Sheffield Hale Chief Counsel January 15, 2010 Senator Charles E. Grassley United States Senate Committee on Finance Washington, D.C. 20510-6200 ATIN: Paul Thacker and Brian Downey Dear Senator Grassley: This letter responds to the Senate Finance Committee' s December 7, 2009, request for infonnation on funding received by the American Cancer Society, Inc. , (the "Society") from phannaceutical companies, medical device companies, foundations established by these companies, and the insurance industry ("PMI Funders"). As will be explained below, the Society receives less than 1.5 percent of its total income from PM! Funders. The Society holds itself to the highest standards of transparency and public accountability in its continuing quest to save lives by eliminating cancer as a major health problem. At the start of this new year, it is worth remembering that in 2010, nearly 600,000 Americans are expected to die of cancer. That is more than 1,500 deaths a day. Furthennore. an estimated 1.5 million Americans will receive a diagnosis of cancer during the same period. That means more than 4,500 Americans will hear their doctors say, "You have cancer," each and every day this year. These statistics underscore the importance of the battle against cancer. As the nation's largest voluntary health organization, the Society knows that it cannot fight this disease without maintaining the highest standards of stewardship that are essential to give Americans confidence in the integrity of our organization. The Society will celebrate its lOOth birthday in 2013, and that is, in part. due to its long and successful commitment to public accountability and responsible stewardship of donor resources . Given this organizational ethic, the Society is highly responsive to current governmental and public concerns about appropriate use of tax-deductible contributions. Accordingly, the Society over time has adopted a series of enhancements to its Board governance and operational policies and procedures intended to reflect nonprofit sector best practices and new transparency National Home Office 250 Williams Street Atlanta, GA 30305 404.327.6423 fax) 404.929.6980 Cancer Information 1.800.ACS.2345 WWY\I.cancer.org Hope.Progress.Answers. guidelines for charitable organizations. Below, in response to the Committee's request for infonnation, we explain these in detail and also discuss the attached accounting of industry funding. At the outset, however, we would like to provide infonnation that we believe provides context responsive to the Committee's concerns about the relationship between our organization and PM] Funders. Specifically, we will discuss sources of the Society'S funding and governance practices that safeguard individual donor dollars. Financial Support of the American Cancer Society Donor confidence is essential to the Society'S success. The overwhelming majority of the Society'S fmancia! support comes directly from voluntary contributions from the public at large. Here are some recent statistics: o In 2009, 6.9 million donors made more than 9 million gifts to the Society, with an average gift size of $67, excluding planned gifts. More than 6.6 million of those 6.9 million donors (95.7 percent) were individuals, approximately 325,000 donors were corporations, and approximately 6,000 were charitable foundations. o The Society raised approximately 59 percent of its 2009 revenue through community-based special events by leveraging the talents and commitment of individual volunteers and participants, including: o 5,034 American Cancer Society Relay For Life@events, which raised more than $386 million, with an estimated 3.5 million participants - including more than 700,000 cancer survivors. More than 140 Making Strides Against Breast Cancer(XI events which raised more than $50 million, with an estimated 600,000 participants and 55,000 survivors. o Between 2006 and 2009, less than half of 1 percent of all corporate donors to the Society were PM] Funders, and their contributions accounted for less than 1.5 percent of the Society's total income. I The Society accepts this support according to the specific policies and procedures described below that apply to all corporate contributions to ensure that funding will be used to pursue the Society's lifesaving mission. I In describing financial support, we define the Society broadly to include ACS, Inc. and its related organizations. ACS, Inc. , is a national organization with affiliated Divisions, a foundation, and an affiliated 50 1(c)(4) organization. To provide complete transparency. we have included industry funding provided not only to ACS, Inc., as you requested, but also industry funding provided to organizations affiliated with ACS, Inc. They include: The American Cancer Society Foundation. American Cancer Society California Division. Inc. , American Cancer Society Eastern Division, Inc., American Cancer Society AoridalPuerto Rico Division, Inc. , American Cancer Society Great Lakes Division, Inc., American Cancer Society Great West Division. Inc., American Cancer Society High Plains Division, Inc., American Cancer Society Illinois Division, Inc., American Cancer Society Mid-South Division, Inc .o American Cancer Society Midwest Division. Inc .o American Cancer Society New England Division, Inc., American Cancer Society Ohio Division, Inc .o American Cancer Society Pennsylvania Division, Inc., American Cancer Society South Atlantic Division. Inc.o and American Cancer Society Cancer Action Network, Inc. 2 It is important to note that not one of the nearly 325,000 corporate donors is a tobacco company. The Society has an absolute prohibition on accepting support from the tobacco industry. This prohibition is aligned with the Society's mission: since the first Surgeon General' s report on smoking and health in 1964, there have been more than 12 million premature deaths attributed to smoking in the United States. Governance Practices The Society is committed to transparency and accountability as a means to safeguard donor dollars. To that end, the Society regularly monitors and implements, where appropriate, guidance offered by nonprofit associations. such as Independent Sector, and by the Internal Revenue Service. The Society currently follows the practices reflected in Part VI of Fonn 990, the IRS discussion of Governance and Related Topics for 501(c)(3) Organizations, and the Principles for Good Governance and Ethical Practice set forth by the Panel on the Nonprofit Sector. For example, the Society'S Code of Ethics (which is attached under Exhibit B) provides for annual disclosure of fmancial interests in any business that engages in fmancial transactions with the Society. The Society has also adopted a document retention policy and provides protection for whistleblowers. In addition, the Society makes public on its Web site its governing documents. its Fonn 