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March/April 2010 - By Andrew Singer

Insurer USAA Likes Its Ethics Straight

A convergence of ethics and compliance has occurred over the last decade. The two functions are increasingly managed from the same corporate office; they often have the same director or vice president in charge. Four years ago the Ethics Officer Association changed its name to the Ethics and Compliance Officer Association (ECOA). In this it was simply reflecting “the reality of our current world,” ECOA Executive Director Keith Darcy said at the time.

Yet “it is not a convergence without controversy,” says Earnie Broughton. 

Earnie-BroughtonBroughton is executive director and ethics program coordinator at United Services Automobile Association (USAA), a San Antonio-based mutual insurance company that serves current and retired members of the military and their families. The company also offers banking, investment, and financial planning services.

USAA is a bit old school. Many of its CEOs have been retired army generals. It doesn’t sell insurance policies to people without a military connection, which is where the company began in the 1920s.

And the company still separates ethics and compliance.

USAA’s compliance officer reports to the company’s general counsel. Ethics director Broughton reports to the company’s CEO.

Says Broughton: “We don’t want anything to dilute the importance that senior leadership places on ethics.”

A customer service ‘champion’

The company was founded in 1922 by 25 army officers who decided to insure each other’s vehicles when their insurance company refused them coverage. Today it has 7.2 million ‘members’ (i.e., policyholders or customers).

USAA has attained iconic status among those who know it. Its customers are fiercely loyal. In Bloomberg BusinessWeek’s fourth annual customer service awards announced in February, USAA ranked second in customer service. Only L.L. Bean was graded higher among large U.S. companies. Noted the magazine:

“A private company with $68.3 billion in assets, USAA has unrivaled staying power atop Bloomberg BusinessWeek’s annual Customer Service Champs ranking (page 42). Since we first produced the list in 2007 with our research partner, J.D. Power & Associates, no other company has come close to achieving USAA’s feat: a No. 1 or No. 2 spot for four years running.”

The ethics office

Asked about the origins of the company’s ethics office, Broughton, also a director of the ECOA, notes that USAA’s core values have long guided the business, but these values had never been clearly articulated. In 1996, then-CEO Robert T. Herres, a former U.S. Air Force general and vice chairman of the Joint Chiefs of Staff, decided to change that. He hired an outside firm to conduct dozens of interviews with employees to surface those values. USAA settled on four: Service, loyalty, honesty, and integrity.

This was at a time when many large companies were establishing ethics offices. USAA traveled that route, too, establishing a formal ethics office to give structure to the company’s ethics training, communications, and reporting. The office manages the company’s helpline in-house.

Broughton, who has been with USAA for 22 years, beginning in human resources, was named to run the office 10 years ago. Previously, he was the executive director in the consumer finance and auto services department at USAA Federal Savings Bank.

Broughton is not the company’s chief ethics officer, however. That is USAA CEO Josue (Joe) Robles, a retired major general in the U.S. Army.

Broughton acknowledges that it is “relatively uncommon” to have the CEO as the chief ethics officer, especially at a large company. He couldn’t recall another big corporation where this was the case. More often the general counsel, deputy general counsel or corporate secretary is designated chief ethics officer.

As noted, Broughton reports directly to CEO Robles, which is less uncommon among ethics officers, although it is far from universal in corporate America. “We have access, and that’s important,” says Broughton.

Broughton also reports to USAA’s Ethics Council. This is comprised of the CEO’s direct reports and supplies oversight for the ethics program, including training and communications. It also looks closely at ‘issues’ that are being reported through the ethics office, including the helpline.

The council’s members include the president of USAA’s property and casualty insurance division, the president of its financial services group, the company’s senior attorney, its CFO, and others. The group meets for about an hour every quarter.

Broughton also briefs the USAA board of directors on an annual basis.

Ethics facilitators

The ethics ‘face’ at the company, however, remains USAA’s 24 ethics facilitators. These executives make the decisions on the conflict-of-interest submission forms that employees file each year, and they also counsel employees on issues that might arise.

They are selected from the lower- to middle-level executive ranks—senior vice presidents are rare. They typically rank high enough so that it’s obvious they have access to top leadership, but not so high that they won’t have the time to devote to their role.

The facilitators—it’s a part-time role—are the primary ethics contact within a given operating business. It helps that they are usually subject matter experts who know well the ins and outs of their particular segment—whether it be automobile insurance or USAA Savings Bank or life insurance or some another area.

They are also people who are “highly ethical” in their own conduct, who have good judgment, are “approachable,” and who can maintain confidences.

The ethics facilitators constitute a “really good governance structure,” comments Broughton. For employees, they offer “someone in their own organization” to whom they can go for guidance.
Helpline is managed in-house

“We don’t have a hotline,” says Broughton. That implies a kind of 911 number. USAA’s ethics “helpline” is managed in-house. There is no caller ID. Because a high concentration of employees are in a single time zone (Central time zone), an in-house managed line makes some sense.

About 14,000 of USAA’s 22,000 employees are based in San Antonio itself. Although the company also has offices in London (UK) and Frankfurt (Germany), those offices aren’t large, and the company is “not really spread about.”

Given, too, that most helpline contacts are questions, it seems less-than-desirable to have an outside service on the line saying, “Give us your name and phone number and someone will call you tomorrow,” observes Broughton.

