The CRO Practitioners Panel

Panel Members:

Patricia Calkins, VP Environment, Health & Safety, Xerox
Brent Saunders, SVP, Global Compliance, Schering-Plough
Gilen Chan, Director of Ethics, Citigroup
Moderator: Adam Turteltaub, LRN

MOD: I am joined on this panel by three practitioners with much more experience on this topic than I. Patty Calkins is the Vice President of Environment, Health and Safety for Xerox Corporation. Brent Saunders, in the middle, is the Senior Vice President for Global Compliance and Business Practices at Schering-Plough, and Gillan Chan is the Director of Ethics for Citigroup. I think, right off the bat, what’s notable about all three of them is that they all have three different titles with three varying areas of responsibility, and yet all three are in this room and part of this discussion. And what we thought we might do for this discussion is begin by each one spending just a couple of minutes explaining what their area of responsibility is, because I think one of the things also that is notable, is we have talked a lot about sustainability, but for this conversation we have been much closer to the ethics and compliance arena. So, Patty, why don’t we start with you?

Patricia Calkins: Sure. As Adam said, my role at Xerox is Vice President of Environment, Health and Safety. And what that means, it’s global scope and it’s across the corporation. Starting back early in the 90s is when Xerox realized that it was not only good for the environment, and the health and safety of our employees and our neighbors and our customers, it was also good for the business for us to take a more proactive and progressive approach to environment, health and safety. So we established an environment, health and safety policy, which we have been, over the years, continually working on implementing.

I think, as Michael said, saying what you need to do is the easy thing. Actually getting it to happen in a large corporation of 55,000 people is a very big challenge. So my role is helping understand what it is we need to do and then how we implement that, who needs to be involved, and perhaps through the session that we have here, I can brag a little bit about some of the things that we’ve accomplished, but realizing there is so much more that we can continue to do.

Brent Saunders: Probably the best way to describe the scope of responsibilities I have at Shering-Plough is to just give a quick history of how I came to be at Shering-Plough. Today is actually my anniversary with Shering-Plough, for three years. I joined November 1, 2003, and our company at the time was probably in the middle of, to steal a movie title, “the perfect storm” of compliance and financial issues. I was a partner with Pricewaterhouse at the time, and I was advising our CEO on how to potentially help turn around the compliance posture of the company. And one of the recommendations I gave to him was that he should create a position that was part of the executive management of the company, part of the operations management of the company, and that consolidates all of the compliance and risk functions under one senior executive. Basically for the reason of, if it’s important to you, it has to be part of your sphere of responsibility as a CEO and it has to be led by an executive that reports to you.

And so, I guess in the world of you should never say what you don’t want to do, he said, “that’s a great idea, why don’t you do it?” I said no a couple of times, but ultimately I wound up joining Shering-Plough and taking on that responsibility. So, we essentially have consolidated all of our compliance, risk, regulatory, environmental health and safety functions into one compliance and business practices group, and I have the responsibility of leading that, and that covers our entire company, operations in 140 countries, and all of the different things that we do as a research science based pharmaceutical company.

Gilen Chan: I’ll start with the similar background approach, which I think is helpful to understand where we are at Citigroup. I joined Citigroup 19 months, 25 days and 2-1/2 hours ago. [Laughter] But who’s counting? Looking back at my background, I have been in this function, ethics and compliance, I guess a total of about 11 years, spreading over four industries. I did start at GE Aircraft Engines as an engineer, and then as an internal auditor, working on government compliance at the time and not knowing it, now knowing why all the investigations were under the privileged review of Legal at the time. And then I decided to -- I had such mentors at GE that I decided to pursue law school. And from there, I practiced employment labor law on the public side, and then, realizing that I needed to repay student loans, I joined the private sector. And so, I have been in various industries in this capacity.

The last position, which to me was the most special, I should say, I was with Gray Global Group, Inc., formerly Gray Advertising. I think many of you are familiar with that, a company of about 10,000 employees in about 100 countries. What had happened at Gray was a Department of Justice investigation that launched two years prior to my term, and at the end of the investigation, someone suggested that your company ought to have a compliance officer.

