October 6, 2008

1.                  New Mission Statement:

Observation:  The mission statement of the Port, adopted in 2003, is:  “Creating Economic Vitality Here.”  We understand the Port is considering possible revisions to the mission statement.  A concern we have is that the mission statement does not address how the Port will conduct its affairs in order to achieve that objective.

Recommendation:  Consider incorporating a commitment to compliance and ethics into the mission statement of the Port.  The Port should also consider incorporating into the mission statement concepts developed by the current expert committees reviewing environmental, social responsibility and levy purpose issues for the Port.  In addition, we anticipate making additional suggestions on the scope and focus of the mission statement in a later report of the Municipal League Foundation.

2.                  Transparency and Integrity:

Observation:  The performance audit by the Washington State Auditor noted several disturbing concerns about “the impeded access to information,” altered audit evidence” and port personnel who were “uncooperative.”  It appears that, under the prior CEO, there was significant dissension with regard to the third runway and between staff and the Commission, so there was a culture that allowed information to be defensively withheld if staff felt the disclosure would “hurt the Port” or impede a project.

Recommendation:  We appreciate that the Commission has commendably enacted a resolution 3605 which highlights the importance of mutual trust and effective communication between the Commissioners and the CEO; and by implication with staff as well.  We recommend that the implicit requirement that staff be open and straightforward be extended to performance of all port duties.  Thus, the same transparency and integrity are required in response to inquiries from a single Commissioner, other staff, legislators, auditors, formal or informal document requests and the public at large.  This duty would, of course, be subject to legal restraints on disclosure which might be interposed by the Port’s General Counsel.  Consider the following:

It is a violation [of the Ethics Code] for any employee to recklessly provide false, misleading or incomplete information in response to a question or request for information received in the employee’s capacity as a Port of Seattle employee.

3.                  Ethics Code:

Observation:  The Port has recently adopted and Ethics Code, not only for Port employees but also for Port Consultants.  As noted below, the Port has also recently established a “hotline” for reporting of fraud concerns.  However, the ethics code itself only calls for written “complaints” to the Board of Ethics of the Port.

Recommendation:  Consider revising the Ethics codes to specifically reference the newly established “hotline,” and, moreover, to strongly encourage each Port employee to immediately report to the Hotline with any concerns about possible violations of the Ethics Code or other business practices or policies of the Port, or any situation which poses a significant economic risk or environmental hazard for the Port of Seattle.

4.                  CEO Responsibilities:

Observation:  Although Resolution 3605 addresses the roles and responsibilities of the CEO, the direction is quite general and does not expressly address ethics or business practice issues.

Recommendation:  The Port should consider amending Resolution 3605 to specifically set for the CEO’s responsibilities for ethics and business practices.  In the alternative, include an expectation that the CEO implement and maintain a robust ethics and business practices program for the Port in setting the annual expectations for the CEO.

5.                  Ethics and Compliance Oversight:

Observation:  Responsibilities for ethics and business practice matters at the Port are handled by various Port officials, including the General Counsel, the Deputy CEO, HR, the Ethics Board, and possibly others.  This separation of responsibilities makes it difficult to have a coordinated and effective ethics and business practices program.

Recommendation:  The Commission and the CEO should consider establishing a Chief Ethics and Compliance officer to provide oversight of the ethics and business practices.  This role should include responsibility for ethics and business practices education, updating the Ethics Code and management of the Hotline.

6.                  Hotline/Whistleblower protection:

Observation:  The Port recently established a hotline named a “Fraud Alert Hotline” or “Fraud Hotline.”  This is found in the policy “Fraud Awareness & Prevention, Loss of Public Funds & Assets.”  Other policies of the Port touch on ethics and business practices of a far broader scope than “fraud,” namely:

(a)                Clarify and simplify to the extent practical the current policies of the Port touching on ethics and business practices listed above.

(b)               Expand the scope of the Hotline to encourage employees and others to call with any concerns they may have about any ethics or business practice issues or other questions or concerns relating to the Port’s anti-harassment policies or any situation which poses a significant economic risk or environmental hazard for the Port of Seattle.

7.                  Training:

Observation:  Although some training has been done for Port employees on ethics and business practices, a comprehensive and coordinated approach to such training would seem appropriate.

Recommendation:  Put greater emphasis on ethics and business practices training, to include:

(a)                Insuring the visible support of the CEO and other top executives of the Port so as to set the proper “tone at the top” because the CEO and top executives must communicate their values and expectations throughout the organization;

(b)               Cascade ethics training, whereby the CEO conducts ethics training with his or her direct reports, those executives then conduct training with their direct reports, and so forth throughout the organization;

(c)                Develop training modules that are tailored to the compliance risks that the Port faces, including the “lessons learned” from the recent Performance Audit of the State Auditor, the misuse of the Port’s personal computer systems at the Port’s police force and other issues the Port has faced; and

(d)               Generally assure that the Port’s workforce is fully cognizant of their responsibilities under the ethics and business practice policies of the Port and how to raise and resolve any ethics or business practice concerns they may have.  Encourage employees to talk with their supervisors if they are involved in something that makes them uncomfortable and, if for some reason that is not appropriate, then raise the issue with a senior officer or the Hotline on a confidential basis.

8.                  Monitoring:

Observation:  The Port does not currently have any formal approach to monitoring compliance with the ethics and business practices polices of the Port, except for such limited measures as reviewing hotline calls, occasional referrals to the ethics board, etc.  In view of the extensive changes made in the last few years particularly in the ethics and business practices areas, a special effort to monitor the effectiveness of such effort would seem appropriate.

Recommendation:

Consider making available to the CEO and Commissioners:

(a)                A “climate” survey of Port employees to assess their awareness of possible risks and relating to the ethics code and other relevant business practices of the Port; and

(b)               An annual report on progress in implementing the ethics and business practices program.

9.                  CEO Compensation:

Observation:  The wording in Resolution 3592, Paragraph V B 3, concerning CEO compensation suggests that all Commissioners are not involved in setting CEO compensation.

Recommendation:  Clarify the language in Commission Resolution 3592 concerning CEO compensation to insure that it is subject to approval by all Commissioners

10.              Risk Assessment:

Observation:  The Port faces a number of risks, many of them identified in the recent Performance Audit of the State Auditor, and many others imposed by law or by the policies adopted by the Port.  However, it does not appear that a comprehensive risk assessment of the Port activities has been conducted.

Recommendation:  Supplement the work that has already been done by an assessment of the risks the Port faces, to include economic risks, financial control risks, but also other compliance risks.  Consider a compliance review to include interviews with key Port employees, on a confidential and possibly attorney client privilege basis, for a candid assessment of where potential compliance weaknesses or concerns may exist.  Establish management systems for each significant risk area that can be audited by internal and external auditors.  There should be clear accountability for each management system.

We look forwarding to working with you to assure that the Port of Seattle will continue to be open, accountable, effective and ethical in the twenty-first century.

Sincerely yours,

Robert Klein,
President, Municipal League Foundation

Bruce D. Carter,
Chair, Port Committee

Theodore J. Collins,
Chair, Governance Subcommittee

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