THE COMPLIANCE AND ETHICS LEADERSHIP COUNCIL Stewarding a Culture of Integrity Key Findings for The Board and Senior Executives

Executive Summary Integrity Matters to Your Company’s Bottom Line Integrity and values drive employee performance Of all potential drivers that increase employee performance, manager demonstrations of corporate values and ethical behavior are the most effective, improving performance by 12% and 9%, respectively. High levels of integrity are correlated with lower levels of misconduct Companies with low integrity scores* are much more likely to experience misconduct as companies with high integrity scores Employees with the lowest perceptions of integrity* are ten times more likely to observe misconduct than employees with the highest perceptions of integrity at their firm and significantly less likely to report observations of misconduct. The financial and legal costs of unreported misconduct are high U.S. organizations lose an estimated 7% of their annual revenues to fraud - equivalent to more than $1 trillion of the 2008 gross domestic product. (The Association of Certified Fraud Examiners, 2008) Nearly a third of managers report observing serious misconduct – such as fraud, insider trading, accounting irregularities, and improper sales – that could have a significant financial impact on their company. What Leaders Need to Do to Strengthen Integrity Drive Comfort Speaking Up Train Leaders to Model and Communicate Corporate Values Foster a Perception of Organizational Justice Legal, Compliance and Ethics Leadership Council * As Measured by CELC’s Integrity Index - a score of ethical health across an organization determined by CELC’s Cultural Diagnostic Survey © 2009 The Corporate Executive Board Company. All Rights Reserved. © 2009 The Corporate Executive Board Company.

Why Integrity Matters to Your Company Strongest Integrity Drivers ROAD MAP FOR THE PRESENTATION Why Integrity Matters to Your Company Strongest Integrity Drivers Our Efforts to Foster Integrity Why Integrity Matters to Your Company > Which Levers Have the Biggest Impact > What Approaches Work > Our Efforts to Foster Integrity © 2009 The Corporate Executive Board Company. All Rights Reserved.

INTEGRITY AND VALUES DRIVE PERFORMANCE To drive company-wide performance during a downturn, organizations must train managers to demonstrate corporate values and ethical behavior Managers exhibiting corporate values can improve employee performance by 12%. Managers demonstrating ethical behavior can improve employee performance by 9%. INTEGRITY AND VALUES DRIVE PERFORMANCE Maximum Impact of Manager Characteristics of Ethics and Values Corporate Leadership Council Research, Q1 2009 Of all potential drivers that increase employee discretionary effort, manager demonstrations of corporate values and ethical behavior are the most powerful. Talking Point: For many years, HR Performance surveys didn’t test for the impact of integrity. In 2009, after including integrity for the first time – the survey found that ethical behavior informed the top two drivers for performance n-= 11,761 *Definition – Discretionary Effort is the respondent’s willingness to expend effort beyond typical expectations. Examples of this behavior include willingness to invest additional time and effort to accomplish a task or looking for ways to perform one’s job more effectively. © 2009 The Corporate Executive Board Company. All Rights Reserved.

HIGH INTEGRITY TRANSLATES INTO LOWER LEVELS OF MISCONDUCT Employees with the lowest perceptions of integrity are ten times as likely to observe misconduct as employees with the highest perceptions of integrity at their firm. Nearly 75% of employees in business units with the lowest integrity have observed misconduct. In contrast, in a business unit with the highest integrity, only 7.3% of employees have witnessed misconduct. HIGH INTEGRITY TRANSLATES INTO LOWER LEVELS OF MISCONDUCT Integrity Index* Score Distribution, 2008 Overall Sample N = 172,593 * The “Integrity Index” is a score of ethical health across an organization determined by CELC’s Cultural Diagnostic Survey © 2009 The Corporate Executive Board Company. All Rights Reserved.

UNREPORTED MISCONDUCT CAN HAVE SIGNIFICANT COSTS Failure to foster a culture in which employees can comfortably escalate concerns can have serious legal and reputational consequences Had Countrywide’s legal department been involved once the incident was reported to the hotline, the lending violations in question could have been addressed and remediation steps taken. The compliance department’s ability to mitigate this issue was drastically diminished once it was leaked to the media. UNREPORTED MISCONDUCT CAN HAVE SIGNIFICANT COSTS Illustrative: 2008 Countrywide Lending Fraud Scandal Timeline © 2009 The Corporate Executive Board Company. All Rights Reserved.