Of course, the advertising communications area is not quite as regulated as the industry I’m in now, so there was the thought that this person isn’t going to really generate any money, which is a misnomer, I think. I mean, if we can save a situation from happening and nipping it in the bud from the very beginning, that could save you tons of money. So, there is certainly good in that. And the most challenging question, I think the chairman -- I had six interviews there -- and every month, I was keeping up with everything in the news. I think I read every journal, every article, to be prepared. And on the day of my interview with the CFO, he asked--this is the one day I missed reading the pages as I was running late--and he said, so what do you think of this Dennis Koslowski? And I said, I’m not quite sure, I didn’t read the paper this morning. So embarrassing. And so we talked about that a bit, and of course, ever since then, there isn’t a day that goes by that I don’t read any -- everything that’s out there. But I was the first chief compliance officer at Gray and in the industry. And I thought, having gone through the scandal at Gray--and a number of people did, they were acquitted, though there’s the senior person who is serving a federal sentence of about seven years--that, number one, it would be kind of a little daunting to take on that task. Under the code of conduct, every individual offered a gift and entertainment opportunity was to obtain approval from the chief compliance officer, so I thought all I’d be doing was having everyone and anyone come in, because in that industry, much of the business interactions are at social events. You know, the World Cup, the Olympics, World Series. And these are serious. The World Series, a package of two, runs about $10,000. And a lot of people do not realize that. But much, so much business is conducted at the World Series, as I’m told, or on the golf course, when you’re trying to, you know, hit that shot. So it was challenging, it was very interesting. I was very, very busy, and I thought it would just be training, but we were up and running. And as we brought awareness to the table, more and more people came to us, now that there was a face behind the 800 line, and that was very helpful.

So, at Citigroup, we are doing the same. At first, it was Citibank. Through acquisitions, it became Citicorp, and today, we are Citigroup, after the acquisition of the umbrella Travelers. We centralized our functions back in 2003, primarily pursuant to the federal sentencing guidelines, as well as the Sarbanes-Oxley Act. My office is fairly new from a centralized Citigroup perspective. We do have 325,000 employees around the world. And we grew from an office of two to an office of six. So, there has been a lot of activity growing around that, and I think we have a lot of work to do. We have about 2,000 or so compliance officers and these are one sliver under Mr. Kaden, and the company is taking, very proactive measures to move in that direction. So, is it time for lunch? [Laughter]

MOD: It’s funny, I used to work in advertising as well, and I’m constantly surprised by the fact that as much as we spent time talking about reputations of company, there are no marketing… how many marketing people are in the room here? And how many of you are consultants in this area? Inside companies, the marketing group is charged with protecting the brand of the organization. But you will virtually never see one involved in an ethics compliance social responsibility function, other than if it’s a promotional event where there might be people there that you would entertain. There is a certain irony there, that if you were at, to use the example earlier of another customer of ours, Proctor & Gamble, your job is protecting the Dove brand. But I don’t think too often the question comes up from a brand manager, “What is compliance and ethics and so forth doing in this area?” One of the things that we were talking about before this session started is the fact that when you look at ethics compliance as we have defined it, and social responsibility, both are about “should.” They are both about how a company goes about its business. Both are about its values. But they tend to be dealt with in different worlds. Even in global companies, which are used to thinking in these terms, the ones that we work with that are based internationally, you will have two different people that you will be talking with, one on responsibility issues, one on ethics and compliance functions. Patty, in some ways, you straddle the line the most, since you are dealing with environmental issues. Why do you think there is this schism out there?

