DEVELOPING A STRONG COMPLIANCE PROGRAM AFTER A RECORD FINE
When Ethisphere creates the World’s Most Ethical Companies list every year, we look at the operations of many companies and score their ethics and compliance programs based on eight broad categories (for more on the World’s Most Ethical Companies methodology, read this edition’s cover story on page 26, or go to www.ethisphere.com). Each year there are a few dozen companies that earn high marks in the majority of these categories, but aren’t quite up to standards in one or two others, and therefore just miss crossing the threshold for World’s Most Ethical Companies designation. We like to refer to these companies as “Ones to Watch.”
Often, what can be most surprising to our readers is when companies that have received large fines or that have been implicated in very public scandals in the near past (thus missing the mark in the “litigation history” category) fit into this “Ones to Watch” category. Sometimes, because of these fines, company leadership will either become more involved in the ethics and compliance departments, or the leadership will be replaced altogether with individuals that give renewed attention and resources to these very important departments.
As one company spokesperson accurately pointed out to Ethisphere, compliance is an evolving function. It’s important to remember that, at times, a large fine doesn’t always imply that company leadership was completely removed from involvement in their company’s compliance program in the first place.
However, because of the internal activity that results from a large fine or scandal, sometimes companies that have experienced recent problems will very quickly develop best in class ethics and compliance programs – including hot line programs, increased employee training and updated codes of conduct. Although reputational damage lingers, these companies can actually develop pioneering ethics and compliance programs.
Take, for example, Tyco International. Tyco experienced a leadership scandal from the early 2000’s involving former CEO Dennis Koslowski and CFO Mark Swartz – both were convicted of stealing over $150 million from the company. After that multi-year affair came to an end, current Tyco CEO Ed Breen was brought in to clean up the company’s culture. Breen also brought with him a much more ethically-minded team, and was able to turn the company around. Today, roughly eight years after the scandal was a regular story in national media, the company is respected again by industry experts.
Another example of a former “Ones to Watch” company that later became a World’s Most Ethical Company is Mattel. During the company’s 2006 lead scare, Mattel in fact had strong ethics and compliance programs in place. The company quickly responded to the issue and worked to ensure the problems didn’t happen again. This year, in part because of its efforts before, during and after the lead issue, Mattel made the World’s Most Ethical Companies list.
In light of the healthcare focus of this edition of Ethisphere, the best recent example of a company actively improving its compliance functions after a very public fine is Pfizer, the world’s largest pharmaceutical company.
Category 1/Brief history of recent Pfizer fine
Ethisphere has said many times that it takes Just One Employee (“JOE”) to impact a company’s reputation (or, depending on the severity of the violation, the company’s pocketbook). Unfortunately, in the case of Pfizer there were a handful of JOEs. These employees were company sales representatives that allegedly recommended to customers that certain Pfizer products could be used for conditions not expressly approved by the FDA, or “off label,” uses.
One of the sales representatives, John Kopchinski, blew the whistle on the company and began the process for what eventually resulted in the largest healthcare settlement ever.
Pfizer notes that Kopchinski was let go from the company as a result of concerns relating to theft of company products, and also points out that it has no record of Kopchinski indicating his concerns to the company.
After several years of negotiations, Pfizer agreed to pay a total of $2.3 billion to settle the charges and move on.
Category 2/What compliance initiatives were already in place at Pfizer
That hefty settlement jolted to attention many in-house compliance professionals that may have become a bit lethargic (especially in the healthcare industry). What should be particularly upsetting to them is that prior to this fine Pfizer actually had many strong compliance programs in place, including the “Blue Book,” Pfizer’s aptly named Business Code of Conduct.
As with any top of the line Code, the Blue Book is publicly available and easily accessible for external audiences through Pfizer’s website, and also for employees through the company’s Intranet. The Blue Book also contains robust discussions around the company’s reporting mechanisms for employees. Importantly, the Blue Book is translated into 36 languages so that employees can read it in their native language.