MOST OBSERVED MISCONDUCT DOES NOT REACH COMPLIANCE Relevant information about (potentially damaging) business misconduct degrades significantly as it travels across the company, reducing Compliance’s ability to detect key risks Fifty percent of observed business misconduct is never reported by employees. Even when that information is reported to managers by employees, sixty percent never leaves the business or reaches the compliance function. MOST OBSERVED MISCONDUCT DOES NOT REACH COMPLIANCE © 2009 The Corporate Executive Board Company. All Rights Reserved.

HIGH INTEGRITY INCREASES EMPLOYEE REPORTING RATES Employees in business units with high integrity scores are significantly more likely to report observed misconduct Managers are more likely to report misconduct than rank-and-file line employees, but both groups are more likely to report when integrity levels are high. A single low-scoring business unit may hold twice as many misconduct observations as a business unit with a high Integrity Index score. HIGH INTEGRITY INCREASES EMPLOYEE REPORTING RATES Profile of a Typical Company Illustrative Key Insight for Company Leadership: When thinking about misconduct at your organization, don’t just look at company-wide averages. There can be important disparities between business units. COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION , 2009 © 2009 The Corporate Executive Board Company. All Rights Reserved.

Why Integrity Matters to Your Company Strongest Integrity Drivers ROAD MAP FOR THE PRESENTATION Why Integrity Matters to Your Company Strongest Integrity Drivers Our Efforts to Foster Integrity © 2009 The Corporate Executive Board Company. All Rights Reserved.

Strongest Drivers for Cultivating a Culture of Integrity Key Findings Drive Comfort Speaking Up Example: Kraft’s Speaking Up Campaign Train Leaders to Model and Communicate Corporate Values Example: Lockheed Martin’s Ethics Leadership Facilitation Guide Novartis’ Fused Performance & Ethics Criteria Foster a Perception of Organizational Justice Example: DuPont’s Ethics Bulletins General Electric’s Cultural Accountability Videos COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION © 2009 The Corporate Executive Board Company. All Rights Reserved.

Council Recommendation Employees’ fear of retaliation for raising concerns is the leading indicator of misconduct. Council research has determined that when employees report a strong fear of retaliation. It is the most likely signal that levels of misconduct among those employees are also high. Fear of retaliation is also a compounded risk because it is the main concern employees cite about reporting observed misconduct. Therefore, if a strong fear of retaliation is present in the workforce, not only are levels of misconduct likely high, but the organization is also not likely to hear about it. DRIVE COMFORT SPEAKING UP Council Recommendation Top Three Leading Indicators of Misconduct Rank of Predictive Strength COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION , 2007 © 2009 The Corporate Executive Board Company. All Rights Reserved.

HARNESSING EMPLOYEES AS BETTER CONDUITS OF INFORMATION Best Practice: Kraft provides employees with policies, tools, and processes to remove uncertainty about when and how to report compliance concerns To clarify company expectations and awareness, Kraft launches a speaking-up initiative that defines what employees should do to report and why it matters. Kraft also emphasizes how the company will follow through on reported issues, clearly outlining the issue resolution and investigations process. HARNESSING EMPLOYEES AS BETTER CONDUITS OF INFORMATION Employee Tools and Protocols to Report Misconduct Kraft Foods For more info on this practice, please visit: www.celc.executiveboard.com COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION © 2009 The Corporate Executive Board Company. All Rights Reserved.

Council Recommendation In the current environment, employee perceptions about organizational justice explain 74% of their perceptions about the ethical culture of their company 74% of employees who agree that organizational justice operates in their culture are likely to regard their organization as a culture of integrity – on the basis of that single factor. FOSTER A PERCEPTION OF ORGANIZATIONAL JUSTICE Council Recommendation Components of a Culture of Integrity Illustrative COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION , 2009 © 2009 The Corporate Executive Board Company. All Rights Reserved.