Patricia Calkins: I don’t know that I actually, at least within Xerox, see it as a schism necessarily. I think that you need to have both. So, for example, when we look at our environment, health and safety programs, fundamentally, you have to have compliance as a baseline. I mean, it’s a fundamental pillar that if you don’t have that, that’s the “must-do”. Then the next level is the “right thing to do”, and I think that is where we get into evolving from strictly focusing in on compliance to moving more towards operating, towards, more ethical values driven performance. And then, there’s the “smart thing to do”, which is really looking at the external market focus or protecting the brand aspect. And it’s interesting that you say that, because I actually have a team that’s working on “What’s the next plateau that’s moving us from ‘the right thing to do’, to ‘the smart thing to do’?” And people on the team include our corporate marketing and our brand manager. So, we clearly understand that, to be successful, you need to have all of those perspectives to ensure that you are working. So, while you may organizationally have people in, say, the ethics department, and then you may have people in the social responsibility or the environment health and safety department, I think the challenge and the goal is to have it so integrated within your business processes that you don’t necessarily have to worry about who’s where. But you always need to sort of have somebody as the subject matter expert, who is ensuring that you continue to adhere to the standards and the values that you are trying to implement throughout your business processes.

Brent Saunders:  I agree a lot with what Patty said. I think compliance, at least in our world, is non-negotiable. That is the baseline. We are going to comply with the law. We are going to comply with our own internal policies and procedures, and that’s not up for debate. I think when you think about social responsibility, that’s that value-add above and beyond compliance, and that’s something I think we strive to try to accomplish. And then we bring in the various disciplines, whether it be environmental health or safety, whether it be our drug access programs, and so on and so forth, to try to figure out how can we be good corporate citizens. I don’t really see it being divorced from one another. I think it’s part and parcel of what your mandate is and what the tone at the top is, and how you want to go about and accomplish the right thing for your company.

MOD: Let me ask a question. We have talked about tone at the top, but several have also acknowledged the importance of tone at the middle. Scott Mitchell from OCEG talks about the tone at the top, throughout an organization, how important that is, that people own it in various levels, and I think as we talk about operationalizing things like values, a lot of focus needs to be on how the middle managers do that, since they are the ones ultimately who are deciding who gets the raises, who gets promotions, who gets the good jobs, who gets the work that nobody else wants to do. Is there anything that you’re seeing interesting or that you put together to make sure that the middle gets it as well as the top does?

Gilen Chan: One of the things that we’ve done, and I think Lewis brought this up earlier is that, in 2005, we did start what was known as the five-point plan at Citigroup. Embedded in there are obviously five points, very key points that include making sure that controls are in place consistently but that people at all levels need to be trained on significantly relevant to their jobs. So, one of the very proactive steps that we took was that. We have 300,000 employees, so there was training targeted at 3,000; then 30,000; and then 300,000, and these were not just an hour or two, but these were lengthy sessions. Then the ethics office rolled out the code of conduct to 300,000. And in fact, surveys have shown that people tend to feel that we are getting over-trained. I just completed 14 hours of compliance officer training. And I think that you have to take all that in context, and the message is loud and clear, but you also need to make sure that everyone that plays a role in the product really understands not just what they do but how to do it right. So, middle managers need to be held accountable, and it just can’t be the tone at the top.

MOD: Brent, you have got the added challenge of the pharmaceutical industry. I mean, everyone, virtually, is under a corporate integrity agreement, a deferred prosecution agreement, has a monitor in place. It’s got to be critical day to day.

Brent Saunders:  We have paid close to, I guess just under $2 billion in fines since I have been there. We’ve pled guilty to a couple of felony charges, and we continue to have issues surface. So, it certainly is under fire, so to speak. But I think compliance--doing the right thing--is top of mind in the company. But how do you keep, certainly at the top of the organization, how do you keep it alive in middle management? I think there’s no one magic answer. There’s no magic bullet. There’s no singular event that’s going to allow you to do that. It’s something you have to actively engage in working on all the time.
We do include it in all performance reviews of all of our colleagues around the world. We have six leader behaviors that we expect our colleagues to utilize and try to adhere to. And we measure them against those things, and so we continuously work at it. We don’t take it for granted. And we constantly try to reinforce it.

