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September/October 1999 - By Andrew Singer

At Howmet Corporation, the Internal Auditor Wears the Ethics Hat

No specific educational regimen or background can ensure that an individual will be an effective ethics officer—just as no amount of training can guarantee a person will be an exemplary parent. Ethics officers, in fact, come from a broad range of backgrounds—legal, finance, human resources, and security, among others. At Howmet Corporation (Greenwich, CT), both the ethics officer and his chief assistant are internal auditors.

Internal audit is not the most common background for an ethics/compliance officer—more have legal or human resources experience, arguably—but it is a good fit nonetheless, asserts Karl J. Van Mill, the company’s Director of Internal Audit, and Ethics and Compliance Officer, based in Whitehall, Michigan.

How so? "Certain basics of internal audit lends itself to the ethics role: independence, senior management access, regular reporting to the audit committee of the board of directors, objectivity." Internal auditors typically travel extensively and know employees in many locations—as do ethics officers. Ethics, in fact, "is a natural extension of what we do," says Van Mill.

Van Mill joined Howmet, a $1 billion (sales) manufacturer of metal castings, about two years ago. Earlier he was director of internal audit at McDonnell-Douglas, the huge aerospace company that is now a part of Boeing. He also worked for Arthur Andersen, the accounting firm.

‘Refreshing’ the program

When he arrived at Howmet, the company had an ethics policy and an ethics council, but it did not have what Van Mill called a "diligent" program. "Training, communication, the helpline—were not there," he recalls. His boss, John Ritter, the company’s Chief Financial Officer, asked him to "renew and refresh the ethics program."

The training program that was subsequently implemented will reach all of the company’s 10,000 employees over the next twelve months, including many overseas workers. Training sessions typically last about one hour. Sessions are often conducted by the local business unit manager, although the corporate Compliance Liaison, Jeff Holmes, Van Mill’s chief assistant, facilitates the training where needed.

A discussion of case studies forms the basis of these sessions. Managers also talk about ethics resources available to employees, things like the ethics/compliance hotline, called the AlertLine.

The sessions are shaped, to some extent, by the audience. When training involves shop floor workers, issues may include time-keeping and the proper use of company property. Sessions for senior managers have a different emphasis. Purchasing and sales personnel have separate, specialized training. Ethics training will eventually become an annual process, says Van Mill.

"The key is keeping the program in front of people: If they have a question, this is whom they can contact…" They can get in touch with the Howmet Compliance Council, Van Mill, the AlertLine, the Compliance Liaison, or the local Business Compliance Representative, among others.

Outsourcing the hotline

Van Mill elected to outsource the Howmet’s hotline, using Pinkerton Services Group’s (Charlotte, NC) AlertLine service. Why outsource? The Pinkerton service is available 24 hours a day, seven days a week. The firm is experienced at handling calls and has a good record in protecting confidentiality, says Van Mill. "They’ve done a good job for us."

It has been estimated that a company hotline will draw annually between 20 and 23 calls for every 1,000 employees. That is generally on a par with Howmet’s experience, says Van Mill. Calls run the gamut. "Part of the adventure of the ethics role is not knowing what the call will be." Human resources (HR) issues are most common, e.g., "I didn’t get my raise when I was supposed to." In such a case Van Mill works through Howmet’s human resources personnel, "and we may find that that person did get overlooked for his annual raise." If it is a pure HR issue—like a promotion or raise—with no ethics component, the matter would be handled by HR. The AlertLine rep would inform the employee about the process to be followed, adding that if the individual had not received a satisfactory answer within 30 days then the employee should "get back to us." Even in pure HR issues, the ethics office doesn’t wash its hands of the matter completely.

There is a direct correlation between the amount of ethics training activity conducted and the number of calls to the AlertLine, observes Van Mill. "It’s a sign of health that we’re getting calls," he says, adding that "people are now calling us directly"—as opposed to through the AlertLine—"before an event occurs." For example, an employee may call Van Mill and report that he has the opportunity to do some extra work on his own time. Does this represent a conflict of interest?

