1. ADI Walking The Walk - Ethics and Risk Management April 19, 2012 Architects & Engineers Liability Professional Liability GROW ® with us Arrowhead Design Insurance

2. 2 ArrowheadGrp.com CA License# 0699809 GROW ® with us This presentation is a guide to assist you in developing, managing, and improving your practices and operations. The program or presentation does not cover all possible risks, situations, and exposures, and does not constitute legal advice. For decisions regarding use of the procedures and practices suggested by this presentation, follow the advice of your advisors and attorneys. Implementation of any practices suggested by this program or presentation is at your sole discretion. Hudson, Arrowhead, and their affiliates shall not be liable to any party for any damages whatsoever arising out of, or in connection with, the information provided or its use. This material does not amend, or otherwise affect, the provisions or coverage of any insurance policy issued by Arrowhead or Hudson, nor is it a representation that coverage does or does not exist for any particular claim or loss under any such policy. Coverage depends on the facts and circumstances involved in the claim or loss, applicable policy provisions, and any applicable law

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4. 4 ArrowheadGrp.com CA License# 0699809 GROW ® with us Why Practice Ethically We live in a country that is just beginning to recover from a near economic meltdown caused, in large measure, by a lack of ethics as practiced by major financial institutions. It often seems that the lack of ethics is pervasive – we see it every time we open a newspaper or view the news, not to mention in our everyday business dealings. Many “Talk the Talk”, few “Walk the Walk”

5. 5 ArrowheadGrp.com CA License# 0699809 GROW ® with us Why Practice Ethically? As a consequence the focus on ethical conduct for professionals is increasing as well, by professional societies, licensing boards, and by plaintiff’s attorneys. In today’s world it is more important than ever for design professionals to “Talk the Talk” and “Walk the Walk” with respect to ethics.

6. 6 ArrowheadGrp.com CA License# 0699809 GROW ® with us Ethics: What are they? From a practical standpoint, ethics involves setting moral standards that regulate right and wrong conduct. Professional Ethics are essentially accepted rules of conduct to be followed in the practice of a profession. They include good habits that we should acquire, duties that we should follow, or the consequences of our behavior on others.

7. 7 ArrowheadGrp.com CA License# 0699809 GROW ® with us Rules Governing Professional Conduct Rules of Conduct provided by Statute - Texas Engineering Practice Act And Rules Concerning The Practice of Engineering and Professional Engineering Licensure - Subchapter C: Professional Conduct and Ethics Rules of Conduct promulgated by Professional Organizations – NSPE, ACEC

8. 8 ArrowheadGrp.com CA License# 0699809 GROW ® with us NSPE Code of Ethics The NSPE Code of Ethics for Engineers is designed to provide positive stimulus for ethical conduct as well as helpful guidance and advice concerning the primary and basic obligations of engineers. The Code also establishes the ethical guideposts for the NSPE Board of Ethical review in interpreting ethical dilemmas submitted by engineers, public officials, and members of the public.

9. 9 ArrowheadGrp.com CA License# 0699809 GROW ® with us The NSPE Board of Ethical Review -The NSPE Board of Ethical review is a seven member panel of licensed professional engineers appointed by the NSPE President -The BER renders impartial advisory opinions pertaining to the interpretation of the NSPE Code of Ethics -The BER meets twice yearly to discuss ethics issues and decide cases submitted anonymously by engineers, public officials, and members of the public.

10. 10 ArrowheadGrp.com CA License# 0699809 GROW ® with us Anatomy of the NSPE Code of Ethics - Fundamental Canons -Rules of Practice -Professional Obligations

11. 11 ArrowheadGrp.com CA License# 0699809 GROW ® with us Canons - Broad principles of conduct from which Rules of Practice and Professional Obligations are derived. Rules of Practice – More specific than Canons. Mandate how the engineer must act in performing professional services. Professional Obligations – Broader than Canons and Rules. Provide guidelines for engineering practice in various situations.

12. 12 ArrowheadGrp.com CA License# 0699809 GROW ® with us Ethical Responsibilities As an Engineer you are ethically obligated to: to: - The Public - The Client - The Profession - Yourself

13. 13 ArrowheadGrp.com CA License# 0699809 GROW ® with us NSPE Fundamental Canons Engineers, in the fulfillment of their professional duties shall: 1.Hold paramount the safety, health, and welfare of the public 2. Perform services only in areas of competence 3. Issue public statements only in an objective and truthful manner

14. 14 ArrowheadGrp.com CA License# 0699809 GROW ® with us NSPE Fundamental Canons 4.Act for each employer or client as faithful agents or trustees. 5. Avoid deceptive acts 6. Conduct themselves honorably, responsibly, ethically, and lawfully so as to enhance the honor, reputation, and usefulness of the profession

15. 15 ArrowheadGrp.com CA License# 0699809 GROW ® with us 1. Hold paramount the safety, health and welfare of the public Facts: Engineer A works for ES Consulting Engineers, and performs construction observation services on a project for Client X. While doing so, Engineer A observes potential safety issues relating to performance of work by a subcontractor on a project being constructed on an adjacent property for Owner Y, who has no direct relationship to Engineer A, ES Consulting, or Client X.