A good example in our industry is, there are a lot of “salesperson of the year” types of awards, and a lot of times people would win these awards based purely on the numbers: did they meet the highest sales goals in their territories? One of the things we looked at when I got to Schering-Plough was, what’s the criteria for winning that award? It can’t just be “did you make the numbers, or make the best numbers in your region?” It has to be, “did you make the right numbers in the right way, and did you exhibit the type of behavior and compliance posture that we would expect of you?” We are not going to put somebody up on a pedestal and give them this award if they, in fact went around the rules or operated in a gray zone to achieve those high level of sales. And so you have to do lots of things like that to get the message out that this is something that’s part of our institutional values, and that we are not going to reward success if success came by operating in a gray or not-so-gray area.

MOD: Steve Kerr at Goldman-Sachs, who used to be the chief learning officer at GE is famous for saying, “show me what you reward and I’ll show you what your company cares about.” And too often, companies make the mistake that you have moved on from, which is just showing the numbers. I would imagine, Patty, that at Xerox, given a lot of your environmental initiatives, you could spend some time talking about the zero waste process. It sort of has to be owned by middle management, since they’re the ones who are involved in making the day-to-day decisions on these areas.

 
Patricia Calkins:  Absolutely. And I think you came up with one of the biggest challenges. I mean, we have always said, “gee, if you don’t get top management support, nothing will happen.” But quite often, when we do get top management support, and then we have got the groundswell coming up from underneath, it’s those in the middle that make or break whether you’re going to do it. I think one of the things that -- and just to explain to the rest of you here, Xerox’s initial initiative in the early 90s, as we started to move out more proactively -- was we established goals of designing waste-free products to be manufactured in waste-free facilities to enable waste-free customer environment. So, to be able to operationalize that or execute against that, we needed middle management buy-in and active involvement.

And in addition to some of the things that we’ve already talked about that Xerox had to do, another critical one is to have it on annual objectives, because that’s what get measured gets managed. And if it’s on the objectives, the annual objectives, and people’s compensation is based on how they achieve those objectives, then they are more likely to execute towards the things. I think the other thing that Brent talked about, is what we’ve learned, is that the ends don’t justify the means. And that when you’re measuring performance, it’s not just the results but it’s the process measures that are also critical to ensure that you’re not getting to those results in a way that perhaps is not optimal, but in fact, you’re doing it in a way that is acceptable.

MOD: That leads to another question. As you talked about all of these managers and incentives and everyone focused on doing the right thing, obviously you need a lot of allies, and you can’t do it alone. For the people here, who should they be thinking about as allies, especially those who might be surprising allies in this effort?

 
Patricia Calkins:  I can start with that. Some of the surprising allies you may not intuitively think about right way are but customers, regulators, and NGOs [non-governmental organizations]. And Michael Harrison brought that up when he was talking about Timberland--that they partnered with NGOs. If you’re in industry, typically, it’s like, stay away from the NGOs because they are going to force us to do something. But you know something? They have got a lot of good things to help us understand areas that we can actually move towards. And then the regulators -- and NGOs together, if you partner with them -- can help you actually remove some of the barriers that you may be running into.

An example at Xerox is, when we started down the road to this waste-free initiative, we, in a very conscious way, started to design our products for remanufacturability. So that means that the products we’d be delivering to customers might have reused parts in them. What’s the perception of that? Well, you’ve got products that may be of inferior quality. We had seen, particularly in the government sector, people putting out requests for proposals for products that only contained 100% virgin new. And we said, okay, we’ve got this strategy that’s good for the environment and it’s good for business, but our customers, fundamentally, are not wanting to purchase these products. So we allied with the regulatory agencies in the various states to say, can you help us educate your procurement organization? As long as we can demonstrate quality and performance, you really shouldn’t care what’s inside the box. That’s just an example of allying with the regulatory agencies to help push forward and get beyond some roadblocks that you might run in to.

Brent Saunders: I have, dead on, the same point of view. The only thing I would maybe spin is, internally there are some allies, as you think about getting the message out, it’s truly the business operations. I think you mentioned it early on, the value of protecting the brand, and that the day we announce a settlement or a criminal plea or something in the paper, a lot of the physicians or managed care organizations that we deal with start calling and saying, what happened? Are you going to still be in business? What’s the deal with your product? So, I think our folks realized very early that we have got to protect the brand, and that doing the right thing and having good behavior and trying to aspire to be a really well thought of company is good for our products, good for business.