990, and its fmancial statements. The Society'S Audit Committee, which is responsible for reviewing conflict of interest issues, is composed entirely of independent directors. Furthennore, the Society'S Board of Directors is composed entirely of independent volunteer citizen members and is organized to facilitate active Board oversight of the Society's operations and fmances. Accounting of Industry Funding The Committee has requested an accounting of funding provided to the Society by phannaceutical companies, medical device companies, fOlmdations established by these companies, and the insurance industry between 2006 and 2009. The Society received nearly $4 billion in total income between 2006 and 2009, of which $58,227,286 was contributed by PM! Funders, representing less than 1.5 percent of the Society's total income over this period. Under Exhibit A, we have attached a list of the PMI Funders that have supported the Society and its related organizations over the past four years, along with the amount, date, and purpose of each contribution. As specified in your request, in compiling this data, we defmed the tenn "industry funding" to mean any transfer of value, including but not limited to grants, donations, and sponsorship for meetings or programs, etc. We have included aggregate contributions for those companies with less than $20,000 in donations on page 7 of Exhibit A under Other Phannaceutical, Medical Device Companies, Foundations, and Insurance Companies2 o We believe this data materially satisfies the Committee' s request. 2 We interpreted your requesl for insurance companies lo mean all types of insurance companies, including health insurance, life insurance, property, and casualty insurance companies. 3 Policies The Committee has asked a number of questions about the Society's policies with respect to industry funding, transparency, and outside income. Below, we have reproduced your questions and provided our responses. Industry Funding 1. Please describe the policies for accepting industry funding and whether or Dot the American Cancer Society allows companies to place restrictions or provide guidance on how funding will be spent. 2. IT the Society allows companies to place restrictions on industry funding, then please explain all restrictions and/or guidance for each transfer of value from industry. For every transfer of value with a restriction, please provide the following information: year of transfer, name of company, and restriction placed on funding. The Society' S long-standing position on acceptance of industry funding is set forth in its Policy on Corporate Relationships, which is attached under Exhibit C. Consistent with long-standing practice, the Society solicits and accepts restricted contributions only for purposes that meet its specified mission delivery program guidelines or priorities. The Society is an accredited member in good standing of the National Health Council because its policies and practices meet the National Health Council Standards of Excellence. These standards demand the highest level of accountability and ethical practice to assure the public that the organizations meeting these standards are worthy of support. For a detailed listing of the National Health Council's Standards of Excellence for voluntary health agencies, please visit www.nationalhealthcounci1.orglfonns/soe.pdf. As shown in the data provided of industry funding under Exhibit A, approximately 60 percent of contributions by PMI Funders are accepted subject to restrictions on use. Detail with respect to each transfer (year of transfer, name of company, and restriction placed on funding) is included under Exhibit A. Below we explain each of the listed restrictions on use, which fall into the following twelve categories: o Breast cancer - general. Restricted donations in this category are used to support the Society'S work to eradicate breast cancer, including research, patient services, and prevention and early detection programs. Camps for children with cancer. Restricted donations in this category are used to support the Society'S free summer camps for children with cancer. Staffed by pediatric oncologists and nurses, these camps provide a place for children in treatment or remission to become kids again through the summer camp experience. Cancer prevention and early detection. Restricted donations in this category are used to support the Society's cancer prevention and early detection efforts. The Society'S prevention programs focus primarily on: tobacco control; the relationship between diet, physical activity, and cancer; promoting coordinated school health programs; and reducing the risk of skin cancer. Programs are designed to help adults and children make health-enhancing decisions and act on them. The Society also seeks, through the dissemination of its early o o 4 cancer detection guidelines and its cancer detection and advocacy programs, to ensure that cancer is diagnosed at the earliest possible stage, when there is the greatest chance of successful treatment. o Geographic. Restricted donations in this category are used to support the Society's work in specific geographic areas. o Hope Lodge@. Restricted donations in this category are used to support the Society's Hope Lodge facilities , which provide a free, supportive place to call "home" for cancer patients and their families during treatment. Getting the right care sometimes means that cancer patients must travel far from home, often to a cancer treatment facility in another city, adding the additional burden of transportation, hotel, and meal expenses. Many cancer patients are forced to go into debt, or take their second or third choice of treatment simply because the cost of travel is too great. Currently, there are 29 Hope Lodge locations throughout the United States. o Nutrition and pbysical activity programs. Restricted donations in this category are used to support the Society's nutrition and physical activity programs, including research and education. For example, every five years the Society publishes nutrition and physical activity guidelines, which are developed by a national panel of experts in cancer research, prevention, epidemiology, public health, and policy, and as such, they represent the most current scientific evidence related to dietary and activity patterns and cancer risk. o Patient Navigation Programs. Restricted donations in this category are used to support the Society'S Patient Navigator Programs, which provide guidance for cancer patients, their families, and caregivers to help them through the cancer treatment experience, with a focus on identifying and eliminating barriers to cancer care for the medically underserved. Patient navigators serve as personal guides by providing information, day-to-day help, and emotional support. o Patient services. Restricted donations in this category are