very strong Global Information Security group and we also have very strict export requirements, even as it relates to information.
When you get together with your peers what are some of the hot topics discussed in ethics and compliance?In today's environment, there are a lot of hot topics. However, there is currently an emphasis on the areas of risk assessment, determining the culture of the organization, compliance with SOX requirements, and training of a company's Board of Directors.
There is also discussion on determining the ramifications of the McNulty memo in which the Justice Department placed restrictions on federal prosecutors conducting corporate investigations.
The ACFE has assisted hundreds of academicians across the United States and in many other countries devise fraud examination courses and programs. But it seems that most business and accounting students take the obligatory ethics course and go no further. What do you think higher-education business and accounting schools should do to place greater emphasis on ethics and compliance? I believe one of the major flaws in higher education today is that too many schools focus on ethics and compliance courses specifically and ignore incorporating ethics and compliance into the core course curriculum. I don't mean to imply that teaching ethics and compliance as a separate discipline or course is not meaningful. However, if the students cannot relate what they've learned to their individual disciplines, whether it be accounting, marketing, or management, it will not have the impact that will be needed when these students enter the business world.
The ethics and compliance officer is a relatively new career path. What kind of advice would you give new or experienced fraud examiners who want to enter that field? Are there any higher-education institutions that offer majors in the field?The first step for someone to obtain a position as an ethics and compliance officer would be to broaden his or her education and experience into areas of ethics and compliance other than just fraud. I would also strongly emphasize that this experience and education be focused on the promotion of ethical behavior as opposed to just a focus on compliance with rules and regulations.
There are many institutions of higher education that have a very strong emphasis on an ethics and compliance curriculum. Several institutions have established ethics centers within their business schools. Certainly, here in Pittsburgh, I am familiar with the ethics programs at Duquesne University and the University of Pittsburgh. Recognized nationally is Bentley College and their Center for Business Ethics.
I noticed that you started your career in finance and then worked into total quality management. How did you assume global ethics and compliance responsibilities? As you noted, my experience in total quality gave me the practical background on process analysis and project development. As I mentioned, when we first started the review of the global ethics and compliance program, I was asked to lead the team that performed that review. Once we submitted our recommendations, management felt that because of the first-hand knowledge I had gained during the review, that I was qualified to implement a global program. Additionally, my history and background with the company in both finance and quality provided me with substantial experience in the compliance area. Complying with laws and regulations in the tax area, where I spent a significant part of my career, provided me with a deep appreciation for not only complying with the law, but also doing things in an ethical manner.
Dick Carozza is editor of Fraud Magazine
MINNIS' CAREER GROWS FROM FINANCE TO TQM TO ETHICSPerry A. Minnis, who has been Alcoa's director of ethics, compliance, and advisory services since 2000, began at the firm in 1968 in the Finance Department at the Cleveland Works location.
After working in several Alcoa areas, he transferred to the Pittsburgh, Pa., headquarters to work in financial accounting and then federal and international taxation positions culminating in becoming director of corporate tax compliance.
In 1988, Perry joined the new Corporate Quality group, received total quality management training (TQM) in Japan, and began teaching those principles throughout Alcoa's global locations. In 1995, he became director of advisory services to implement TQM in administrative departments and then assumed his global ethics and compliance responsibilities in 2000.
Perry is a member of the board of directors of the Ethics and Compliance Officer Association and chairman of the Manufacturers Alliance Ethics and Compliance Council. He also serves in the Alcoa Campus Partnership Programs at the University of Pittsburgh (Pa.) and Duquesne University in Pittsburgh.
ALCOA USES "GUIDE TO BUSINESS CONDUCT" TO HELP PREVENT FRAUD(Following is an excerpt from Alcoa's "Guide to Business Conduct" for employees describing mandatory conduct involving relationships with the company's business partners. - ed.)
Our values, honesty and behavior do not stop with our actions, or at our doors. We expect the same from our suppliers, customers and others who do business with us.
Conflicts of InterestBusiness decisions must be based on sound judgment, not on personal interest or gain. A conflict of interest may occur when personal interests affect an employee's judgment, objectivity or loyalty to Alcoa. Avoid any situation that creates, or appears to create, a conflict. No employee should represent Alcoa in a business deal if he or she, a family member or a close friend has a financial interest. No employee should take any business action for personal benefit, or to benefit a relative or close friend.
Employees must report to Alcoa legal counsel any situation that may appear to be a conflict of interest.
Proper UseNo receipt or payment of funds, property, service or anything else of value shall be received by, or made by, Alcoa if it will be used for any unlawful purpose or for any purpose other than that described in the documentation that supports the transaction.
Gifts and EntertainmentIn many industries and countries, gifts and entertainment are common practices used to strengthen business relationships. Throughout the world, Alcoa's position is clear: No gift, favor or entertainment should be accepted or provided if it will obligate or appear to obligate the person who receives it. Receiving or giving gifts of cash or cash equivalents is never allowed.
Company employees may accept or give gifts, favors and entertainment only if they meet all of the following criteria:
- They are not against the law or the policy of the other parties' company.
- They are consistent with customary business practices in the country or industry.
- They are reasonably related to business relationships.
- They do not cost too much, and are consistent with any existing Business Unit guidelines.
- They cannot be viewed as a bribe, payoff or improper influence.
- Public disclosure of the facts would not embarrass the company or the employee.
- They do not violate our business values or ethics in any other manner.
If you are offered a gift that falls outside the list shown above, you should politely refuse. There may be rare cases, such as a public presentation, where refusal of a gift may not be possible, or, in some countries, cultural norms may prevent refusing a gift without being rude. In those situations you may accept the gift and promptly turn it over to Alcoa. It is never acceptable to request or ask for personal gifts, favors, entertainment or services.
To prevent conflicts around gift giving, it is often helpful at the start of a business relationship to discuss what is not allowed.
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