MOD: Let’s talk about the other side. What are the barriers that you find these days? It would seem that everyone should get it at this point. You have had the unfortunate situation of paying $2 billion in fine, which can be very illuminating to people internally. Citibank had a CEO who went around the world apologizing for past practices, and by the way, got noticed. I had the benefit of hearing Eliot Spitzer, and when he was asked, who gets it right, he cited Chuck Prince and Jeff Immelt for it. Are there still constituency groups that anyone actually wants to comment publicly on, that you still find resistance from?

 
Gilen Chan:  I think that in many companies, especially multinational companies, you have this diverse population. If you are in my industry, you have heavily regulated and unique legal rules, and you want to try to bring together some kind of consistent standardization across all these areas, and it’s extremely difficult.

But one common factor amongst all the businesses wherever they are in the world is that we are all people, and in general, most human beings find it uncomfortable to bring forward issues, whether it’s ethical concerns or otherwise, for fear of retaliation. So, maybe at the lowest level, they may see something that one would think, “oh, I don’t think the CEO would like to know if this was happening, but if I report this, then there’s the fear that I’ll lose my job. It’s them against me, little me.” So, one of the very important features of any of these environments is that you make people comfortable to the best of your ability. I know it’s regulated now, but the point is trying to instill a culture of confidence and of people who are willing to come forward. One of the lower level tasks, of course, is to make sure all the steps are in place to be available, whether it’s your supervisor, your supervisor’s supervisor, to whom you could go, or a third party hotline. We have an 866 number, for example, and it’s managed by a third party, and people find that by speaking with someone outside the company, they are a little more comfortable. They still know that those reports will come back to us, but nevertheless, that helps to build that feeling that the company does care. They are engaging with somone outside company, and even though it comes back, I could report something anonymously, and I could write to you from any country in any language. So that’s part of the cultural change. And I don’t think it’s easy.

You know, when I joined the company, I thought, gosh, I’m going from a company of 10,000 to 30 times the size. You know, it’s like the Queen Mary. So how do you achieve that? You have to communicate, to bring awareness. You have to let people know that we are real people. We’re not ethicists or saints with halos. People think, “What do you know that I don’t know, what do you know that my parents didn’t teach me or my mentors or my teachers?” You have to let people know that there are real people here who are concerned. Our doors are open. We have five, six channels of reporting. You can go to Starbucks and write to us anonymously. That is slowly changing the culture -- but that’s a barrier. You want your workforce to feel comfortable to come forward.

MOD: I think a lot of it is trust-based issues. We did an interesting survey nationally, where we asked people, is your company an ethical place to work? And one of the things that was interesting is white collar professionals tending to be in the home office gave it the highest marks, salespeople were the next lowest, and factory workers, who really are just sort of told what to do and don’t get part of the decision-making process, gave the company the lowest marks. The question that came up was, are there different ethical expectations, or is it a lack of communication -- because they are not told what the decision-making process was, they are just told to do things. Your comment about that communication was important -- how do you overcome some of those issues when you are dealing with a global company? If you take the work we do, it used to be we had our courses in probably three or four languages. Now we are up to 40. If somebody says, turn our code of conduct into a course, I don’t know -- how many do we do it for you? It’s not uncommon to do it in 12 languages at this point.And then you get the barriers of the fact that different countries, different values, don’t resonate. Is anyone seeing or putting in place interesting strategies to overcome that?

Brent Saunders: We operate in about 140 countries around the world, and we do our code of conduct, I think, in 32 languages. The interesting thing we have is that we have grapevine in the U.S. Three years ago, when we started under the leadership of our new CEO who was brought in to turn the company around, we put in a hiring freeze, we put in a salary cap, we took away all the bonuses. My group was the only group that was allowed to hired. And that sent a very compelling message across the company, which was, even in a strained financial environment, when we were in financial turnaround, the only place we are going to invest is in the compliance department, and we’re going to build that department to fairly robust size.