16. 16 ArrowheadGrp.com CA License# 0699809 GROW ® with us What are Engineer A’s ethical obligations under these circumstances? BER Conclusion: (assuming no imminent danger) Engineer A does not have an ethical obligation to take immediate or direct action. He should bring the potential safety issue to the attention of Engineer A’s supervisor and ES Consulting for discussion of whether the safety issues involved could cause some disruption of and have some bearing on the progress of the work on Client X’s project.

17. 17 ArrowheadGrp.com CA License# 0699809 GROW ® with us 2. Perform Services only in areas of their competence. Facts: Engineer A designs a structural system on a building project located in an area that experiences severe weather. A has extensive experience with structural designs in that area. His design does not incorporate new and improved design methods published in the most recent technical literature, which he is not familiar with.

18. 18 ArrowheadGrp.com CA License# 0699809 GROW ® with us Facts: Within one year of project completion, the building suffers significant structural damage caused by severe weather conditions. Question: Was it ethical for Engineer A to fail to follow the most recent design parameters for structural design in severe weather areas published in the most recent technical literature?

19. 19 ArrowheadGrp.com CA License# 0699809 GROW ® with us BER Conclusion: - In order for an engineer to be found to be unethical for a design failure he must demonstrate some level of moral culpability – i.e. that he was acting in an intentional, reckless, or malicious manner - The mere fact that an engineer did not follow the most recent literature and the professional practice resulted in some harm is insufficient to find him to be unethical

20. 20 ArrowheadGrp.com CA License# 0699809 GROW ® with us - The definition of what is “current” must be reasonable as engineers cannot be expected to incorporate each and every new and innovative technique or parameter that has not been fully tested or peer reviewed. Innovative techniques and parameters may be incorporated into generally accepted practice and at such time, once well defined, and as part of the recognized body of technical knowledge, such techniques become standards that should be followed.

21. 21 ArrowheadGrp.com CA License# 0699809 GROW ® with us 3. Issue public statements only in an objective and truthful manner. Facts: The president of a professional engineering society is invited to address a gathering of engineers and students at a college of engineering where faculty and administration members are present. He makes some general comments that could be interpreted as critical of educational methods employed by some college engineering programs, including the host college.

22. 22 ArrowheadGrp.com CA License# 0699809 GROW ® with us Faculty and administration members request an apology or retraction – the president refuses. Questions: 1. Was it ethical for the president to make his comments? 2. Was it ethical for the president to refuse to apologize for his remarks?

23. 23 ArrowheadGrp.com CA License# 0699809 GROW ® with us BER Conclusions: -Facts do not indicate that the president was expressing personal prejudice, but rather a legitimate issue of public policy and professional concern -Comments were not made in an offensive or objectionable manner -Comments were made at institution of higher learning where academic freedom and the right to challenge conventional wisdom should be celebrated as opposed to generating an offended response

24. 24 ArrowheadGrp.com CA License# 0699809 GROW ® with us 1.It was ethical for the president to make his comments. 2. Although an apology may have been appropriate, the refusal was not an ethical violation

25. 25 ArrowheadGrp.com CA License# 0699809 GROW ® with us 4. Act for each employer or client as faithful agents or trustees. Facts: Engineer A is involved in a dispute with his employer, Company X and is terminated. Years later, he is responsible for reviewing proposals and making recommendations for Company Y. In reviewing proposals for a large project he finds that Company X has submitted a strong proposal in terms of quality and price, but recommends another

26. 26 ArrowheadGrp.com CA License# 0699809 GROW ® with us Facts: another company equally qualified to perform the work but whose price is higher than Company X. Question: Was it ethical for Engineer A not to recommend Company X’s proposal but instead recommend a more expensive but equally qualified proposal?

27. 27 ArrowheadGrp.com CA License# 0699809 GROW ® with us BER Conclusion: Engineer A’s duties involve the interests of Company Y. This situation involves a conflict of interests, absent some other compelling reason that might cause Engineer A to reject Company X’s proposal, Engineer A has an obligation to approve it, and an ethical obligation to disclose to his employer his experience with Company X and possibly

28. 28 ArrowheadGrp.com CA License# 0699809 GROW ® with us BER Conclusion: recuse himself at his employers request if they feel that he cannot make a reasonably objective decision or serve the best interests of his employer.