The ratio of questions to allegations is fairly steep: about 6-to-1 or 7-to-1, says Broughton. Most of the questions are about conflicts of interest. Is outside employment permissible? Would accepting a certain gift violate the company’s policy? What about gratuities? These account for about half of all questions.

When an allegation is made, Broughton usually draws on the company’s functional departments to investigate. With an issue like harassment, the employee relations unit might investigate. Broughton himself will sometimes conduct an investigation depending on the circumstances. Senior leadership may want his perspective on a given matter. Sometimes the functional area that would normally do the investigation is itself caught up  in the allegations. In that event, Broughton would take over.

Ethics training

The ethics office participates in orientation training for new employees. Broughton or his staff meets for 20 to 30 minutes with the new employees. They show a video about the office. They explain the company’s philosophy: “You do the right thing because it is the right thing to do.”

They employ Web-based training, too, for code-of-conduct and conflict-of-interest training. More recently, they have been looking at ways to embed the ethics training into existing [non-ethics] training modules. Among employees, “training fatigue” is always a possibility, acknowledges Broughton. There is only so much training one can impose on employees before it all gets stale. Embedding ethics into existing training modules might help.

When employees switch on their computers, they are directed to a page called “Connect,” that presents USAA news. Sometimes Broughton will contribute an item. The emphasis is on real-life examples, like the mortgage banking crisis. Broughton might discuss the strong incentives that directed people down the wrong path. There is also a “comment engine” where employees can weigh in with their own opinions. “The community is what sets the norms,” says Broughton.  The challenge is how to engage employees.

Meeting at the ‘café’

Recently Broughton has been conducting live dialogues with small groups of employees—less than 25. He’s used the “world café” model in which the meeting environment resembles a café, and where people may sit four to a table and hold a series of conversational rounds.

At these sessions, Broughton seeks to engage their imaginations. He might say to them: “Imagine walking into a space at USAA and seeing an even more ethical culture than we have today. What would you see in that space?”

At least one employee saw “a future where my office doesn’t exist,” recounts Broughton.

The idea is to ask questions that “structure” employees’ ownershp of ethics. “You engage people whereby they can reflect on ethics.” They’re still experimenting with this; they did about a dozen such sessions last year.

Web-based training, by comparison, is useful and works well with many compliance issues, “but Web -based training won’t change the culture of the organization,” comments Broughton. It can’t foster a sense of ‘belongedness,’ or establish a ‘tone at the top’ or build a community where people think they can safely ‘speak up’ if necessary.

For that you need something more.

True to its origins

History remains a presence at USAA. Back in 1922 when those 25 aforementioned military officers were refused insurance coverage, they were confounded. “We’re trustworthy,” they said, and they decided to pool their money. If one of their cars was damaged, they would take care of it. If any money was left over at the end of the year, they’d share the profits.

Many vocational groups did this in the 1920s after insurers decided they were bad risks, including firemen (Fireman’s Fund) and farmers (Farmers Insurance Group).These self-insurers later became general insurance companies.

USAA is one of the few insurers from that time that stayed true to it original constituency. Its focus is still on the military, and its core values are closely aligned with the military’s values. Is the military different when it comes to ‘values’? “They’ve always had a strong tradition of core values” in all aspects of their affairs, says Broughton. There’s a “feeling you’re on duty 24 hours a day.” It does affect the nature of USAA’s business. “Many employees served in the military. [Twenty-three percent of USAA’s top management and new hires have served in the military.] They know what it means to be a spouse left behind. The leaders often have been former military leaders. There’s a strong relationship between ethics and empathy,” he says.

The company cultivates empathy in its sales and service training. As BusinessWeek reports:

“[T]raining for USAA employees is steeped in the military experience. New reps attend sessions where they dine on MREs, or “meals ready to eat,” which troops consume in the field. They try on Kevlar vests and flak helmets. And each rep is handed a bona fide deployment letter—with the names changed, of course—to get them thinking about the financial decisions customers face at such an emotional time.”
“For people who know USAA”—and many don’t—“the company is iconic.” Its leaders are intent on growing the company, says Broughton, “but not at the price of values, service, and integrity.”
In Forrester Research’s recent annual customer advocacy rankings of financial services firms, based on a survey of more than 4,500 consumers, USAA again ranked first, “as it has every year,” noted Forrester. Seventy-two percent of consumers agreed that USAA “does what’s best for me, not just its own bottom line.”

Regarding the “convergence” of ethics and compliance, is it the company’s view that compliance has been overdone? “Compliance is very necessary,” says Broughton. But if one looks at the big picture and asks, “Has it transformed business?”—spurred the kinds of changes that keep companies from scandals and other big lapses—the answer is no.

“This not the first [economic] bubble that we’ve seen,” says Broughton, and it’s not likely to be the last . It’s been accompanied by all the “usual suspects,” including fecklessness, over-confidence, and greed. The larger question is, “How do you break out of these cycles.”

Compliance and increased regulation, while key components, can’t get you there. They don’t “tap into the passion that people have to have to lead an ethical life.”

On the other hand, empathy and fostering a sense of ‘belongedness’ can.
“That is the future,” says Broughton.

Andrew W. Singer is publisher and co-editor of Ethikos.
Reprinted from the March/April 2010 issue of Ethikos
© 2010 Ethikos, Inc. All rights reserved.

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