DRIVING ORGANIZATIONAL JUSTICE ACROSS THE LINE Best Practice: DuPont demonstrates its commitment to business ethics by sharing examples that reinforce workforce perceptions that organizational justice operates across the corporation To demonstrate a uniform corporate response, DuPont details the nature of the violation, the attendant penalties, the source of the allegation, the type of investigation, the specific policy violated, and any relevant training modules. To celebrate high ethical standards among employees, DuPont extends its use of business ethics bulletins to share examples of demonstrated business integrity. DRIVING ORGANIZATIONAL JUSTICE ACROSS THE LINE Examples of Traditional and Progressive Ethics Bulletins For more info on this practice, please visit: www.celc.executiveboard.com COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION © 2009 The Corporate Executive Board Company. All Rights Reserved.

HOLDING LEADERSHIP ACCOUNTABLE TO THE SAME STANDARD Best Practice: To insure managers are held accountable for their culture, General Electric produces videos that discuss actual, internal integrity lapses to demonstrate how the company anticipates, detects, and responds to compliance and ethics issues Recognizing that obligations to cultural duties vary by level, General Electric produces videos aimed at the broader employee and executive populations to emphasize different aspects of accountability. HOLDING LEADERSHIP ACCOUNTABLE TO THE SAME STANDARD General Electric’s Accountability Videos Illustrative For more info on this practice, please visit: www.celc.executiveboard.com COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION © 2009 The Corporate Executive Board Company. All Rights Reserved.

Council Recommendation An employee who perceives strong tone at the top is more likely to be strongly committed to corporate values Employees view the actions of senior executives as synonymous with actions made by “the company.” Leverage this overlap in perception by encouraging senior leaders to drive commitment to corporate values thereby also driving employees’ commitment to company. TRAIN MANAGERS TO ‘WALK THE TALK’ Council Recommendation Scatter Plot of Correlation Between Tone at the Top and Commitment to Corporate Values Illustrative COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION , 2009 © 2009 The Corporate Executive Board Company. All Rights Reserved.

CONNECTING ETHICS AND LEADERSHIP Best Practice: Lockheed integrates compliance and ethics components into leadership competencies and reinforces their importance to business objectives and career growth through leadership training Build ethics and compliance education into existing leadership curricula and performance reviews to demonstrate the alignment between expected behaviors and strong business performance while creating accountability. CONNECTING ETHICS AND LEADERSHIP Manager Performance Review Illustrative For more info on this practice, please visit: www.celc.executiveboard.com COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION © 2009 The Corporate Executive Board Company. All Rights Reserved.

LINKING PERFORMANCE AND INTEGRITY Best Practice: Novartis holds leaders accountable for promoting and embodying integrity standards by linking business results and ethical behaviors in the annual performance appraisal All Novartis employees, including managers, are evaluated using the Performance Assessment Matrix. Annual results of peer reviews affect end-of-year compensation. Novartis then provides targeted training to help senior managers make responsible decisions and manage others for responsible business outcomes. LINKING PERFORMANCE AND INTEGRITY Novartis Performance Assessment Matrix Illustrative For more info on this practice, please visit: www.celc.executiveboard.com COMFORT SPEAKING UP > ORGANIZATIONAL JUSTICE > CORPORATE VALUES > BUSINESS UNIT PRIORITIZATION © 2009 The Corporate Executive Board Company. All Rights Reserved.

Why Integrity Matters to Your Company Strongest Integrity Drivers ROAD MAP FOR THE PRESENTATION Why Integrity Matters to Your Company Strongest Integrity Drivers Our Efforts to Foster Integrity © 2009 The Corporate Executive Board Company. All Rights Reserved.

[ CUSTOMIZABLE FOR YOUR COMPANY ] Example: Our Three- Tiered Approach to Driving a Culture of Integrity at [YOUR COMPANY NAME] Step 1: [insert text] Step 2: [insert text] Step 3 [insert text] INSERT SLIDE HERE OF EFFORTS AT YOUR COMPANY TO FOSTER INTEGRITY Focused Senior Manager Training Chart Subtitle/Question Answered/Units Measured/etc. [Arial 10] [ CUSTOMIZABLE FOR YOUR COMPANY ] © 2009 The Corporate Executive Board Company. All Rights Reserved.