Every company and industry has certain ethics/compliance issues that are more sensitive than others. Hospitals, for instance, must be very careful about how they bill Medicare payments. At Howmet, the issue of quality assurance is one of the most critical. That’s because the company makes, among other things, castings of superalloys and titanium for jet aircraft engines. Virtually every commercial aircraft flying today has a Howmet casting in its engine, observes Van Mill, which entails a particular corporate responsibility. Any report alleging a breakdown in the quality control process is taken very seriously.

Wearing two hats

Van Mill had little experience organizing corporate-wide training initiatives when he worked solely as an internal auditor, but the transition has not been difficult, he says. "I find the combination of the two very interesting." When wearing his ethics hat, he sometimes finds a "control" issue that needs to be addressed, and vice versa.

He may get a call on the ethics hotline, for instance, charging that "Joe is leaving early, and he’s not punching out." A closer examination of the issue might reveal that Joe has a reason to leave early—but the time-keeping function needs some tightening up, nonetheless.

Howmet has manufacturing facilities in Canada, France, the United Kingdom, and Japan. As noted, ethics training is being conducted in those locations, too, and while translating training materials can be a time-consuming task, and some of the cultural issues differ from those in the U.S., "ethics is ethics," says Van Mill. The process is basically the same. (Because they do not operate extensively in the developing world, issues like facilitating payments and the Foreign Corrupt Practices Act do not often arise.)

The Compliance Council

Howmet’s Compliance Council meets quarterly. It consists of Van Mill; the corporation’s Chief Financial Officer; General Counsel; Vice President for Human Resources; Director of Procurement Services; Group Controller, U.S. Operations; and the Compliance Liaison. A quality assurance executive will be added shortly. The council reviews program activity and grapples with policy issues. Van Mill supplies them with program details, like AlertLine call activity. In addition to regular meetings, he has considerable day-to-day contact with council members, like HR chief Mike Malady.

Van Mill spends about half of his time with internal audit, half with ethics/compliance. His biggest challenge regarding the latter is "keeping the program fresh, keeping it in front of people—so they’re aware of the issues."

Senior management support is critical to the success of such a program, just as it is for an internal audit program. "If people know that the ethics issues that they want to be addressed won’t be fixed because management says, ‘No, we don’t want to hear about it,’ then a program goes down very quickly."

It’s also important to have the proper resources, particularly a network of people at operating locations within the company. Howmet has twelve business compliance representatives at locations like the Howmet Aluminum Group, Dover Casting, Winsted Machining, and Turbine Components Corporation, among others. These reps are usually senior human resources officers at the facilities. Although most ethics calls go to the corporate ethics/compliance office or to the AlertLine, the reps are useful in resolving issues. If ‘Joe’ doesn’t get his promotion, the local business compliance rep may look into the matter.

A ‘consultative approach’

Some experts maintain that an ethics officer must be, above all, a good listener. But aren’t internal auditors by profession somewhat confrontational? "That’s an older view of internal audit," answers Van Mill. "The modern view is to take a more consultative approach. We’re not out to get anyone. It’s really a matter of going out and talking with people.

"People call with an ethics issue, and you want to hear what they’re saying—but also what is behind what they’re saying." Sometimes they don’t disclose the real reason for the call. (They might not even be aware of the real reason.) It is the ethics officer’s job to find that "root cause." And that is what an internal auditor also does in his/her audit work, says Van Mill.

Placing ethics and compliance within internal audit may not work at all companies. "It takes a certain approach," says Van Mill. If internal audit is a "throwback," i.e., seen as a police-type unit, then it will be difficult to persuade people to come forward. The fact that Van Mill gets calls beforehand—before an employee actually takes a contemplated action—says to him, however, that within Howmet Corp. they have generated a certain level of confidence in the program.

Andrew W. Singer is publisher and co-editor of ethikos.
Reprinted from the September/October 1999 issue of ethikos
© 2004 Ethikos, Inc. All rights reserved.

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