Sustainability > Governance Ethics And Compliance

Case Study: Ethics and Compliance as a Competitive Advantage

Baxter's Ethics and Compliance program reaches more than 100 countries. Baxter implements its program to meet its obligations as a U.S.-based multinational, and tailors its program to local culture. Baxter Poland provides a strong example.

Baxter operations in Poland involve more than 300 employees working for a local joint venture and for Baxter Poland, which in 2006 was named by Forbes magazine as the fastest growing small-medium size enterprise in the country. Financial results of 2005 were followed by even faster growth in 2006. Luigi Negri became managing director in 2004. During his tenure, he prioritized ethics and compliance as an important organizational focus, and he attributes the success of the business in part to these efforts. (Mr. Negri moved to Baxter's Latin America region in August 2007 following his appointment as general manager of emerging markets for Latin America.)

Successful ethics and compliance at the country level requires complementing Baxter's global programs (see Ethics and Compliance ) with initiatives tailored to address local issues and challenges. For example, in Poland, as in many countries, companies may confront expectations by customers and government officials regarding bribes and facilitation payments. Baxter's Global Business Practice Standards strongly prohibit payments in exchange for business. There are several aspects to addressing ethics and compliance, so Baxter Poland takes a multifaceted approach, developed by Mr. Negri (see table).

Promoting values as a source of competitive advantage, as opposed to a constraint, is central to Mr. Negri's approach. Baxter's commitment to sales based on quality, price and service can be a differentiator, and maintaining 100 percent compliance may strengthen the organization's negotiating position with clients in cases where ethical breaches could otherwise be used as leverage against the company. Baxter Poland is transparent regarding its performance.

Another key success factor has been Baxter's relationship with Transparency International (TI), a leading global civil society organization that promotes a world free of corruption. As a part of this relationship, established in 2005 and formalized in 2006, TI provides Baxter Poland training sessions about addressing corruption, including individual sessions with each new employee. The organization also provides a yearly audit and report of employee awareness regarding this issue, providing Baxter an independent, expert perspective.

Collaborating with industry peers to raise standards more broadly has also been effective. For example, INFARMA, a Polish association of pharmaceutical firms founded in 2006, recently launched a code regarding the ethics of drug promotion and advertising. Baxter was among the first companies to sign, increasing pressure on other firms to adopt similar practices.

Mr. Negri believes this trend toward transparency and compliance will continue and benefits companies with strong programs such as Baxter, and shares his experience with other leaders, both within and outside the company.

"Implementing ethics and compliance at the country level requires a sophisticated yet pragmatic approach. One cannot change a culture, even if it presents distinct challenges. We must instead determine how to ensure that all our activities honor Baxter's values and commitments. This consistency provides us a source of competitive advantage."
Luigi Negri
General Manager for Emerging Markets
ETHICS AND COMPLIANCE AT BAXTER POLAND: CHALLENGES AND RESPONSES
CHALLENGE RESPONSE

Cultural and social – Public employees may expect private gain for performing a job.
  • Adhere to Baxter's Global Business Practice Standards Manual, which prohibits paying bribes under any circumstances.
  • Promote ethics and compliance as a competitive advantage.
  • Differentiate Baxter's products based on cost and quality.

Inter-organizational – There is an incentive to endorse unethical behavior, due to prevalence throughout the system.
  • Support industry associations (see INFARMA example above) that raise compliance levels across companies.
  • Promote business practices as a competitive advantage.
  • Develop relationships with external, compliance-focused organizations (see Transparency International example above).

Organizational – Employees are exposed to external inputs that reinforce the wrong practices, producing a gap between daily activities and company values.
  • Implement corporate tools locally and establish a complementary local process, endorsed by senior management.
  • Underscore the social cost of unfair practices and the competitive advantage of values.
  • Shift from a control-based organizational culture to one based on trust and accountability.

Managerial – Implementation of processes related to ethics (such as training) is weakened by lack of organizational support.
  • Ensure that staff support initiatives.
  • Delegate "ethical engine" role throughout the organization.
  • Customize corporate ethics initiatives (training, tools, etc.) to increase relevance.
  • Engage third-party auditing process in addition to internal certification.

Personal / Interpersonal – Champions of ethical initiatives may face isolation, due to perception that they are not aligned with culture and "normal" practices.
  • Reinforce the business benefits of values, and reward those who promote them.
  • Make ethics and compliance a standard topic of discussion and aspect of measuring organizational and individual performance.
  • For foreign employees, be aware of expatriate phases of cultural adjustment that may impact perceptions.