Beyond Carrots and Sticks: Encouraging a Speak Up Culture Richard J. Wolf, HSBC North America, Inc. Ethics by Design June 3, 2016

“Employee Voice” and “Speak Up” Initiatives “Employee Voice” and “Speak Up” Initiatives . . . Critical, Yes, but Why Do They Fall Short? Economic impact of global fraud estimated at $6.3 trillion in 2015, with a median loss of $150,000 per case* Longer fraud goes undetected the greater the loss Tips: Employee tips (39.1%) are top source of initial detection of fraud in large organizations, followed by internal audit (16.5%) and management review (13.4%) Organizations with hotlines receive more employee initial fraud detection tips (47.3%) Reports: Employees are the most likely to report fraud (51.5%), but customers, vendors and other third parties account for a large number of reports (40%), and organizations also receive 14% of reports anonymously When employees speak freely, employee retention and financial performance both rise** Study shows better to ask continually for feedback not “whistleblowing” Value “intelligence” in general, not just the bad stuff, such as process improvement and innovation (ask regularly for feedback so not intimidating to give, tone down power cues) No one has a “closed door” policy, so saying its open carries little weight Companies know importance of having staff open up, but fall short for two reasons: Fear of consequences (embarrassment, isolation, low performance ratings, lost promotions, firing) Sense of futility (belief that saying something won’t make a difference, so why bother?) *Source: ACFE Report to Nations on Occupational Fraud and Abuse (2016) **Source: Can Your Employees Really Speak Freely, Harvard Business Review (2016)

If employees are observing misconduct, are they reporting it? 11/28/2018

A STRONG CULTURE OF INTEGRITY REDUCES RISK The Impact of Culture on Observed and Reported Misconduct Percentage of Respondents, 2009–2014 Most Favorable 64.9% Favorable 21.6% Neutral 8.9% Unfavorable 4.8% Misconduct Observation Rate a 59.0% 33.1% 16.1% 6.6% Employee 48.4% 48.5% 54.4% 73.1% Reporting Rate b The main gains in reporting rate do not emerge until employee perceptions are most favorable. n = 186 (companies); 1,250,795 (employees). Source: CEB 2009–2014 RiskClarityTM Survey. a Percentage of employees who indicated they observed misconduct in the past 12 months. b Percentage of employees who reported misconduct they observed in the past 12 months. © 2016 CEB. All rights reserved. CELC6149816SYN

If Employees Speak Up, Are Managers Prepared to Listen Up? 11/28/2018

How Can Managers Do a Better Job How Can Managers Do a Better Job? Rethinking Manager “Preparedness” and Escalation

Burden, and Know How to Report THE BENEFITS OF AN EFFECTIVE ETHICS PROGRAM Effective Ethics and Compliance Programs Increase Reporting Rates Percentage of Employees Who Reported Observed Misconduct by Number of Compliance Conditions They Favorably Viewed a 70% 54.3% 65.5% 50% 46.8% 38.9% 30% No Compliance Employees Employees Who Conditions Who Apply Apply Compliance Viewed Compliance Training and Do Not Training, Do Not Favorably Training View Compliance Requirements as a n = 18,208 employees. Burden Burden, and Know How to Report Source: CEB 2014–2015 RiskClarityTM Survey. Anonymously a Employees responded “agree,” “strongly agree,” or “yes” to questions regarding the application of compliance training, the burden of compliance requirements, and their awareness of anonymous reporting means. © 2016 CEB. All rights reserved. CELC6149816SYN

Practical Challenges and Methods Coaching Leaders to Lead – Varying styles and business pressures make message consistency difficult Cascaded, manager-led training on ethics helps shape messages and open lines of communication Managing at our Best – develop skills to create a feedback culture in which everyone is able to speak up thereby managing risk and driving continuous improvement Regulatory pressures may affect internal messaging Curb loose use of term “whistleblower,” as it runs counter to research suggesting to tone down cues Safeguarding against retaliation is double-edged sword Tight coordination between communications, training and subject matter experts to offer right balance in messaging 11/28/2018