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Compliance in the automotive industry

On 18 August 2015 the ECCT arranged a special lunch with guest speaker William Hu, Regional Compliance Officer for Daimler Greater China. The speaker gave an overview of Daimler's Compliance Department and the key elements of Daimler's compliance management system.

Daimler's compliance programme has evolved over the past decade into a comprehensive and robust system. Daimler's Compliance Department focuses on corruption prevention, fraud, anti-money laundering, sanctions and terror lists. As the Compliance Officer for the Daimler Group in Greater China, Hu's role is to lead a team of professionals in managing compliance-related matters in the Greater China region such as third-party vetting, compliance in M&A projects, implementation of compliance in non-controlled shareholdings, review and consultation of critical transactions/activities, identifying compliance risks, planning and designing mitigation plans and follow-up actions, whistleblower and internal investigations and HR-related compliance management and training, among other areas.

It is generally understood and recognized by all multinational companies that compliance with international standards, and the laws of the country where business is conducted is mandatory and a basic requirement to ensure a sustainable business operation. However, Daimler has gone beyond mere compliance by making integrity, or acting according to moral values, a basic core principle of the way it does business.

While the company's employees were initially skeptical or afraid of the company's embrace of such high ethical standards and the consequent strict rules that were put in place in line with the commitment, the company overcame this by embarking on an extensive year-long communication and education initiative. Dubbed "integrity dialogues", the company arranged an open dialogue platform and multiple discussion and training sessions, which were attended by employees from all levels (from senior management down to working level) to discuss and clarify the principles and practical implications of the initiative, including examples of moral dilemmas that may arise when the right form of action to take is not obvious.This comprehensive effort helped to change the mindset of employees from one of being afraid of being punished for not following the rules to one of embracing the principle of integrity.

The focus of Daimler's Group Compliance is on preventing corruption, fraud (breaches of trust and embezzlement) and money laundering. The department does this by supporting and advising respective business units and companies on how to conduct their business in a compliant manner. However, compliance should be everyone's responsibility. If the values of integrity are internalized across an organisation, there would be no need for a separate compliance department.

Achieving integrity begins with a commitment at the top (senior management) to set the right tone and build a culture of trust before it can be promoted and incorporated throughout the organization. This was the first step in setting up Daimler's Compliance Management System (CMS). After this, compliance objectives were defined and compliance goals were set. The next step was determining the processes and organizational structure, roles and responsibilities, followed by identification of essential compliance risks, establishment of basic principles and measures for the mitigation of compliance risks and the prevention of misconduct. This was then followed by information sharing and training of employees. The final (and ongoing) stage is monitoring and reporting of the adequacy and effectiveness of the CMS and continuous improvement in areas of weakness.

The company has more than 70 local compliance managers in over 40 countries. While local compliance officers have to follow global compliance procedures, compliance activities are tailored to the requirements of local culture and regulations. One member of Daimler's board of directors is responsible for compliance globally and the company has four compliance divisions, three of which are based on business units while there is also one division dedicated exclusively to China (given the importance and complexity of the company's business in China). The company has complicated business structures and around 10,000 suppliers in China.

While it is not possible to check that every supplier complies with Daimler's global standards, the company has a complicated formula for calculating the level of risk and introducing measures to address these risks. In addition, anti-corruption clauses and the right to audit suppliers is written into business contracts. Before signing contracts with new partners, the company conducts background checks on them to check if they have any history of illegal behaviour. If problems are found the suppliers are asked to take remedial action, or in severe cases, business relations can be terminated. Senior executive officers of partners companies are also asked to attend compliance training programmes.

Daimler's Business Practices Office's (BPO) whistleblower system provides a channel for employees to raise concerns. The BPO then examines tips regarding severe violations of laws and regulations and initiates investigations when specific evidence is uncovered.
The company also maintains a black-listing process for sales partners with potential or confirmed integrity-related concerns and a group-wide verification process for preventing economic resources from being supplied to persons, businesses or groups that are listed on EU and US sanctions lists.

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