used to support the Society's patient services programs, which provide a wide range of emotional and practical support for patients, their families, their caregivers, and their communities from the time of diagnosis to the end of the cancer experience. For example, the Road to Recovery@program provides transportation to and from treatment for people who have cancer and do not have a ride or are unable to drive themselves. o Scientific research. Restricted donations in this category are used to support the Society's research program, which includes both external grants and in-house cancer research. With its external grants, the Society - which is the nation's largest private, not-for-profit source of funds for scientists studying cancer - focuses its funding on investigator-initiated, peerreviewed proposals. The success of the Society'S grant program is perhaps best illustrated by the fact that 44 grant recipients have gone on to win the Nobel Prize. The Society also conducts in-house cancer research in a wide variety of areas, including epidemiology and behavioral and psychosocial research. o Tobacco control. Restricted donations in this category are used to support the Society's wide-ranging tobacco control efforts, which include everything from research and education to policy work and direct patient services. 5 o o Youth cancer survivor scholarships. Restricted donations in this category are used to support the Society's youth cancer survivor college scholarship program. which is a scholarship opportunity exclusively for students with a history of cancer. The program provides young cancer patients/survivors assistance in pursuing higher education from an accredited school. Otber program restrictions. Restricted donations in this category, approximately $782,638 (1 % of the total), are used to support miscellaneous Society activities that do not fit into any of the other categories such as our health insurance assistance service, clinical trials matching service, and pain awareness. Transparency 3) Please explain what policies, if any, tbat tbe American Cancer Society plans to adopt to ensure transparency of funding in order to provide a greater public trust in tbe independence of your organization. As discussed above, the Society has worked hard to maintain the public trust by exercising responsible stewardship over contributions and by adopting governance practices that encourage public confidence in charitable organizations. The Society either meets or exceeds the standards established by numerous charitable "watchdog" agencies. The Society holds the Better Business Bureau national charity seal of approval and is accredited by the Bureau's Wise Giving Alliance for satisfying Standards for Charitable Accountability, which are available at www.bbb.orglus/Charity-Standards. The seal provides the public with a clear, concise, and easily recognizable symbol that the subject national charity adheres to the Alliance's strong and comprehensive standards. In addition, as noted above. the Society meets the National Health Council Standards of Excellence, which signal that the Society satisfies the highest levels of accountability and ethical practice and is worthy of support. Additionally, the Society's Board Audit Conuninee and its Governance Committee are both charged with the continuing responsibility to consider additional policies and emerging procedures as may prove necessary to protect against conflict of interest and inappropriate influence. The Society will continue to monitor the evolution of best practices in governance in the nonprofit sector and will adopt practices that are appropriate for the Society and that foster continued public confidence in its independence. Outside Income 4) Please explain your policies on disclosure of outside income by your top executives and board members. Please provide the disclosures of outside income filed with your organization by your top executives and board members. 5) The Society requires all employees and directors to comply with its Code of Ethics (Exhibit B), including the Conflict of Interest Policy. The policy is designed to ensure that the Society benefits from the undivided loyalty of its staff and directors, while recognizing that these individuals will have relationships and obligations outside the Society. In order to prevent any 6 such relationships or obligations from influencing their decisions at the Society, the policy requires all Board members and staff to disclose, at least annually, any position that would result in a conflict of interest or the appearance of a conflict of interest. Hence, all directors and executives must disclose sources of income that would interfere with their duties to the Society. This information is used by the Board Audit Committee, as well as by the Office of Chief Counsel, to identify circumstances where an individual decision maker should be recused from the Society's decision-making process. Thus, this practice appropriately balances the Society'S interests with the outside commitments of its directors and staff. Staff who earn outside income, such as honoraria, fees, or commissions while working on Society-compensated time are, of course, required to turn that income over to the Society. The Society has not adopted a fonnal policy requiring disclosure of outside income by its top executives and Board members. Instead, it has relied on its Conflict of Interest Policy, which mandates disclosure of the relationships that may create conflicts of interests rather than on disclosure of all outside income. The policy has been reviewed and approved by the Society's Board of Directors, which retains ultimate responsibility for ensuring responsible stewardship of Society funds . The Board takes its responsibility for ensuring organizational transparency and accountability seriously and has created a Governance Committee to consider whether the Society's governance procedures are consistent with evolving nonprofit best practices. In light of emerging best practices, the Board's Governance Committee will be considering additional protections, including whether the Society should adopt a fonnal policy on disclosure from its Board members of outside income and stock ownership from PMI Funders. In direct response to your inquiry, the Society's Chief Executive Officer solicited detailed information from all of the Society's employed "Disqualified Persons" 3 and its key medical and scientific executives with respect to sources of outside income and stock ownership information (other than diversified independently managed investment vehicles such as mutual funds) with and from PMI Funders. Only one income relationship between a PMI Funder and any of those individuals was reported. This individual, who joined the Society in January 1,2009, had a two year pre-existing relationship with a biotech company where he serves as a scientific advisor with a yearly stipend of $48,000. Only one individual reported stock ownership in PMI Funders in excess of $10,000. The individual has holdings in two large publicly traded companies with a current value between $IQ,OOO and $40,000. The Society has adopted a policy to provide that all employed Disqualified Persons and medical and scientific executives must receive approval from the Chief Executive Officer, Chief Medical Officer, and Chief Counsel prior to entering into any income relationship with a third party and to prohibit any compensated relationship with a PMI Funder. The Society will continue to annually solicit detailed information on outside income and stock ownership from these executives. 