On any given day the Internet is alive with details of ongoing criminal and civil trials of former executives. The now too often-seen image of an executive being taken away in handcuffs only highlights the challenge facing companies that want to build ethical and legally compliant organizations.
Clearly the need for transparency in corporate governance and reliable financial disclosures is critical, but this is not the full story. Media coverage of corporate scandals masks a larger struggle in the workplace involving billions of dollars and millions of people. The daily challenge is to provide employees an ethical workplace grounded on compliance with a tapestry of employment and labor laws. Achieving employment compliance is an often under valued central piece of the governance, risk and compliance (GRC) puzzle.
CLASS ACTIONS ARE ON THE RISE
Employment and labor law issues are the workplaceï¾’s most common legal compliance challenges. A recent Open Compliance and Ethics Group survey of hotline providers revealed that 60 to 80 percent of all complaints focus on Human Relations issues. The trend is for these complaints to expand beyond the individual to multi-party or class action lawsuits. Ten years ago most cases involved individual plaintiffs and the direct dollar value of the case rarely endangered the continuation of the entity. Today multi-million dollar class actions have become common place, adding them to the exclusive list of Bet the Company litigation categories.
Not only does it seem that another eight figure award or settlement is announced every week, increasingly these rulings have gone beyond money damages to impose procedures and controls to address the underlying issues raised by the cases. Late in 2005, for example, to settle a class action claim alleging discrimination against Latino, African-American, Asian-American and female job applicants, Abercrombie & Fitch paid more than $40 million and agreed to institute extensive policies and programs to promote diversity among its workforce and to prevent discrimination based on race or gender. Among numerous other requirements, a new Office and Vice President of Diversity was established reporting directly to the CEO and twenty-five recruiters were required to be retained to seek women and minority employees.
Similarly, settlement of a class action lawsuit alleging gender discrimination against Home Depot included not only an $87.5 million payment to the plaintiffs, but also an agreement to institute a seven year plan of mandated improvements. Plaintiffsï¾’ counsel estimates that the non-economic relief could cost Home Depot more than $100 million. Increasingly, companies are facing such direct involvement in their operations as a result of class action challenges to HR practices.
More than 4000 employment and labor laws cover the average employer, and todayï¾’s employees are better informed about their rights than ever before. The media regularly provides information about settlements and judgments, and the Internet now hosts over 1000 class action web sites where plaintiffsï¾’ lawyers constantly reach out for reports that will fuel more litigation.
Already in 2006, new compliance issues are being pursued through class actions. Claims range from lawsuits regarding unlawful service charges for cashing paychecks to class actions on behalf of a supplierï¾’s workers outside the United States alleging violations of their local labor laws, including in some instances kidnapping and false imprisonment (claiming they are third-party beneficiaries of agreements with US corporations that promise foreign suppliers will comply with applicable labor laws).
BAD THINGS HAPPEN TO GOOD COMPANIES
As a result of the damage to, or demise of, companies that have experienced ethical lapses and unlawful conduct, the business community recognizes that strong compliance programs are essential. As compliance programs evolve, every corner of a company will be affected, including Human Resources and in-house employment counsel who, together, address employment and labor law compliance.
Some employers fail at employment and labor law compliance because they have undervalued its importance, including its critical role in building an inclusive workplace that can support high levels of performance. Even so, this does not explain why many well intentioned and competent organizations are exposed to class action litigation. Indeed, more than 90 percent of the Fortune 500 have had one or more employment law class action claims.
Many good employers have struggled with the question of ﾓwhat constitutes sufficient compliance with employment and labor laws?ﾆRemarkably the answers to this question are as varied as the rulings in the cases and the views of attorneys who offer advice. No matter how much an employer has done, others can and do point to more that could be done. No common definition has existed for ﾓreasonable efforts.ﾆThis is why many well-intentioned organizations fail. What has been lacking are meaningful and measurable metrics and guidelines that can be built into a compliance plan, confirmed, and enforced. No one has had all of the pieces needed to complete the picture of a compliant company.
COMPLIANCE PIECES MUST FIT TOGETHER
Perhaps the greatest challenge facing organizations seeking to implement or expand compliance functions, is the need for a common language and widely applicable tools that measure compliance. An effective compliance system must allow for clear communication between risk managers, auditors, program managers and operators of core business functions. HR and in-house employment counsel must be a central part of this communications network. Additionally, the overall compliance program must provide a basis for evaluation and improvement of program components, and support benchmarking against peers and external standards. It is essential that all the pieces of the program fit together or the compliance puzzle will not be solved.
