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    Partner, Dentons

  • Igor Svitlyk

    Associate, Dentons


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Top Management’s Role in Creating Effective Corporate Anti-Corruption Compliance

Top managers in Ukrainian companies are actively involved in many internal processes to keep  businesses running well, but not many of them pay noticeable attention to anti-corruption compliance matters. However, some important developments which occurred within the last few years may drastically change this state of affairs.

Firstly, the U.S. authorities have begun active investigation and prosecution of foreign companies allegedly involved in bribery of public officials abroad. Ukraine is now on the radar of these authorities, which has already led to several investigations and multi-million dollar fines.

Secondly, the Ukrainian Parliament has adopted the new anti-corruption law establishing requirements for the private sector in the field of corruption prevention with specific measures to be implemented. For more details, please refer to our article in the 2016 edition of this journal.

Thirdly, three new authorities responsible for corruption prevention (National Agency on Prevention of Corruption), investigation (National Anti-Corruption Bureau) and prosecution (Specialized Anti-Corruption Prosecutor’s Office) have been established.

The National Anti-Corruption Bureau has already made it clear that, despite being focused mainly on public corruption, it intends to investigate corruption offences in the private sector too.

As a result of these developments, many CEOs are now starting to take anti-corruption compliance more seriously. However, leadership in some companies still considers compliance policy and related instruments merely a formal process as a pre-condition to participation in public procurement, or a tool needed to have a good appearance in front of its international business partners. Once employees notice such an attitude, it will be extremely hard to convince them that compliance does matter. The compliance process in such companies usually ends up with a so-called “paper compliance”, when one has policies and procedures in place but they are not enforced as neither the CEO nor employees care.

It’s not surprising that such “paper compliance” does little, if anything, for real prevention of corruption and potentially may result in very unfortunate consequences for the company. The main reason for that, as we strongly believe, would be the lack of real commitment from the top management to prevent and counteract corruption in company’s activities or, in other words, lack of the right “tone at the top”. The purpose of this publication is to provide a short guidance on how the “tone at the top” should and should not look like and what needs to be done to ensure that the word “compliance” is filled in with real meaning. We hope that the overview below can be used as a reference point for executives which are still determining its approach to the discussed matter.

What is the “Tone at the Top”?

Do not look for regulation of the “tone at the top” in Ukrainian laws, you will not find it there. The current Prevention of Corruption Law only mentions that (i) the CEO shall ensure regular assessment of corruption risks and undertake appropriate measures, and (ii) company’s officers shall refrain from behavior that could be interpreted as readiness to commit violation. However, these requirements do not encourage management to set the tone for effective compliance in a proactive way.

In our view, the “Tone at the Top” is an expressly declared position of the top management of zero tolerance to corruption in the course of business, as well as visible and consistent commitment to compliance with law and procedures, as continuously demonstrated both internally and publicly.

We would distinguish the following key requisites of a CEO’s behavior which, in our view, constitute in unison the right “Tone at the Top”:

— it should be visible, so every company’s employee can say that he or she is completely aware of the management’s explicit stance on corruption and compliance with respective laws. As very well said in the Resource Guide to the U.S. Foreign Corrupt Practices Act1, managers and employees always take cues from their leaders;

— it should be consistent, so no actions contrary to the previously declared zero tolerance to corruption may be undertaken on any corporate level;

— it should be demonstrated on a continuous basis, rather than once a year at the CEO’s annual speech to employees; and

— it should be communicated internally across the company and externally to the company’s partners and the general public.

Why is “Tone at the Top” a Key Element of the Effective Compliance System?

Cynthia Glassman, Commissioner of U.S. Securities and Exchange Commission, concluded her speech2 before the U.S. business community in 2003 with the remark that the ultimate effectiveness of the compliance procedures will be determined by the tone at the top: “Adopting a code of ethics means little if the company’s chief executive officer or its directors make clear, by conduct or otherwise, that the code’s provisions do not apply to them.”

Indeed, even if the company retains an outside counsel to develop and implement the best possible compliance policy and practices, such instruments may be useless if employees are aware of the management applying them selectively and leaving room for exceptions. Therefore, the “Tone at the Top” should always be considered as a fundamental ingredient, helping to achieve an effective compliance system.

Right and Wrong “Tone at the Top”

As mentioned above, the “Tone at the Top” is conveyed through the actions of the company’s management. Let us cast a look at some practical examples.

Bad Practices

Making exceptions for yourself. We have been asked by our client to develop and implement a compliance policy and thereafter deliver a practical training for employees to familiarize them with the implemented instruments. The presentation was held in Ukrainian (while the CEO had no knowledge of Ukrainian at all) and the place of training was close to the location of military actions. The CEO nevertheless decided to participate and brought the translator with him to follow the topic. By doing this the CEO showed that he did not consider himself an exception.

Compliance matters are handled only by lawyers or compliance personnel, while the CEO’s engagement is limited to annual presentation or email communication. Management very often believes that compliance matters are only the responsibility of legal and compliance staff. However, such an approach lacks the behavioral requirement mentioned above — visible and continuously demonstrated commitment by its leadership towards compliance.

Practicing double talk. In the infamous Wells Fargo case, senior management established unrealistic sales targets, which, as employees reported, they could not meet without violating the company’s policies. Then, in spite of the declared commitment to compliance, the company’s officers ordered the monitoring of the internal hotline and to pass information on whistleblowers to management. As a result, instead of protecting employees who reported offences, the company was keeping an eye on whistleblowers and subsequently dismissed them on some flimsy grounds.

Keeping compliance violations and disciplinary measures in secret. Information on compliance violations is usually very sensitive. However, keeping it under the table may cause harm in the long-term perspective. If the information becomes known from sources other than management, employees may start questioning the leaders’ attitude towards compliance violations and declared corporate values in general.

Good Practices

Demonstrating openness to dialogue.
The management should not only spell out compliance expectations to employees, but also be ready to talk. Avoiding dialogue on compliance matters and forwarding respective requests entirely to lawyers or compliance officers may send out the wrong signal.

Encouraging ethical behavior. A good move from the CEO would be including compliance performance indicators into the annual employee performance reviews.

Communicating compliance commitment to internal and external stakeholders. The management should clearly articulate internally and, very importantly, externally to the company’s partners that compliance is one of the core values of the company, rather than that just corporate formalities or paperwork need to be done.

Bottom Line

Before conveying the compliance value to employees, the management should first believe that it is an essential tool for any modern company willing to build a successful and sustainable business. Otherwise, the company may end up with formal compliance incentivized by the fear of punishment rather than by encouragement. Such type of compliance has a much higher risk for exposure.

Once the intention is set, it is up to the management whether to apply the discussed approaches or to find its own way in setting the right “Tone at the Top”. But the benefits from creating effective corporate anti-corruption compliance are definitely worth the effort.