When I go around the world and I start to meet some of the folks in some of our really smaller countries, where we have rules that they view as U.S. based rules, they look at it and they say, “you’re not letting us do things in our country that are legal, that we are allowed to do, and that our competitors do in this country, because you guys made a lot of mistakes in the U.S. and you guys had a lot of problems in the U.S., and therefore, we are getting punished out here.”

We to try to explain to them that we do it not because it’s legal or illegal but because it’s really the kind of company we want to be. We don’t want to engage in buying business, we don’t want to engage in being caterers for physicians, that’s not what we’re trying to be as a new company. They slowly have become more in tune with what we are trying to accomplish. And we surveyed them, and in our recent global survey, and we scored very high on “Do you work for an ethical company?” Three years ago, we got okay marks in the U.S. but really bad outside of the U.S. This year, we are well into the mid 90 percent “yes” across the board. And again, I don’t think it’s one thing we’ve done. It’s this consistent approach to showing that compliance is important, that doing the right thing is important, acting in the right way is important, and will be measured and rewarded, that has slowly built the message. But I would tell anybody, it’s not going to happen overnight. This is a five, seven, ten-year kind of change and journey that you’ve got to embark on.

Patricia Calkins:  I agree with everything that Brent said. I think that the recognition that these things just don’t happen overnight, but you actually have to build them over time and keep reinforcing. I think the other thing that is really important to reinforce that he talked about is that -- and again, it sort of resonates back to what some of Mike Harrison said -- is that employees feel proud to work for a company that isn’t doing things just because they have to, but because it’s the right thing to do. And that, in fact, not only is it good for your brand, but it’s also good for attracting the best and the brightest to your company. I think that’s resonating more and more with the generations that are coming up now.

Brent Saunders: Along those lines, one of the things we also saw in that survey was, incredibly, I think it was 96 percent of people thought it was important or critical that their company be ethical. And I think there is inherent value in being able to sleep at night.

MOD: Yes, it makes a big difference if you can go home and sleep at night. We have 10 minutes left, so I thought we would open at this point to questions to the panelists.

I’m Barbara [missing word due to microphone glitch] employee assistance program, and I’m wondering if your companies are investing in behavioral health practitioners when it comes to healing, growing creativity, healing after a lawsuit or building awareness about how to be a more ethical employee on the beginning of their careers? How do you invest in your employees so that they can become the kind of individuals you want them to be and really grow with the company in the way you want them to grow, but from a behavioral health perspective?

Gilen Chan: We have an employee assistance program, but we also have other channels that we call, depending on the different subsidiaries, that address these types of things. One of the things that we started to do was try to do this right from the very beginning: have managers during interviews, when we did this at my former company, weave these types of questions in during the interviews, before they come in, whether they are recruiting on campus or the executive searches, throw some questions in there that asks the individual about their belief and their value system, and so forth. Then, during the new hire orientation, we are trying to standardize this across the world as well, have someone represent the ethics office or the compliance office or both, be at that session, and drive home that your jobs are important and the numbers are certainly important, but that shouldn’t be your goal. You want to be able to come into a workplace environment where you want to be able to sleep at night without waking up at two, three in the morning and being troubled.

So let them know at the very beginning, and also keep them informed throughout the process. Be transparent, let people know what efforts are being made. We built a website -- this was before I joined Citigroup -- and we actually post all our results of our investigations on there. We group it by country, by risk area, by numbers. We obviously don’t go into the details and the findings. I don’t think anyone would necessarily want that type of information out there, but the point is, be transparent and make people think that this is really valued.

So I think behaviorally, it’s got to come from all different angles, and your managers should be receptive when an employee has a concern, rather than, wondering how much time are you wasting telling me this when you should really be working on your project.