3 As defmed in IRe 26 U.S.c. ? 4958(f)(l). 7 The American Cancer Society has never taken for granted the trust and generous support of the American public - trust that it has earned and received for nearly a century. It is with that trust in mind that the Society routine! y evaluates emerging standards and best practices in the areas of nonprofit governance and public accountability. Our organization remains committed to playing a leadership role in the independent, nonprofit sector and in our civil society. We hope these responses have satisfied the Committee's questions. Sincerely. F. Sheffield Hale Enclosures 8 Exhibits A. Funding from pharmaceutical companies, medical device companies, foundations established by these companies, and the insurance industry B. Code of Ethics and Conflict of Interest Policy, American Cancer Society. Inc., and Its Affiliated Entities C. 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BREAST DANGER- GENERAL 011-IER 1000 Eii1 PATIENT SERVICES i m1? 100 SCIENTIFIC RESEARCH El !El 075 INC- I 2175 BREAST CANCER- GENERAL Iam GEOGRAPHIC ass 10T HOPE LODGE 18 000 PATIENT SERVICES TCD EI SCIENTIFIC RESEARCH $*3065 LIFE INSURANCE comm: CANCER - GENERAL IEZI 0 IW 2 500 27.202 CANCER PREVENYIONIEARLYDEFEGUON 1000000 1000000 UNRESFRIGTED DONATIONS 37 BM 0 000 LIFE INSURANCE 12U5 99 40 PH SHE 1 $79 $45 MGI PI-IARMAGEUTIDAL BREAST GAMER- GENERAL -- 10000 10000 PATIENT SERVICES I DUNHTIONS 7850 MGI T?1al T5 500 25 650 MILLIPGRE BREAST CANCER- GENERAL 011 HI HOPE LODGE UNRESTRICTED DONATIONS lZ!-1 1 005 -IEH KEII EHZI MILLIPORE 70101 2002 0 B15 NEW LIFE INSURANCE ccIw=Amr CANCER - GENERAL 740 -E.EI 7.0711 CAMPS Fon CHILDRENWITH CANCER as 000 zs 000 SCIENTIFIC RESEARCH UNRESTRICTED DONATIONS El IF 70:1 78.490 (Em] 77 202 NEW YCRK LIFE INSURANCE COMPANY 23 403 l>aEnm?nAL NAVIGATION vacuums 000 1 000 mmnons E!l WH-I-PGWT Pap 9 10 -- G111?oh??u?Yoor -- IIZJ :1 35 14 cM1P8F0?cmL?RaNvnmuNcER IEEI jZHiEl GEOGRAPHIC 15m EI a GD wom :0 mu HOPE nouns IEH omm mocmm nsmmous sum -HEH PATIENT szrwoczs as mu zs unc so mu Esnncu Vuwmcnucsnsunvwunscunamsaurs wm mm sum MNB BTTQ {Iliff! ?7?5?2 waus mma Fuumnncu commons as as 31 ns - _1 ZS1 HWE LODGE unwmomzn ucwmons ?r?u HOPE LODGE 10 senvocas EI UNNESTRI DONATIONS 15825 jiixliliflil 18045 59063 VWETHTMI 1 M5 21-1745 HEI ., - . Exhibit SOCIETY HOTLINE 1-800-539-7202 AMERICAN CANCER SOCffiTY, INC AND ITS AFFILIATED ENTITffiS CODE OF ETHICS AND CONFLICT OF INTEREST POLICY SOCIETY HOTLINE 1?800?539?7202 Table of Contents Page Introduction and Applicability ...........................................................................................................1 Policies Governing Ethical Conduct .................................................................................................. 2 Abuse of Position and Conflicts of Interest ....................................................................................... 2 A. Areas in Which Conflicts May Arise ......................... .................................................... 3 Nature of Conflicting Interest ........................................................................................ 3 Conflict of Interest Disclosure Procedures ...................................................... , ............ .4 1. 2. 3. 4. Annual Statements ............................................................................................. 5 B. C. Continuing Disclosure ....................................................................................... 5 Procedures for Addressing the Conflict of Interest.. .......................................... 6 Violations of the Conflicts of Interest Policy .................................................... 7 Confidential Information ................................................................................................................... 7 Reporting Conflicts and Violations ................................................................................................... 7 Defmitions ........................................................................................................................ .................. 8 1. Disqualified Persons .................................................................................................. 8 2. Financiallnterest .... .................................................................................................... 8 3. Society Counsel ......................................................................................................... 9 4. Tobacco Company ............................................... ...................................................... 9 Flowchart Summary of Process to Resolve Conflicts of Interest (Non Disqualified Persons) ........ ........................................................................................................ 10 Flowchart Summary of Process to Resolve Conflicts of Interest (Disqualified Persons) .............................. ..................................................... ..................................... 11 COE-COI Policy.Novernber2009.doc SOCIETY HOTLINE 1-800-539-7202 Conflict of Interest Disclosure Statement (Exhibit A) ....................................................................... 12 Whistleblower Protection Policy (Exhibit B) .................................................................................... 16 Frequently Asked Questions .............................................................................................................. 