A Study in ScarletToday begins a week of double themed blog-posts. First I am back with an homage to Sherlock Holmes, for it was in the magazine Beeton’s Christmas Annual that the characters Sherlock Holmes and Watson were introduced to the world in 1887, in the short story A Study in Scarlet. The second theme will be innovation in the compliance department. I will take some recent concepts explored in the December issue of the Harvard Business Review (HBR) and apply them to innovation and development of your compliance function. I hope that you will both enjoy my dual themed week and find it helpful.

Today I begin with the first novel, A Study in Scarlet. There are two items of note that I learnt in researching this work. The first is that it was written in 1886 and even Conan Doyle had trouble finding a publisher for what went on to become the most famous detective character of all-time. The second was the title. I had always thought it referred to the color of blood but it turns out that it comes from a speech given by Holmes to Dr. Watson on the nature of his work, in which he describes the story’s murder investigation as his “study in scarlet”: “There’s the scarlet thread of murder running through the colourless skein of life, and our duty is to unravel it, and isolate it, and expose every inch of it.” Furthermore, a ‘study’ is a preliminary drawing, sketch or painting done in preparation for a finished piece.

I thought Doyle’s first work would provide an excellent entrée into today’s topic, that being leadership in the compliance function. While many compliance departments may have begun more as a command and control function, set up by lawyers to comply with anti-bribery laws such as the Foreign Corrupt Practices Act (FCPA), UK Bribery Act or others; this type of leadership model is now becoming outmoded in today’s world. It is not that employees are interested in the ‘why’ they should do business ethically and in compliance with such laws but it is more that power is shifting inside corporations. In a HBR article, entitled “Understanding “New Power””, authors Jeremy Heimans and Henry Timms explore how leadership dynamics are changing and what companies might be able to do to harness them. I found them to have some excellent insights, which a Chief Compliance Officer (CCO) moving to CCO 2.0 or compliance practitioner might be able to garner for a compliance function.

The authors begin by noting that ‘new power’ differs from ‘old power’ in a bi-lateral dimension of intersection. This intersection is between the models used to exercise power and the values which are now embraced. It is the understanding of this shift in power, which will facilitate the compliance function moving more to the forefront of a business integration role. The new power models are fourfold. Under sharing and shaping a company is much more integrated with its customers and supply chain. Second is funding which continues this integration by adding a vertical component of funding, whether equity positions or some other type of funding. Third is producing in which “participants go beyond supporting or sharing other people’s efforts and contribute their own.” Finally, there is co-ownership, which is the most decentralized, pushing participation down to the lowest or most basic levels.

But beyond these new power systems, the authors believe that “a new set of values and beliefs is being forged. Power is not just flowing differently; people are feeling and thinking differently about it.” The authors call them “feedback loops” which “make visible the payoffs of peer-based collective action and endow people with a sense of power. In doing so, they strengthen norms around collaboration”.

The authors lay out five new values. They include the area of governance where the authors note, “new power favors informal, networked approaches to governance and decision making.” Next is in the area of collaboration where the authors believe that this new power value rewards “those who share their own ideas, spread those of others, or build on existing ideas to make them even better.” The next new value is DIO or do it ourselves. Under this value, there is a “belief in amateur culture in arenas that used to be characterized by specialization and professionalization.” Next is transparency which, while not a new concept, says that more permanent transparency between business and social lives will lead to a “response in kind from our institutions and leaders who are challenged to rethink the way they engage with their constituencies” specifically including their employee base. The final new value identified by the authors is affiliation, which means that new and younger employees are less like to “forge decades-long relationships with institutions.”

The authors have three prescriptions that I found could be useful for the CCO or compliance practitioner to incorporate into a mature and evolving compliance program moving forward. Compliance functions need to “engage in three essential tasks: (1) assess their place in a shifting power environment, (2) channel their harshest critic, and (3) develop a mobilization capacity.

Assess where you are

This prong is quite close to something compliance practitioners are comfortable with in their role, a risk assessment. However the authors suggest that the assessment be turned inward so you should assess the compliance function on this “new power compass—both where you are today and where you want to be in five years.” You can benchmark from other companies in responding to this query. Internally, you can begin this process with a conversation about new realities and how the compliance function should perform. More importantly such an assessment can help you identify the aspects of their core models and values that should not be changed.

Incorporate business unit interests

The authors note, “Today, the wisest organizations will be those engaging in the most painfully honest conversations, inside and outside, about their impact.” However, I think this question should be asked first by the CCO or compliance practitioner. For it is not only what you are doing to work with your business units but more importantly what are you doing to incorporate their concerns and suggestions into your compliance regime. If you are going to ask the business unit to be a significant partner or better yet be your business partner, you will need to have a mechanism in place to engage your business unit so there can be an inflow of input before the compliance function has an output of requirements. As the authors write, “This level of introspection has to precede any investment in any new power mechanisms” to which I would add any successful compliance function.

Mobilize your capacity

Here I suggest you consider contracted third parties and other third parties such as joint venture (JV) partners as an avenue through which the compliance function can bring greater benefits to an organization. I have often heard compliance expert Mary Jones talk about her training of her company’s third parties and how thankful they were that when she, Global Industries Director of Compliance, would personally travel to their locations and put on in-person training. Her efforts to travel to their locations, spend the money required to do so not only directly strengthened Global Industries’ compliance function but created allies for her efforts by giving these suppliers the information and training they needed to comply with their customers requirements. By reaching out in this manner, Global Industries used its contracted third party suppliers to create a stronger company compliance program.

As the anti-corruption compliance profession matures, it will become more a component of a company’s business function. This means less of a lawyer’s top down mentality of do it because I said to do it, to more collaboration. It also means, as with the premier of Sherlock Holmes in A Study in Scarlet that something new is on the horizon and it could be here for quite sometime to come.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

 

2 comments
bankingconduct
bankingconduct

Interesting article, thanks Thomas. Generally, who do you see as Compliance's harshest critic in current times? e.g. the Compliance function itself, the business, regulators, society etc?

tfoxlaw
tfoxlaw

It is generally the business function who does not understand the role of compliance or just feel that compliance is the Land of No populated by Dr. No.