The Challenge
Many organizations rely upon an annual certification and disclosure process to prompt employees to disclose actual or potential conflicts of interest. That is a problem. How are you closing the disclosure “gap”?
Behavioral psychology teaches us that to increase compliance and get maximum impact out of our disclosure process, the disclosure should be made as close as possible to the underlying business activity that triggers it. The greater the time between the activity that gives rise to a disclosure and the actual disclosure itself, creates the disclosure “gap.” And the greater the “gap,” the greater the risk and potential for non-compliance.
If you are only asking employees to disclose their conflicts once a year, for example at the end of your annual Code of Conduct training, you are missing another 364 days of disclosure activity. Unfortunately, the events and business activities that give rise to a disclosure don’t always conveniently fall during the annual training cycle. They happen year-round as employees are doing their jobs and engaging in business activities day-to-day. As a result, you need a disclosure solution that is available 24/7/365.
The Approach to Closing the Disclosure “Gap”
Organizations no longer need to be constrained by manual processes or outdated spreadsheets. Best practice is to have an automated disclosure process that closes the disclosure “gap” and ensures that employees make their disclosures timely and receive a response quickly. Current best practices in disclosures include:
New Employee Onboarding Certification and Disclosure
New employee certification and disclosures processes set expectations early for an ethical culture. Organizations expect employees to abide by the code of conduct and conflicts of interest policy. An automated disclosure process engages employees with the program and builds important practices and relationships with the ethics and compliance program. Timely disclosures also reduce risk for both the organization and the employee.
Ad Hoc Disclosures as Conflicts Arise
Allowing employees to disclose potential or actual conflicts as they occur throughout the year, also known as “ad hoc” disclosures, further reinforce company policies and ethical business practices. They also increase the chances that the disclosure is made and that the information provided by the employee is truthful and accurate. Where a conflict does exist, the conflict can be accepted, avoided, or mitigated with the appropriate controls.
Annual Certification and Disclosure
An annual conflict of interest certification and disclosure process is still an important part of an effective program. It provides an opportunity to reconfirm employees’ understanding and commitment to following the policies of the organization. It also allows employees to address any disclosures that might have been missed during the year, as well as update on the status of prior disclosures. The ethics and compliance program can also use this opportunity to communicate any changes to the program.
M&A Due Diligence
One of the more recent trends in disclosures is the need to address conflicts of interest in the M&A due diligence process. Getting these potential conflicts out on the table early in the process can reduce risk, allowing issues to be addressed before due diligence begins, the acquisition closes or as part of the integration process. It also allows for a smoother transition as the organizations come together under a single ethics and compliance program.
Even after closing the disclosure gap, programs should ensure that they have the appropriate best practices in addressing the day-to-day activities of supporting a disclosures process. We cover those practices in the following article here.
The Conclusion
Closing the disclosure “gap” and getting ahead of conflicts of interest, can significantly reduce risk for employees, the organization and the compliance program. They also provide an excellent opportunity to build an ethical culture by engaging employees and expanding their ownership and awareness of the program.
Closing the disclosure “gap” through automation is fast becoming a standard element of effective ethics and compliance programs. If you are still managing your conflicts of interest and other disclosures using a manual process, such as emails and pdf forms or SharePoint sites, your program is falling behind. Automation doesn’t need to be complex. In fact, it should be just the opposite.
informed360 can help you implement your onboarding, annual and ad hoc disclosures and certification processes quickly and easily. If you would like to learn more about certification and disclosure best practices or informed360’s Dynamic Surveys and Dynamic Disclosures solutions, please contact us at info@informed360.com.