29. 29 ArrowheadGrp.com CA License# 0699809 GROW ® with us 5. Avoid deceptive acts Facts: Engineer A, a licensed engineer for an agricultural consulting company, assists clients in obtaining permits and grants from state agencies. It also prepares and submits designs and plans to various agencies for approval. Engineer B, the owner of the consulting company, is not directly involved in day to day operations, taking a “hands off”

30. 30 ArrowheadGrp.com CA License# 0699809 GROW ® with us Facts: approach. Engineer B runs for office and is elected as a state senator. Question: Is it ethical for Engineer B to continue to serve as a state senator and to be an owner of a firm that is involved in obtaining approvals for state regulated permits and grants from state agencies?

31. 31 ArrowheadGrp.com CA License# 0699809 GROW ® with us BER Conclusion: An owner/legislator cannot participate in decisions regarding services solicited or provided by him or his firm if he is also a member of the body or department of the public client involved. An owner or other engineers employed by the firm cannot solicit or accept a contract from a governmental body / department on which a principal or firm member serves.

32. 32 ArrowheadGrp.com CA License# 0699809 GROW ® with us BER Conclusion: In the absence of some legal prohibition, and provided here is full disclosure, it would be ethical for B to continue to serve as a senator and be an owner. Engineer B’s relationship to the activities of the local governing bodies that will administer the services funded and approved by the legislature are far removed from B’s direct influence. Full disclosure of B’s position, and that his position can have no bearing on the work performed by the firm, should be made to clients.

33. 33 ArrowheadGrp.com CA License# 0699809 GROW ® with us Ethics and Risk Management Risk Management involves the identification and assessment of risks, determination of appropriate risks (i.e. those risks over which you have control and can manage) and avoidance of inappropriate risk.

34. 34 ArrowheadGrp.com CA License# 0699809 GROW ® with us Good ethical practice is an essential part of any firm’s risk management program -Identification of potential problems -Fraud prevention -Preservation of corporate reputation -Mitigation of penalties for violations

35. 35 ArrowheadGrp.com CA License# 0699809 GROW ® with us The collapse of major business corporations such as ENRON and WorldCom were directly tied to corporate cultures devoid of ethical principles and conduct An ethical risk management strategy begins with commitment from management for an ethical culture supported by appropriate policies, a code of conduct, and procedures and systems in place to reward ethical conduct and censure inappropriate actions.

36. 36 ArrowheadGrp.com CA License# 0699809 GROW ® with us Elements of Ethical Risk Management Policy -Statement of corporate policy confirming a commitment to ethics -Corporate Code of Conduct -Ethics Committee -Periodic /transparent reporting -Involvement by representatives from all levels of the organization -Ethics training program

37. 37 ArrowheadGrp.com CA License# 0699809 GROW ® with us Effective Ethical policies: -Positive rather than punitive- focus on flexible/ creative solutions to perceived ethical risks -Preserve confidentiality of Individuals and commercial secrets -Include “whistleblower” policy -Audit procedure to monitor those most responsible / at risk where breaches might occur

38. 38 ArrowheadGrp.com CA License# 0699809 GROW ® with us Effective Ethics policies: -Keep complete records -Provide for independent audit of compliance process

39. 39 ArrowheadGrp.com CA License# 0699809 GROW ® with us Benefits of Ethical Risk Management -Provides a stronger basis for strategic planning -Ethical behavior is likely to help avoid litigation -Promotes positive corporate reputation

40. 40 ArrowheadGrp.com CA License# 0699809 GROW ® with us Benefits of Ethical Risk Management A prior commitment to a strong ethical stance may become a proactive strategy to limit penalty risks. - existence or lack thereof may assist a court to assess the purpose behind conduct - if a proactive compliance program is in place a court may well be more willing to mitigate penalty

41. 41 ArrowheadGrp.com CA License# 0699809 GROW ® with us Benefits of Ethical Risk Management - An effective ethics policy will minimize the risk of an ethical violation and provide an aid to defense should a violation occur - Existence of a properly maintained and run ethical infrastructure is an indicator of an appropriate corporate “mindset”

42. 42 ArrowheadGrp.com CA License# 0699809 GROW ® with us In today’s “Dog Eat Dog” business environment it is more important than ever to practice in an ethical manner. Doing so will enhance performance and provide consistent benefits to your practice. Remember – you need to “Walk the Walk”, not just “Talk the Talk”.

43. 43 ArrowheadGrp.com CA License# 0699809 GROW ® with us Questions? Thank you!