17 , II SOCIETY HOTLINE 1-800-539-7202 W Can.cer f Society" I American CODE OF ETHICS AND CONFLICT OF INTEREST POLICY AMERICAN CANCER SOCIETY, INC AND ITS AFFILIATED ENTITIES Introduction and Applicability The Code of Ethics and Conflict of Interest Policy (the "Code") of the American Cancer Society, Inc. and its affiliated entities (collectively, the "Society") establishes the ethical standards for volunteers and staff of the Society (collectively referred to as "associates") in connection with Society business. The purposes of the Code are to provide evidence of the Society'S commitment to the lawful and ethical conduct of its business. to promote lawful and ethical behavior by its associates, and to protect those who report violations of the Code consistent with the Society's Whistleblower Policy. Conflicts of interest will arise in the normal course of conducting Society business. The Code is not designed to prohibit conflicts of interest but to protect the Society'S interest when it is contemplating entering into a transaction or arrangement that might benefit the private interests of an associate or might result in a possible excess benefit transaction. The Code is intended to supplement but not replace any applicable state or federal laws governing ethical conduct or conflicts of interest applicable to nonprofit and charitable organizations. The Code applies to all staff and to all volunteers responsible for governance at any Society affiliated entity and those volunteers who have any fiduciary obligations in discharging their duties on behalf of the Society, including but not limited to, members of the National Assembly, the Boards of Directors and their committees. It is every associate's responsibility to discharge his or her duties in a manner that promotes and preserves public trust, proper stewardship, and confidence in the integrity of the Society. Associates must respect and comply with Society rules and regulations. observe high standards of conduct. and participate in establishing and maintaining such high standards. Adverse consequences, including employee termination or removal of a volunteer from his or her position, can result from failure to comply with the Code. It is the duty of all associates to review and assess their conduct in light of the provisions of the Code. Each associate shall seek, either in writing or in person, the advice of his or her supervisor or Society Counsel when a reasonable doubt regarding an ethical or legal consideration arises. The Conflict of Interest Disclosure Statement (EXHIBIT A) must be completed by all staff and volunteers on an annual basis. The determination of which volunteers must complete the form is made by Society Counsel. COE-COI PoIicy.Novernber2009.doc 1 SOCIETY HOTLINE 1-800-539-7202 I. Policies Governing Ethical Conduct A. Society associates will perfonn their duties properly. diligently, and in an appropriately courteous manner. B. Consistent with the provisions of any applicable document retention policy, no associate shall falsify, destroy, mutilate, conceal, or fail to make required entries on any record within the associate's control, including the destruction of docwnents that are the subject of an investigation or a civil or criminal action to which the Society is a party. C. Associates with reporting responsibilities shall provide full, fair, accurate, timely, and understandable disclosure in all reports. D. Associates shall act honestly and ethically. E. No associate shall discriminate on the basis of race, color, religious creed, gender, national origin, age, physical ability. sexual orientation, marital status. or veteran status in the conduct of services for the Society. F. Associates who are attorneys. medical clinicians. certified public accountants. or members of other professional groups are bound by the appropriate professional duties and code of conduct of those roles. G. Associates shall comply with all state, federal and local laws. statutes and ordinances. H. Associates shall comply with all policies on confidentiality and privacy of infonnation. Associates shall not use confidential or proprietary infonnation for personal fmancial gain. II. Duty of Loyalty to the Society - A voiding Abuses of Position and Conflicts of Interest The Society is a nonprofit, tax-exempt organization. Maintenance of its tax-exempt status is critical both for its continued fmancial stability and for public support. The Society is subject to scrutiny by, and is held accountable to, governmental and regulatory authorities as well as the public. Consequently, there exists between the Society and its associates a fiduciary duty which carries with it a duty of loyalty. Associates have the responsibility of administering the affairs of the Society honestly and prudently and of exercising their best care, skill, and judgment for the sole benefit of the Society. Moreover, because of the Society'S status as a public charity, every associate has an afftrmative duty to act as a steward of the funds entrusted to the Society by its contributors. Associates shall use the resources, property, and funds under the associate's control judiciously and in the best interest of the Society. Associates shall exercise good faith in all transactions, and they shall not use their positions with the Society or knowledge gained therein for their personal benefit or for the benefit of any other person or organization. The interests of the Society must be the first priority in all decisions and actions. COE-COI Policy.November2009.doc 2 SOCIETY HOTLINE 1-800-539-7202 No associate shall accept. solicit, or agree to accept any gift, favor, complimentary service, or other thing of value under circumstances from which it might be reasonably inferred that such gift. service. or other thing of value was given or offered for the purpose of influencing the associate in the discharge of his or her duties. Vendor selections and purchasing decisions must always be business decisions based on merit: by comparing and evaluating price, quality, performance, and suitability. Decisions must not be influenced by any other factor, such as personal relationships, gifts or hospitality. A. Areas in Which Conflicts May Arise - A conflict of interest may arise in the relations of associates with any of the following third parties: o Persons and firms supplying or potentially supplying goods and services to the Society (vendors and professionals), including, but not limited to: o o o o o o o o o o o o Construction services. Professional services, including accounting and legal services. Contracts with individuals, including consultants and part time staff. Contracts with companies providing non-professional services. such as marketing, research services, information technology. consulting or other services. etc. Persons and ftnns from whom the Society purchases or leases property and equipment. Persons and ftnns with whom the Society is dealing or planning to deal in connection with the purchase or sale of real estate, securities, or other property. Persons or parties with a direct, material, Financial lnterest in the outcome of Society programs, policies or positions. Customers of Society services (e.g. QuitlinelEmployer Initiative customers). Donors, volunteers, and other supporters of the Society. Agencies , other nonprofits, and associations that affect the operations of the Society. Entities from whom the Society receives grants or to whom the Society provides grants. Tobacco Companies and their