Straightening the Crooked Road of Ethics in Risk Management

1. Straightening the Crooked Road of Ethics in Risk Management

2. • Lance J. Ewing, IPG Leader Real Estate and Hospitality & Leisure, AIG • Former RIMS President, Risk Manager of the Year • Over 20 years in risk management and insurance • Bald guy • • Carter E. Boardman, Director of Contracts & Risk Management, Merrick & CompanyOver 17 years in risk management and insurance • Past President of RIMS Rocky Mountain Chapter • Guy with the great hair

3. What to Expect • What is ethics and ethical behavior in the insurance and risk world • How to establish an ethics program • Conflicts of Interest • One risk management company approach to ethics training

4. “In school we learn that mistakes are bad, and we are punished for making them. Yet, if you look at the way humans are designed to learn, we learn by making mistakes. We learn to walk by falling down. If we never fell down, we would never walk. Then we would never run.” • ― Robert T. Kiyosaki, Rich Dad, Poor Dad

5. Ethics PERSONALI do not feel good about it! PROFESSIONALI have damaged my reputation! COMPLIANCEI am going to lose my license! LEGAL EXPOSUREI am getting sued! CRIMINAL EXPOSURE

6. What is Ethics in Risk Management?

7. Defining the “It” “Ethics”– the moral principles or compass of a group or individual. Ethics is solely developed over time and influenced by work and life histories.

8. Causes of ethical dilemmas evolve from two social flaws: GREED AND IGNORANCE Most RMs can clearly delineate GREED in most dilemmas presented Most RMs struggle with IGNORANCE dilemmas that they face due to conflicts of interest Where in Risk Management Do Ethical Problems Arise?

9. Real Life Ethics

10. What Really is a Conflict of Interest

11. Where Do Conflicts Come From?

12. CONFLICT OF INTEREST A conflict of interest (COI) occurs when an individual or company/organization is involved in multiple interests and must make a decision, which could possibly taint the motivation. • Some Sample Questions to Ask: • Is there a financial, social or personal gain? • Can you influence the outcome? • Are family, friends, social acquaintances or personal associations involved? • Have you made any promises or commitments (quid pro quo)? • Have you checked with your company policy? • Would you be comfortable if your colleagues and/or boss became aware of your involvement/decision? • What if it appeared on the front page of the local paper?

13. Cases: What do you as the Risk Manager or the Broker Do?

14. Ethical Case #1 Rachel, is the VP of Risk Management for a major hotel chain. She has heard some rumors about one of her property risk managers, Russ. Russ is her risk best manager, by any performance measure. His hotels have the best safety record and positive financial growth, below average claims, excellent customer feedback and consistently does well on audits/inspections. In fact, Russ consistently is rated higher than the other hotel risk managers of the chain. Because of this, Russ is often mentioned as a candidate for promotion. Rachel was concerned, however, about reports that Russ was padding his budget and using the money to pay his two employees additional money since the company had made major reductions in force and cutting bonuses in half. Russ was not pocketing the money himself, but was using it as unrecorded disbursements to his crew as performance bonuses, overtime incentives, and off the clock wages. Clearly in violation of the company’s policies, he wasn’t actually taking the money out for personal gain, but was using it as an incentive for his team. On the other hand, because the funds are not accounted for as income, the extra “wages” to Russ's employees have no payroll taxes taken out. The company would have to answer to the taxing authorities. What action should Rachel take related to Russ?

15. Ethical Case #2 Andy is a sales representative for a large insurance company. He just started with the company 9 months ago. A major concern he has is about a product he sells most. The product is insurance and savings plan together under one policy. It provides protection for death, savings that can be used for retirement, or an emergency fund that can be retrieved quickly. The problem Andy faces is that this insurance product is more expensive to purchase, and for young families it provides the least amount of protection in case of premature death of the breadwinner. Another drawback is the low return on savings. The company drives sales of this product because it is more profitable. The commission Andy earns is 125 percent of the first year’s annual premium, so it is very profitable for Andy. There is another product that is significantly cheaper, that provides much greater protection, and at the same time would let the client invest the difference in any other product that provides a greater return. But the commissions paid by the company are exceptionally low (30%), and management is not overly thrilled when these policies are sold. What should Andy do?

16. Ethics Case #3 Terry has been the Vice President of Risk Management for a large Entertainment Company for two years. His new broker has asked Terry to dinner to discuss this coming year’s casualty renewal with the incumbent carrier underwriter. His broker said that after dinner he would take Terry to the Monday Night Football Game where his company has box seats. Should Terry go? To dinner? To the game?

17. How do Risk Managers Help Their Company with Ethics

18. Code of Ethics Ethics Policies and Procedures (including investigation) Travel, Entertainment, Gift, Nepotism, Dating Policy Hotlines...Compliance and Ethics Ethics Committee Training Communications (newsletter, email blast, safety meetings) Table Top Exercises…What if? Managing Ethical Behavior in the Workplace

19. You Cannot have an ANSWER/SOLUTION for EVERY Ethical Dilemma.EXPECT THE UNDEXPECTED • 19

20. Ethical Behavior in the Workplace

21. Merrick & Company Background • Merrick & Company is an employee-owned $100 million engineering, architecture, design-build, surveying, and geospatial solutions professional services firm. • Founded in Denver, Colorado in 1955 • In the beginning, Merrick was primarily a civil engineering and surveying company

22. Merrick & Company Background • The firm steadily expanded to embrace all of the traditional engineering disciplines as well as architecture • Merrick presently has 480 employees across 19 offices in Alaska, Colorado, New Mexico, Georgia, Pennsylvania, Tennessee, Texas, Washington DC, Canada and Mexico • Performs services internationally

23. Before Merrick’s Ethics Policy • Before Merrick prepared its own Ethics Policy it relied on its Corporate Values, which includes ethics: • Ethics: “We demonstrate qualities of integrity, responsiveness, and professionalism.”