As with any top of the line Code, the Blue Book is publicly available and easily accessible for external audiences through Pfizer’s website, and also for employees through the company’s Intranet.
Category 3/How Pfizer has responded
Although it’s only been a short time since the settlement was publicly announced in the fall of 2009, the government’s investigation into the issue began years earlier. During that time, rather than idly waiting for the outcome of the case, Pfizer’s leadership can be commended for the way it proactively worked to improve its internal compliance programs and prevent future violations.
One of the most impressive initiatives that Pfizer has developed is its risk mitigation program RAMP. Pfizer’s RAMP program is focused on discovering product-generated risk across 34 different business processes, which is kept in line with continuous monitoring. If you add RAMP data to all of the other monitoring and auditing efforts Pfizer has underway, including advisory boards, Internal Audit efforts, hotline and open door reports, Pfizer has no shortage of information about the Company’s risk areas.
One of Pfizer’s particular strengths is its FCPA work, including due diligence on third parties and for mergers and acquisitions. Obviously, the pharmaceutical industry has unique challenges in this high-profile area, and Pfizer is utilizing all available resources to attack it proactively. For example, Pfizer now ensures that it is looking for potential FCPA violations, as part of its internal audit work in markets outside the U.S.
Educational initiatives include extensive training opportunities; Pfizer went so far as to bring personnel from China to New York for in-person training sessions. Pfizer’s senior-level communication efforts are best in class; the executive team at Pfizer never misses an opportunity to talk about both ethics and compliance.
Category 4/Comparison to rest of industry
Although Pfizer has received mixed press in recent months (a search of recent news articles will result in both positive accomplishments such as the company’s anti-Malaria partnership with Bill Clinton, and of course headlines relating to the fine), to the company’s credit many of these compliance programs are the industry’s best. That is, in part, because the pharmaceutical industry isn’t doing so well right now. Eli Lilly paid a $1.4 billion settlement in January of 2009 after allegations of off label marketing. Other companies including Sanofi-Aventis, Merck, Abbott Laboratories and others have also in recent years paid multi-million dollar settlements for allegations ranging from antitrust violations to illness and death tied to the use of certain drugs.
One way that Pfizer is working to get ahead of its peers is by increasing disclosure around payments made to doctors. Pfizer’s Corporate Integrity Agreement (CIA) required them to begin disclosing financial relationships with doctors. However, Pfizer announced it would go beyond the CIA requirements and will begin disclosing payments sooner than required. Pfizer also will be the first pharmaceutical company that discloses payments to researchers to perform clinical trials.
With all that said, Pfizer executives acknowledge that the company isn’t perfect and there is still a lot of progress left to make.
“Over the past decade, there’s not been a single year in which we didn’t make significant improvements to Pfizer’s compliance programs, and we’re proud of the steps we’ve taken – many of which go beyond a strict interpretation of government requirements,” said Senior Vice President and Chief Compliance Officer Douglas M. Lankler. “That said, we obviously would never contend that we have a perfect system. Pfizer is a very large, multinational company that is part of a complex, tightly regulated industry, and we actively look for problems. So we expect to continue dealing with issues. In our view, the most important consideration is how we respond to and learn from missteps. How do we keep getting better? And how do we ensure that all colleagues understand the company’s policies and their own responsibility for acting with integrity? This is an absolute priority for us at Pfizer.”
Category 5/Conclusion
Of course, no company is perfect, particularly companies as large as those mentioned here. Every global corporation will face an ethics or compliance issue at one point or another with varying degrees of severity. With that said, it’s also the large companies that have the greatest global impact when it comes to ethics, CSR and sustainability. After a compliance or ethics lapse, the best companies don’t shy away or fight the resulting charges. Instead, they actively work to improve their ethics and compliance programs, and continue to build their internal ethical culture. These companies are the “Ones to Watch,” and, with enough time, may just become one of the “World’s Most Ethical.”