related entities. B. Nature of Conflicting Interest? A conflicting interest may be defined as an interest, direct or indirect, with any persons or firms listed in Section A. Such an interest might arise through: o An association with any entity that deals with the Society of which an associate or an immediate family member is a partner or a controlling shareholder, executive officer, or has any other position with another entity that would reasonably cause the appearance of a conflict of interest. Any question regarding independence should be reviewed by Society Counselor, where appropriate, the Audit Committee for fmal resolution. Receiving compensation for services with respect to individual transactions involving the Society. Using Society time, personnel, equipment, supplies, or goodwill for any purpose other than Society-approved activities, programs, or purposes. o o COE?COI Policy.NovembeJ2009.doc 3 SOCIETY HOTLINE 1?800?539?7202 o Receiving allowances from the Society (other than incidental amounts incurred while traveling with any excess promptly repaid in full) if you are a director, volunteer, or officer of the Society. Receiving any gift, courtesy or loan from third parties dealing or competing with the Society. or seeking to deal with the Society. except for gifts with a value of less than seventy-five dollars ($75) that could not be refused without discourtesy and which will not give rise to the perception that the associate's independent judgment might be compromised. Nominal gifts such as pens; caps; paperweights; t-shirts; coffee mugs; soft drinks; flowers ; chocolates or other small tokens may be accepted. No personal gift of cash or a cash equivalent (i.e. gift cards, gift checks, vouchers. phone cards, checks or money orders, etc.); special discount; tickets for entertainment where the host will not be present; gifts that would embarrass the Society; or situations where the Society's commitment to diversity and respect for others could be violated or could cause unease, such as adult entertainment, shall ever be accepted from a vendor during a bidding or contracting process. Associates shall never request gifts or hospitality of any sort. Associates shall avoid a pattern of accepting frequent courtesies from the same person or company. o C. Conflict of Interest Disclosure Procedures: The areas of conflicting interest listed in Section A, and the relationships in those areas that may give rise to conflicts, as listed in Sections B. are not exhaustive. Conflicts may arise in other areas or through other relationships. The Code does not prohibit conflict of interest transactions but instead provides a framework for conflict avoidance and management. However, if an associate believes that he or she is in a possible conflict situation, he or she should assume that a conflict does exist and act accordingly. The fact that one of the interests described in Section A or B exists does not necessarily mean that a conflict exists, or that the conflict, if it exists, is material enough to be of practical importance, or if material, that upon full disclosure of all relevant facts and circumstances, it is necessarily adverse to the interests of the Society. However, it is the policy of the Society that the existence of any of the interests described in Section B must be disclosed before any transaction is consummated. Moreover, all disclosed conflicts shall be addressed in accordance with the procedures set forth below. It shall be the continuing responsibility of associates to scrutinize their transactions and outside business interests and relationships for potential conflicts and to immediately make any necessary disclosures. In deciding whether a transaction might constitute a conflict of interest, an associate should ask these questions: o Is the transaction included as a scenario in the Frequently Asked Questions attached to the Code? Would the transaction be prudent, be in good faith, and be in the best interests of the Society? Would the transaction affect any decision I will make for the Society? o o COE-COJ Policy.November2009.doc 4 SOCIETY HOTLINE 1-800-539-7202 o How would the transaction look to someone outside of the Society, such as a donor, a public watchdog group, the state attorney general, the news media or a Congressional Committee? How would the transaction seem to others within the Society? Would they think it might affect how I do my job for the Society? o I. Annual Statements Each associate shall annually sign a Conflict of Interest Disclosure Statement, which describes any existing or potential conflict of interest and affirms that such person: a. Has received a copy of the Code; h. Has read and understands the Code; and c. Has agreed to comply with the Code. Annual Conflict of Interest Disclosure Statements shall be filed on or before Jarmary 31 st in the case of employees and on or before the date of the first meeting of the board in each calendar year in the case of governance volunteers. 2. Continuing Disclosure In connection with any actual or potential conflict of interest, an associate must disclose the existence of the Financial Interest as defined in Part V on a Conflict of Interest Disclosure Statement. If the associate is a disqualified person, he or she must disclose all material facts to the directors and members of the committees with governing board delegated powers prior to engaging in the proposed transaction or arrangement. The receipt of an offer of any gift(s) exceeding the value of $75 must be reported immediately to your supervisor (if staff). Similarly, a series of gifts within a one-year time frame, all of which cumulatively are valued at seventy-five dollars ($75) or more should be treated as a single gift for purposes of this policy. Volunteers receiving offers of gifts in excess of $75 must notify Society Counselor, in the case of a Division without Society Counsel, the Chief Financial Officer (CFO). In each instance, a Conflict of Interest Disclosure Statement should be filed with Society Counsel, or the CFO where appropriate. Society Counsel (or CFO where appropriate) will review the circumstances to determine if the potential gift can be accepted or determine if a potential conflict of interest exists and communicate its decision to the supervisor (in the case of staff) or the Audit Committee (in the case of volunteers). No gift in excess of the value of $75 may be accepted without the prior approval of the supervisor (if staff) and Society Counselor CFO where appropriate (for both staff and volunteers). In international situations where turning down a gift with more than a $75 value would be culturally discourteous, the gift may be accepted on behalf of the Society but must be immediately reported to the National Home Office, Office of Corporation Counsel. COE-COI Policy.November2009.doc 5 SOCIETY HOTLINE 1-800-539-7202 3. Procedures