How they do it at ... Sprint Nextel
This was exactly the challenge that Christie Hill faced less than a year ago when telecommunications giants Sprint and Nextel closed their merger deal. Rather than panicking and running for cover, Hill approached the deal as a unique opportunity.
‘The nature of the deal, being a merger of equals, created an extra layer of integration challenges and complexities beyond what you generally experience in an M&A transaction,’ she explains. If one company had been acquiring the other, then one company’s procedures and processes would simply have trumped those of the other company. This was not the case with Sprint Nextel Corporation.
Hill, who serves as vice president, corporate governance and ethics, and corporate secretary at the new company, points out that the merger gave management the chance to start with a clean slate. ‘It allowed us to take the best of both worlds and build what we believe is the best possible model for the organization going forward,’ she says.
‘With respect to organizational design, we took this opportunity to create an independent governance and ethics function separate from the traditional model that many corporations have, in which the two functions are housed in different departments or married together but embedded in the legal department, for example,’ Hill explains.
The reasons for combining the ethics and compliance functions appear obvious to Hill. ‘We believe that in order to truly empower our board – and, indeed, the function itself – and make our directors more engaged, we had to create a structure that gives the board a clearer line of sight into some of the company’s key constituencies.’
As anyone who has been through a merger knows, one of the first and most important steps is creating and codifying new rules and practices. Sprint is no exception, adopting a simple but important philosophy: ‘New company plus new culture equals new code of conduct,’ says Hill.
‘One of the first things we did was to create a new code of conduct that drew the best elements from both cultures,’ she adds. ‘We feel this is important because one result of the merger was new corporate values, and one of these is integrity. We were able to take that value and launch a new code of conduct that is reflective of the cultural and ethical aspirations of the new corporation.’
Although there are still some wrinkles and challenges to work through, which is hardly surprising this soon after a merger, the overall team and structure are generally in place. Hill’s team is large compared to many other companies of a similar size. She has 17 people in total. Eight are specifically focused on governance, seven on ethics and two operate between both disciplines. Running such a large team, which is split between corporate headquarters in Virginia and operational headquarters in Kansas, presents Hill with a challenge in itself, but the size of the team is a very real indication of the seriousness that the Sprint board of directors gives to the governance and ethics function.
‘We report directly to the board, and ours is a separate function from any other within the company,’ says Hill. ‘We think this is a great model given the environment in which we are doing business. It allows the board to really keep its finger on the pulse of the constituents and the issues both within and external to the company.’
It is important for the board to be aware of the compliance and ethical concerns not only of the people within the company, but also of the core investment community. This is something the governance and ethics team at Sprint takes seriously. ‘We have a group of activist shareholders that like to meet annually with members of the governance team and the nominating committee of the board of directors, and having an independent group like we have at Sprint facilitates this and makes the shareholder communication process more meaningful,’ highlights Hill.
New model of governance and ethics team
The size and independent nature of Sprint’s governance and ethics team are different from the traditional model. ‘We have combined what would be the traditional role of the corporate secretary, often located within the legal department, and the traditional role of the chief ethics officer into this one role,’ she says. ‘With the new model, there is a lot of coordination that occurs between my team and the general counsel team, however,’ Hill adds.
As part of the new ethics and governance environment, Sprint elected not to appoint a compliance officer, opting instead to appoint a chief ethics officer. The reason? Perception. Hill feels that this move sends a positive message and is a more effective way to create an enterprise-wide environment of ethical behavior.
‘We have opted not to have a person designated as chief compliance officer because we take a more values-based approach to our program,’ says Hill. ‘Rather than being compliance-focused and call the head of the group the chief compliance officer, we have instead chosen to stress the value aspect of the code and therefore selected the term chief ethics officer. While many of the same functions are performed, we feel it is a matter of emphasis and focus – it’s a perception thing.’
Sprint reinforces its culture through regular communication with all employees. Everyone goes through annual general awareness training, and there is testing and review to ensure that all employees actually understand the code of conduct. ‘We find this to be a very effective reminder of the role ethics plays in the daily life of the employee,’ Hill notes.
Having the board’s support is also vital. The team reports directly to the audit committee on a quarterly basis. An annual review is also provided to the entire board so everyone knows where the program is going and what the priorities are for the coming year. But it is not just the board’s responsibility. ‘I have a seat at the table with the executive team and attend all CEO staff meetings,’ explains Hill. ‘I also have a direct reporting relationship with the chairman of the board.’
All levels of the company are involved in creating an atmosphere of ethics, which in turn leads to better compliance and governance. It’s not always easy though. ‘Having the governance and ethics elements married together can mean a great deal more work,’ Hill concludes, ‘but the real beauty of it is that it gives the company a far more holistic view.’