Patricia Calkins:  Just to add to that, there’s also a subtle aspect of it, that a lot of the managers are now taking on some of the human resources responsibilities. So again, it’s integrating into the process, and that, linked with having ethics help lines and those sorts of things, open up the avenues for employees who have questions or aren’t quite sure about what’s the right decision or what’s the right action they should take. Or if they see something going on, that they can go to their manager and their manager can help them either directly or, if we don’t know, say “we really need to go together, perhaps to the human resources person, or to the help line.” We also include this in the new employee training, particularly from the safety side of things -- that’s what I’m most familiar with -- but the reinforced training and providing the avenues for people to get questions answered when they are not quite sure.

Hello, I’m John Paluszek of Ketchum. Beyond compliance, when we get to the right thing to do and the smart thing to do, the industries represented obviously have done a great deal of voluntary initiatives -- the pharmaceutical industry in providing medicines to poor people at reduced prices, the Equator Principles in the banking industry, and I’m sure Xerox has examples as well. My question would be, these are all obviously somewhat limiting in terms of either revenues or profits for the companies, how do you play that back to the shareholders? Is it a matter of explaining long-term protection of the brand perhaps, or market development, or something else, or all of the above?

MOD: And I would add the question, are shareholders objecting to any of this? I mean, do you see any?

Brent Saunders: I routinely meet with shareholders, and they keep encouraging us to do more, which is a nice thing. They like to see that we’re committed to operating in a zone beyond just the non-negotiables, you know, the compliance zone that I talk about, but that we have a commitment to funding patient assistant programs, that we have a commitment to spending 20 percent of every dollar we earn on new research and development for unmet medical needs, that we help in countries around the world with setting up centers in places for people to go to seek treatment and get their medicines administered, particularly if they are IV or infused medicines. Those are all good for the brand and I think the shareholders realize that that’s just part of the responsibility of being a pharmaceutical company today. That’s just what you have to do. It’s a good thing.

Patricia Calkins:  It’s interesting, because a group of us were just talking about this yesterday at Xerox, and the fact that you are seeing more and more shareholder resolutions that are asking companies to do some of these things and recognizing that it’s not an either/or. You need to have the short-term financial sustainability to be around in the long term, but you have to do the both. It’s not either/or, it’s both. And there is value in that brand equity. It’s hard to quantify to the bottom line, but you know that if you are not doing it, that you are going to lose business, and it’s getting more and more important. It seems like in the 70s and 80s, as environmental regulation particularly started to grow, you saw companies start to really bring up their activity. Then it seemed to plateau for a little while. I see a real resurgence over the past few years, as I think the shareholders are having far more recognition that this sort of the intangible value to the brand is significant.

Gilen Chan: I think shareholders do want to believe that the company is doing well and doing the right thing, but they also feel better that there are “watchdogs” there. I think even clients ask, “well, before I engage in any of your services, who handles what and do you have something in place, if something should surface, to address that in a timely way and in a thorough way?” So, I think many shareholders from all the various companies I have worked for have always applauded these types of efforts, because there’s no down side to it.

MOD: What’s been interesting over the last few years, if you look at, even an extreme case, with $2 billion in fines, but generally, the fines are far less than what the shareholders end up paying out in loss equity. There was an interesting study recently done on the backdating scandal that showed that typically a $600,000 increase in executive pay through backdating, cost typically half a billion dollars in lost equity for the companies that were affected. It certainly changed the math a lot.

[We heard] about risk, and about reductions in saving and waste and so on, but the real challenge for CEOs and boards is growth. And I’d be interested to have the panel address growth, because I’m thinking, money, finance, health, and communication are the categories. And there aren’t just a billion people in the world who want those things. There are six billion. How do you connect your mission, your mandate, to growth, top line, bottom line, and innovation in your enterprises? What’s the challenge you face, the biggest challenge you face in doing that?

Brent Saunders: I can try to take a crack at that. I think we view that having good compliance and business practices program enables growth. We are in an extremely regulated environment and probably the most regulated environment in the world, in that we make things that people take when they are sick and fragile. And so, we get regulated on all fronts. And sometimes the regulations are not in harmony, in a sense, and so it’s even more difficult.