for Addressing the Conflict of Interest In general. once a conflict of interest transaction is identified, the associate with the conflict shall not attempt to influence other decision makers regarding the matter, and shall not participate in any discussion of the transaction except to respond to information requests. In addition, if the associate is in a position to vote on, or otherwise participate in the decision with respect to, the conflict of interest transaction, he or she shall abstain from any such vote or participation. It shall be the responsibility of the decision-making authority or body to properly record in the minutes of any discussion regarding a conflict of interest transaction the name of the person who discloses the conflict of interest, the nature of the conflict of interest, and documentation of the comparability data (i.e. industry surveys, compensation studies, competitive bids, etc.), if any, used in determining whether the Society should enter into the transaction. In the case of a transaction involving a disqualified person: a. The disqualified person may respond to questions at the governing board or committee meeting, but after answering any questions, helshe shall leave the meeting during the discussion of, and the vote on, the transaction or arrangement involving the possible conflict of interest. b. The chairperson of the governing board or committee shall, if appropriate, appoint a disinterested person or committee of disinterested persons to investigate alternatives to the proposed transaction or arrangement. c. After exercising due diligence, the governing board or committee shall determine whether the Society can obtain with reasonable efforts a more advantageous transaction or arrangement from a person or entity that would not give rise to a conflict of interest. d. If a more advantageous transaction or arrangement is not reasonably possible under circumstances not producing a conflict of interest, the governing board or committee shall determine by a majority vote of the disinterested persons whether the transaction or arrangement is in the Society's best interest, and whether it is fair and reasonable. It shall then make its decision as to whether to enter into the transaction or arrangement and record the decision, together with the supporting analysis, in the minutes of the proceeding. In the case of a transaction involving a non-disqualified person, Society Counselor, in the case of a Division without Society Counsel, the CFO, shall review the circumstances surrounding the transaction, including any comparability data, and determine whether the transaction requires further review and approval by the Audit Committee. Society Counsel, or in the case of a Division without staff counsel, the CFO, shall maintain a record of all disclosed or discovered conflict of interest transactions and report quarterly to the Audit Committee the actions taken with respect to each. COE?COI Policy.Nollember2009.doc 6 SOCIETY HOTLINE 1-800-539-7202 D. Violations of the Conflicts of Interest Policy If Society Counsel (or CFO where appropriate), or in the case of a volunteer, the governing board or committee, has reasonable cause to believe an associate has failed to disclose actual or possible conflicts of interest, it shall infonn the associate of the basis for such belief and afford the associate an opportunity to explain the alleged failure to disclose. If, after reviewing the associate's response and after making further investigation as warranted by the circumstances. Society Counsel (or CFO where appropriate), or the governing board or committee determines the associate has failed to disclose an actual or possible conflict of interest, it shall initiate appropriate disciplinary and corrective action. III. Confidential Information Associates shall not violate Society privacy and confidentiality policies. In addition, associates shall not use confidential or proprietary information for personal fmancial gain. IV. Reporting Conflicts and Violations? Duties, Protections and Corrective Actions A Each associate shall immediately report conflicts and violations of the Code, criminal law, or the attempt to induce another to violate these standards or violate criminal law, in accordance with established policies. A failure to report a violation is itself a violation of the Code. If anonymity is requested, the Society will not disclose the identity of the reporting individual except as needed to properly investigate the allegation, or unless legally required to do so. The Society's Whistleblower Protection Policy (attached. hereto as EXHffiIT B and incorporated herein by reference) establishes the protections against retaliatory actions for any reports of Code violations. Moreover, the Society'S independent hotline at 1?800?539?7202 is a confidential resource dedicated solely to answering questions and concerns or reporting questionable activity related to financial internal controls, audit, prevention of illegal activity, accounting issues, and related matters. Associates may ensure complete anonymity when reporting a concern by simply not giving their names. More information on the hotline is available at www.societylink.org(the Intranet) under Risk Management. B. An associate found to be in violation of the Code shall be subject to corrective actions taken by the appropriate level manager (or Board for board members and other volunteers). Such action may include further training and instruction regarding the provisions of the Code, necessary steps to remediate any harm to the Society, fellow associates, or others, and disciplinary actions up to and including tennination. Each violation will be assessed on an individual case by case basis and the corrective action tailored to the specifics of that violation. When deciding what action is necessary, consideration will be given to the flagrancy of the violation, the harm caused, whether the violation was intentional or unintentional, whether the associate voluntarily disclosed the violation, prior misconduct, the likelihood of future misconduct, the general circumstances surrounding the violation. and other considerations as appropriate. COE?CO I Policy.November2009.doc 7 SOCIETY HOTLINE 1-800-539-7202 C. When an associate completes the annual conflict of interest disclosure statement, the associate must disclose all of the items on the questiOlUlaire for the past calendar year. Any intentional failure to disclose required information or the provision of information that is inaccurate or false in nature is a violation of the Code. In addition, there is a continuing duty to disclose any conflict of interest that arises during the course of the year. V. Dermitions 1. Disqualified Person: A "disqualified person" is any person who is, or has been during a period beginning five (5) years from the date of a transaction between the Society and such person, in a position to exercise substantial influence over the affairs or finances of the Society. It is not necessary that the person actually exercise substantial influence, only that the person be in a position to do so. Certain insiders, by definition, are disqualified persons, including the members of the National Home Office Executive Cabinet and Chief Financial Officer, Division CEO's, CFO's and COO's, and the voting members of the Boards of Directors, regardless of their compensation. Certain family members of a disqualified person and entities controlled by a disqualified person are also disqualified persons. For this purpose, the term control is defmed as owning more than 35% of the voting power of a corporation, more than 35% of the profits interest in a partnership, or more than 35% of the beneficial interest in a trust. 