Ethics Programs Equal Good Business: The Right Thing To Do

Medical Device & Diagnostic Industry Magazine
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An MD&DI May 1998 Column

VERBATIM

Medtronic's Bruce Johnson talks about how his company created and encourages a legal, moral, and ethical standard of conduct for employees.

Each day's news proclaims more troubles that could have been avoided had people listened to that inner voice that whispers—and sometimes shouts—that a particular action would be wrong. It often seems ethics are woefully absent from American business and life in general.

In the United States, criminal prosecutors have begun to more aggressively enforce existing criminal statutes against individuals in corporations and the corporations themselves. Whether to reinforce a company's ideals or to try to avoid landing in less-than-ethical situations, many companies have developed programs to let employees know what behaviors are acceptable.

One medical device manufacturer, Medtronic, Inc. (Minneapolis), recently was honored with the Award for General Excellence in Ethics, presented by Business Ethics magazine. MD&DI editor Stacey Bell spoke with Bruce Johnson, assistant general counsel, international/ compliance for Medtronic, about the company's compliance program, which describes the legal, moral, and ethical standards of conduct for the corporation's 13,000 employees.

When and why did Medtronic establish its compliance program?

Our cofounder, Earl Bakken, wrote our mission statement way back in 1961. It said his company would "maintain good citizenship as a company" wherever we do business. The compliance program was started in 1992 and was designed so everyone would know what the company stands for and how it will do business and to give Medtronic people a way to get guidance and express concerns.

What are the program's key components?

Our "Key Corporate Policies" clearly state what's expected of everyone in areas of business conduct such as fair competition, conflicts of interest, regulatory, quality, safety and health, environmental affairs, intellectual property, corporate political activity, accounting and control, acquisitions, joint ventures, licensing, and human resources. We deliver a copy of these corporate policies to all managers each year so they can ensure compliance in their business units.

There's an annual questionnaire in which managers certify their compliance with these policies—they must sign a document saying they have upheld and will continue to uphold the policies. With the questionnaire, managers have the chance to express their concerns.

We also have a telephone hotline that any employee can use to request guidance or to tell us about things they think we ought to look into.

How did Medtronic determine the structure of its program?

As the company grew rapidly to the point where it was doing business in about 120 countries, our CEO, Bill George, asked our general counsel, Ron Lund, what we needed to do to set up a worldwide ethical standard, then how to prevent ethical problems worldwide. Ron looked at a couple of incidents that had taken place before or during his watch and decided the long-standing policies should be clarified, simplified, and pulled together in one place for easy reference.

He also set up a compliance system that ensures that everyone understands what's expected, and, just as important, assures everyone that they will not be criticized for adhering to the standards even if doing so might put them at a competitive disadvantage somewhere.

What changes have been made to the program since its inception?

We've added resources to monitor the changing ethical considerations and legal interpretations worldwide and to update and clarify our business conduct policies to keep pace with these changing conditions.

However, perhaps the most important change is the increased attention paid to educating Medtronic employees about these changing ethical considerations as well as relevant new laws and regulations. In the United States, a compulsory training program was prepared and presented to all sales and marketing people in all of the company's business units. And, over the years, training of sales reps has included training on acceptable business practices.

Could you give some examples of what Medtronic considers "acceptable business practices" versus those that would be unacceptable?

No donation of money or goods can be made if it's in exchange for a promise to buy Medtronic products. Support for a hospital departmental event is okay as long as there is no condition—expressed or implied—that the department must then use more Medtronic catheters.

Another example: A manager could use company money to support efforts to educate employees about proposed legislation that could benefit Medtronic business. But he or she could not use company money in support of a specific candidate nor could employees be required to take any specific political action.

What is the format of the ethics training provided to employees?

Our managers are supplied with copies of the company's policies on business practices, and these are updated and resupplied from time to time. Back when the program began, members of our legal staff gave presentations at various company locations. On an ongoing basis, direction on business practices is part of sales training. Also, in recent years, people at the director level and above have been invited to attend a week-long session on values and ethics at an offsite location where they can lean back and really spend time in study and discussions guided by outside facilitators.