The OCEG Framework provides the needed structured approach, common language, and objective good practice model that assist organizations of all shapes and sizes in achieving these goals. The Frameworkï¾’s guidelines address the full lifecycle of planning, implementing, managing, evaluating and improving compliance and ethics programs that are integrated with governance and risk management. General guidance, applicable to any organization, is set forth in the Foundation of the OCEG Framework, which establishes a common vocabulary and structure for subject-matter specific Domains that, when taken together, establish a
Framework governing the entirety of corporate compliance. Each of more than a dozen Domains ultimately to be developed addresses the legal requirements, existing guidance and standards, and recommended practices for ensuring compliance and driving ethical conduct specific to the subject of the Domain.
HOW TO USE OCEG GUIDANCE
The Foundation and Employment Domain guidance can be used in many ways to:
ﾕ Develop a new compliance program
ﾕ Evaluate and perform gap analysis on an existing program
ﾕ Create tools for managing policies, procedures and training
ﾕ Create due diligence checklists for mergers and acquisitions
ﾕ Benchmark against an external source and peers
ﾕ More effectively and efficiently maintain knowledge and manage controls
What makes OCEG unique as it applies to employment and labor law compliance is that, for the first time, a vast number of specific practices are catalogued, numbered and listed using a language and coding system common to compliance efforts throughout the enterprise. A Chief Compliance Officer (CCO) or Chief Risk Officer (CRO) who knows nothing about detailed employment requirements can use the OCEG Framework and Employment Domain to communicate with HR and employment counsel. For example, OCEG documents all wage and hour legally required practices (Legal Requirements) in summary language that the CCO can understand. Further guidance is offered through Core and Additional Practices that HR can implement to ensure compliance beyond legal minimums. The in-house employment counsel can use OCEG checklists and other tools to confirm that systems are in place to address each Legal Requirement. Recommended Core Practices can also be monitored along with a determination of which, if any, Additional Practices are appropriate for the organization. Together, the CCO and the employment expert can determine how best to allocate funds between competing areas of compliance need, can compare the organizationï¾’s efforts to industry peers, and demonstrate ROI in a high-performing compliance program.
EMPLOYMENT EXPERTS ARE KEY PLAYERS
The cover story of the January 2005 issue of HR Magazine, ﾓWhy Wall Street Is Blind to the Value of HRﾆreports that a growing portion of investors are refusing to fund ﾓany firmﾗincluding those on Wall Streetﾗthat does not have demonstrable, high-quality HR practices.ﾆThis is because the vast majority of compliance tasks within an organization deal with employees. Companies that ignore or minimize the role of HR and corporate employment counsel in the compliance system are making a huge mistake.
Having capable HR professionals and in-house employment counsel is essential, but this is only part of the solution. If these efforts remain separated from the overall compliance initiative and lack common standards, guidelines and metrics, success will be hard to achieve. What is the ﾓrightﾆpercentage of the compliance budget to allocate to HR compliance? How are HR compliance efforts measured and reported? How are efficiencies achieved involving other similar compliance efforts that are outside of HR? All of these are important questions that can be answered if the enterprise operates within the design of the OCEG Framework.
THE COMPLEX PUZZLE SOLUTION
The OCEG Employment Domain, which addresses 15 subtopics of employment and labor law, was released for review at a forum in Phoenix in October 2005, with over 50 organizations participating in two days of sessions discussing the proposed guidance for Employment Compliance systems. Organized within the common vocabulary and structure of the Foundation, a vast number of legal requirements and recommended practices for Employment Compliance are now catalogued in a searchable database that allows employers easy access to information, tools and resources they have never had before. A company can identify gaps in its own compliance picture and find the missing pieces quickly.
What OCEG brings to the management of compliance and ethical conduct is a common classification and indexing system that documents legal requirements and defines specific practices for organizations to implement. If there is any doubt about the power of such efforts, look at modern biological science for a strong analogy. The Human Genome Project, in perhaps the greatest puzzle solving venture of all time, identified 21,787 genes and mapped 3167.7 million chemical base pairs in human DNA. This classification and indexing project became possible because of software advances that allowed for the collection and manipulation of the needed information. The results profoundly changed the way health risk assessment is performed and made biology the dominant science of the 21st century.
Mapping legal requirements and guidelines in a database that supports the organization of content addressing all aspects of compliance and ethics management is as challenging as mapping the Human Genome. This monumental undertaking has many of the same promises as its scientific counterpart. From improving risk assessment to quantifying compliance, OCEG promises to provide a workable way to solve the compliance puzzle. A centerpiece of that solution includes tens of thousands of Employment and Labor Law practices, coded and organized to make them a more recognizable and engineered piece of the overall compliance picture.
GARRY G. MATHIASON, A SENIOR SHAREHOLDER AT LITTLER MENDELSON P.C., CHAIRS THE OCEG EMPLOYMENT DOMAIN. LITTLER MENDELSON IS A FOUNDING MEMBER OF OCEG. WWW.LITTLER.COM