2. Financial Interest: A person has a financial interest if the person has, directly or indirectly, through business, investment, or family: a. An ownership or investment interest in any entity with which the Society has a transaction or arrangement; b. A compensation arrangement with the Society or with any entity or individual with which the Society has a transaction or arrangement; or c. A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which the Society is negotiating a transaction or arrangement. Compensation includes direct and indirect remuneration as well as gifts or favors that are not nominal in value. Compensation does not include the reimbursement of reasonable expenses incurred in connection with the performance of Society duties. A Financial Interest is not necessarily a conflict of interest. A person who has a Financial Interest may have a conflict of interest if the appropriate reviewing body determines that a conflict of interest exists. COE-COI Policy.November2009.doc 8 SOCIETY HOTLINE 1-800-539-7202 3. Society Counsel: With respect to the National Home Office, Society Counsel shall mean the Chief Counsel. In the case of affiliates with staff attorneys. Society COWlSel shall mean such in?house cOWlsel. For affiliates without staff attorneys, Society Counsel shall mean the outside Counsel engaged by the affiliates to perfonn legal services in matters relating to the Code of Ethics. 4. Tobacco Company: "Tobacco Company" means any company that manufactures tobacco products and is commonly considered to be part of the tobacco industry, including subsidiaries and parent companies, and companies under common control with such company, as well as philanthropic foundations and other organizations closely linked with the tobacco industry. COE-COI Polic)'.November2009.doc 9 CONFLICT OF INTEREST REVIEW PROCESS (NON DISQUALIFIED PERSONS) Is there II Conflict? NO I Proceed with transaction I 1 YES I Cannot proceed until disclosure of actual or I YIlS Has transactJon commenced? I NO L Can transaction be T 1 NO I NO potential conflict provided term.iDllttd or conflict a voided? ~ 1 I / I Key Components of Oisdosure Analysis: o Is there any question that full disclosure has nOi been made? o Is there any indication that the infonnation provided hom this individual could be paceived as misleading? o Is then: any indicalion thaI the individual in hislher profession: role bas the poieotial to improperly favor any outside entity or appears to b " ~ incentive to do so? o Does the individual appear to be subject 10 incentives that mig Immediately Report to Society Counsel or em- 1 YES 1 Disclosure provided? 1 Society Counsel. or CFO' makes determination. Cease activity o ntU disclosure provided. V 1 - r T --r YES I Society Counsel or CFO' makes determination. Review by Society Counsel orCFO- inappropriate billS? o [s there any indication that the objectives of ACS will not be 0 of the individual's Conflict of Interest ? o Will the activity be sUpelVised by someone with aulhorily. wb "'" " ,uoo as a result + conilici of inleresl? 1 A Participation permitted disclosure is not deemed a possible conflict of interest. 1 B UDatc.:eptable - staff I volunteer is prohibited from participation. Review process ends. 1 C Submitted to Audit Commi ttee. Soc iety Counsel or C FO+ submits disclosure and all relevant information to Audit Committee. CommiUee waives conflict Of declines and adequatel), and contemporaneousl), documents its actions or decisions . o Can !he transaction be altered to avoid the conflict of interest? o Can or wi ll the individual change hislher relationship with the ?endor/entity eliminating the relationship and thus, eliminating an)' potential conflict of interest? o Is there a hi story between the individual and vendor/entity? o Is there a valid, Conflict-free alternative to the transaction? o Only where Society Counsel nOi available. COE?COI Policy.Novcmber2009.doc \0 CONFLICTS OF INTEREST REVIEW PROCESS (DISQUALIFIED PERSONS) Is there a Conflict? I, ~ I I I NO YES YES I I I- I NO Proceed with transaction I I+- ~ Has transaction commenced? Cannot proceed until disclosure of ilCtual or potential cooflict provided I" ~ Can InlIlsaction be Iemlinated or conflict ~ Immediately Report to Society COU/l5eI or avoided? I NO ~ ~ I I NO Review disdosure in the roUowing manner: o Disqualified penon must provide full disclosurc of facts. o Disqualified Person may nOl attempt to influence but may respond 10 CR)' ~ Society Counselor CR)' Reports 10 Audit G + Disclosure Statement Provided? /' questions from an indeptodent person or a commiuee of indepc:odalt pcnons. o The decision - making body will review and analyu comparable o If il is determined to be in best interest of Society and d oes IIQ( prov ide unreasonable benefit to Disqualified Person, transaction may proceed. o All delibenitions and results shall be reported in the minutes of the proceeding which establishes the reasonableness of the U'1IIlSaction. o Report to Society Counsel and CFOIN HO . "'". T Committee Cease activity until disclosure provided. I YES . I ~ Is transaction reportable on Society Counselor CR)' Revie~ then submits 10 Audit Comminee for Form 9901 (NHO eFO Determines) H NO Review ~ Process cuds + t Are there alternati ves to the conflict of interest Ir1InSaction ? I - YES I .j NO Engage intemalle~temal CQUllsel Disclose to NET if reponed on Group 990 rerum Determine amount of e~cise laX assessed Engage tax return reviewer ! I YES J. Establish Rebuttable Presumption of reasonableness / K~ Compooents of Disclosure Analysis: + o Is then: any q uestioo that full d isclosure has 00( been made? o Is there any indieatioo that the information provided from this individual could be perceived as misleading? o Is there any indieatioo that the indi vid ual in hislha professional role has the polential to improperly favor any outside entity or appearn to have an incentive to do SIJ? o Does the iodividual appear to be subj ect to incenti ves that might lead to inappropriate bias? ! m