But I think what we do to try to stimulate growth and how we add value to growth is a couple of things. First, I think it’s the simple things like “right first time.” So, if we are producing batches of pharmaceuticals in one of our plants, and we are out of spec, and the regulatory authorities want to prove that, or we let it go through and it gets caught by regulatory authorities later, we either have to recall it or we have to discard the entire batch of pharmaceuticals. That is a very expensive proposition, particularly with biologic pharmaceuticals. So, if we can get it right the first time, and we can build the right procedures in place--because a lot of times, what’s wrong with it is the paperwork, it’s not the actual substance of the drug--if we can get the paperwork and we can get the bureaucracy right, and we can get the drugs produced right first time, we have a lot better efficiency and therefore, lower cost. So that’s one way.

Second, in this innovative culture which is very important to us--in that we spend so much in R&D and finding new drugs is the lifeblood of a pharmaceutical company-- allowing people the ability to feel like they’re protected if they operate in this certain zone, that they can take risks and know that if they do that, the company will stand behind them, it allows them to innovate with a lot more comfort. I don’t know if I’m explaining that quite well, but our scientists know what I’m talking about, and that’s pretty important to us.

And third is when we go into new markets, we are now going into some markets that we intentionally avoided because of the regulatory framework and the corruption index and things of that nature, and as we enter and grow in those new markets, we are doing it by establishing those marketing companies or those operations in the right way the first time, and we are setting the tone right the first time and making sure we are hiring people in those countries that are screened against the types of traits and values that we have as a company. So, there are, I think, three concrete ways that we add value to growth.

Patricia Calkins:  I think that’s a great question. From the Xerox standpoint, right now it is our big challenge. I talked about initially he way that we look at the building blocks, the “must-dos”, the “nice to dos” and the “smart to dos.” Underlying that is the risk management, and then echo efficiency to sustainable growth. We are right now, the team I talked about earlier, trying to get our arms around how do we move to that next plateau, which is sustainable growth. So, maybe next year, I’ll be able to answer the question.

What’s the biggest challenge? What’s the biggest “got to do” that you need to get out of the way to make that happen?

MOD: I would say probably the biggest “got to do” is the belief that there is a difference there, that they aren’t one and the same, that doing the right thing -- and anyone argue with me -- is necessarily inimical to business success.

Patricia Calkins:  I agree. I think it’s getting the right people around the table, to actually define exactly what it is, and then how do you execute it. That’s a huge challenge. Who are those people? Right now, internally, they are the corporate marketing, the brand people, our innovation groups-- there’s obviously going to be opportunities for technology development that perhaps will open up markets in some of these worlds where you have got the six billion people who are the have-nots--those people in addition to the environment health and safety, the ethics office, that are all collectively working together. They will bring in some outsiders, the NGOs, the investment community, and say, “what’s your perspective on these things?”

 
Brent Saunders:  I could just take five seconds to just quickly add, you know, and maybe it’s a little bit of bragging, but since we have started investing in our compliance and business practices program, and as we have benchmarked against our peers in the pharmaceutical industry, we have invested the most in our compliance and business practices group. We are also the fastest growing pharmaceutical company now by sales, over the last two years. And so, I would like to think that one has something to do with the other, at least in some regard.

 
MOD: I think the best known risk assessment in the area of ethics, and also one of the biggest, most known story of a business ethics decision having a huge impact on a business, is one that people lose track of. It happened in 1940, started in 1945, when the Brooklyn Dodgers signed Jackie Robinson. It was an enormous ethical undertaking by a business that made a business decision that this was the right thing to do and that there was business value in it. The Dodgers went from an also-ran to winning the pennants four times in the next couple of decades. The Yankees were one of the last two teams in baseball to desegregate, and after years and years of winning the World Series virtually every year, from 19- I think it was ’62, from ’63 to ’76, they never won it again, and paid the price. And by the way, for the Red Sox fans who are getting smug, you were the other of the last two teams. In any case, thank you all for joining us. Thank you to our panelists.

Note: This transcript has been edited slightly for clarity and grammar in order to improve the reader’s experience. The context and tone have not been changed.