24. What Brought Merrick to Have an Ethics Policy • Merrick did not prepare an ethics policy due to concerns with ethical behavior of its employees • In 2006 Merrick’s New Mexico offices advised that New Mexico PE licenses would require 4 hours of ethics training every 2 years • Merrick hired a consultant to prepare and provide 2 hours of ethics training • 1st ethics training class was provided in December 2006

25. What Brought Merrick to Have an Ethics Policy • In 2007 Merrick prepared its own ethics training “Ethical Dilemmas – What Should I Do” • In 2008 Merrick prepared its 1st Business Ethics Policy • Was not aware that Merrick did not have a policy • It seemed important and appropriate to have a policy if we were going to provide ethics training

26. WHY ETHICS?

27. WHY ETHICS? • Merrick performs over 70% of its services for federal, state and county governments • Merrick also performs its services for foreign governments • Cannot afford to lose this business due to unethical behavior

28. The Honest Engineer • "I consider the honest engineer the most valuable asset of this Government. These are the reasons: dishonesty in any other branch of the service can be overcome in some way. In some way we can recover from it: in some way we can rally from it. But dishonesty on the part of the engineer is always so far reaching, in the loss of property, of money, of time, of human lives, that dishonesty on the part of the engineer is irreparable.” • – President William Howard Taft at Georgia Tech, May 11, 1911.

29. The Three Questions to Ask Yourself Whenever You Face an Ethical Dilemma • 1. Is it legal? • In other words, will you be violating any criminal laws, civil laws or company policies in this activity? • 2. Is it balanced? • Is it fair to all parties concerned both in the short-term as well as the long-term? • Is this a win-win situation for those directly as well as indirectly involved?

30. The Three Questions to Ask Yourself Whenever You Face an Ethical Dilemma • 3. Is it right? • Most of us know the difference between right and wrong, but when push comes to shove, how does this decision make you feel about yourself? • Are you proud of yourself for making the decision? • Would you like others to know you made the decision you did? “The Power of Ethical Management”, Kenneth Blanchard and Norman Vincent Peale

31. Merrick & CompanyBusiness Ethics Policy • A living document and was updated on March 7, 2013 • The purpose of Merrick’s policy is to emphasize standards of business ethics to be met in all business transactions. • These standards are especially stringent in doing business with the U.S. Government because even the “appearance” of impropriety can erode confidence in Merrick.

32. Merrick & CompanyBusiness Ethics Policy • The policy provides guidance to all employees with respect to business ethics where improper activities could damage the Merrick’s reputation and result in adverse consequences to the Merrick and its employees. • Merrick’s policy has been drafted with the federal government requirements in mind.

33. Merrick & CompanyBusiness Ethics Policy • BUSINESS CONDUCT • Merrick shall conduct its business activities and relations with clients, suppliers, employees and governmental agencies in accordance with the highest degree of integrity and honesty.

34. Merrick & CompanyBusiness Ethics Policy • EMPLOYEE’S COMMITMENT • Every individual employee is to adopt and have a personal commitment to this business conduct.

35. Ethics Hotline Poster

36. Merrick & CompanyBusiness Ethics Policy • RETALIATION PROHIBITED • Merrick prohibits retaliation against an employee for making a good-faith report of a violation under this policy or for assisting in a complaint investigation.

37. Merrick & CompanyBusiness Ethics Policy • Merrick has chosen not to define a dollar amount that is or is not acceptable to the Company • Employees are to use their own judgment and not do anything or accept anything that makes them uncomfortable • Employees are to use the policy as a guide how Merrick interacts and treats its clients, vendors and associates

38. New Mexico Code of Professional Conduct Merrick adheres to the following definition of “valuable consideration”: “Any act, article, money or other material possession which is of such value or proportion that its acceptance creates a clandestine obligation on the part of the receiver or otherwise compromises his ability to exercise his own judgment.”

39. Annual Business Ethics Training • Merrick provides Business Ethics Training in its offices on an annual basis • All employees are invited to attend • Try to make a dry subject into an interactive and fun experience

40. Other Merrick Policies that Deal With Ethics • Anti-Harassment Policy • Drug-Free Workplace Policy • Travel Policy • Expense Reporting Policy • Time Reporting Policy • Use of Vehicles on Company Business Policy • Proprietary and Confidential Information Policy • Anti-Corruption Policy

41. Ethical Behavior • “No man can always be right. So the struggle is to do one’s best to keep the brain and conscience clear; never to be swayed by unworthy motives or inconsequential reasons, but to strive to unearth the basic factors involved and then to do one’s duty.” • – Dwight D. Eisenhower, former U.S. President

42. Harms Test - Do the benefits outweigh the harms, short term and long term? Reversibility Test - Would I think this was a good choice if I traded places? Colleague Test - What would my professional colleagues say? What does my professional code of ethics say? Legality Test - Would my choice violate a law or policy of my employer? Publicity Test - How would my choice look on the front page of tomorrow’s newspaper? Common Practice Test - What if everyone behaved this way? Is It Ethical? Suggested Tests for Evaluating Actions

43. Wise Relative Test - What would my wise old aunt or uncle do? Would I want them to know what I am doing? The Hiding Test - Do I want people to know what I am doing? The Self-Respect Test - How will I feel about myself after making this choice? Is It Ethical? Suggested Tests for Evaluating Actions

44. QUESTIONS?