How do you encourage other employees to buy into the compliance program?

The easy answer would be to say they'll lose their jobs if they don't. Actually, compliance isn't a serious problem. People want to know what the standards are, and, when they know and when they agree with them, they'll comply. I think Medtronic employees generally agree with the company's ethical standards and want to work for a company that is serious about conducting business ethically.

How many calls does the hotline receive each year? How many of these tips have helped Medtronic avert a potentially damaging incident?

We're fortunate to receive quite a few hotline calls. I say that because these calls allow us to identify situations that concern the callers, to promptly get to work to resolve the problematic situations. Calls also give me the opportunity to explain why some of the situations are really not problems related to the business conduct policies I work with and let me suggest ways to address the ones that are outside my jurisdiction.

Can you provide some examples of the benefits that have accrued to Medtronic since it developed and implemented this program?

I'd rather not give specifics here; embarrassment might keep some of the Medtronic people among your readers from calling or complying in the future. And I don't want to give chapter and verse on things we did that conceivably could have averted big problems down the road. But I like to think that some awkward and potentially troublesome and expensive situations were headed off this way.

What are some of the challenges in running an ethics program, and how have you met them?

The challenge is to constantly keep ethical standards visible and to keep our people reminded of the personal and business benefits that come from ethical behavior. We're doing this with educational programs, primarily. A critically important element, however, is management support, and I am extremely fortunate to have top management commitment to and strong support for this program.

Do certain issues seem to raise more questions than others?

Well, that varies from time to time. But I'd say that the medical industry relies to a significant extent on Medicare/Medicaid financial reimbursement, and this can create problem pressures. And, unless carefully monitored, the normal everyday help we provide to doctors, and the help they give to us, can be misperceived. Let's face it, these busy physicians hold the keys to our futures, and close relationships are mutually beneficial. But the form of that benefit can raise issues.

Have the issues raised over the course of the program changed?

I believe that potential conflict of interest situations are more prevalent today than they used to be. Maybe that's because the health-care delivery system and the health-care reimbursement systems have changed. Also, I think we're seeing more ethical issues arise in the intellectual property area—protection of patents, proprietary information, and such.

A return to ethics seems to be a topic of increasing concern due to the rampant fraud and abuse occurring in the Medicare program and continuing financial pressures on health-care companies to maintain healthy profits. How can companies run a meaningful ethics program while still earning substantial profits? Are the two concepts at odds?

I don't think ethics and profits are at odds. In fact, since most customers want to deal with ethical companies, a good ethics program can be a competitive advantage. And if your program keeps you out of the courts, out of the newspapers, and off tabloid TV, maybe that's a bonus. I am convinced that "good ethics" equals "good business," not decreased business.

I understand Medtronic is working with other medical technology companies to establish uniform codes of conduct in other countries. What progress has been made?

Yes, it's always nice to have a level playing field. Way back in 1983, the Association of European Prosthetics Manufacturers, chaired by Medtronic's Daniel Luthringshauser, published a code of conduct. More recently, Medtronic took a leading role in the establishment of the code of ethics of the Health Industry Manufacturers Association. Medtronic also initiated an effort to establish and ensure conformance of the pacemaker industry in Japan to an industry code of conduct. Just last year, Medtronic worked with other leading health-care companies to establish a similar code for medical device companies in Germany. And several Medtronic executives have been active in the Caux Roundtable—an effort to develop a worldwide business code of conduct.

What controls must be in place for an ethics program to be truly effective?

First and most important, there must be no doubt in anyone's mind that the program is firmly supported by the senior management of the company. Second, infractions must be taken seriously, and, ultimately, compliance must be a condition of employment. Third, it won't work if employees have no way to check out a proposed course of action before it happens. Not everything is clearly right or wrong. The availability of timely consultation is essential.

What other issues should companies consider when developing an ethics program for their business?

A cornerstone of a company's ethics program is a mission statement that says it wants to be recognized as a company of honesty and integrity. Ongoing education, visibility, and management support is crucial. This takes time and resources. Finally, the program needs to be applied consistently—worldwide.

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