I once worked in a law firm that was headquartered in another city. We fondly referred to ourselves as “in the provinces” since we worked apart from the mothership. In my corporate life I have worked in the corporate headquarters, domiciled in the US, and in a corporate subsidiary a continent and an ocean way from the home office. These postings have given me some understanding of the different perspectives one can have, depending on where one might be working and looking to or from the corporate headquarters.
Stephen Dockery, writing in the Wall Street Journal’s (WSJ) Risk & Compliance Journal, has been exploring the issue of ‘culture’ in organizations as it relates to compliance. He considered such issues as how to measure it, to regulators assessment of it, to pushing it out ‘into the field’. His pieces got me to thinking about the ongoing issue of the transmission of a culture of compliance from a corporate home office out into territories where a company does work overseas. It is certainly one thing for a Chief Executive to espouse that the company is going to do business in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA) but when it comes to making your numbers in (you name the high risk geographic location); it may not be the reality on the ground.
One of the evolutions I have observed in anti-corruption compliance is to get compliance out of the corporate headquarters and move it into the DNA of a business. When I began in this field in 2007, compliance was largely lawyer-driven, meaning lots of rules and regulations dictated from the home office down the chain. Being a lawyer, I thought this was appropriate as I just assumed everyone would follow both laws and company rules and regulations. My views on this have evolved. Today, I will take a look at this issue in a two post series.
Based on the above I was therefore intrigued by a recent article in the MIT Sloan Management Review, entitled “Fighting the “Headquarters Knows Best” Syndrome” jointly written by Cyril Bouquet, Julian Birkinshaw and Jean-Louis Barsoux. The thesis of their piece is “When subsidiary managers at global organizations are ignored or constrained by a parochial mindset at headquarters, the whole company can suffer.” The authors found “Many managers have no trouble ticking off the symptoms, including unrealistic demands from headquarters, misguided advice or directives, micromanagement, and a lack of receptiveness to subsidiary contributions and ideas. At subsidiaries, these behaviors lead to a loss of confidence or initiative, defensiveness, reluctance to share information, rivalry for headquarters attention, and careful impression management during visits from headquarters executives.”
Their research has led them to identify several issues in this dynamic, which they call “vertical relations”. Most generally they include lack of attention to emerging regions. Unfortunately those at the top in the US headquarters tend to suffer “from tunnel vision, focusing disproportionately on opportunities, talent, and best practices in established markets. They have a limited understanding of emerging markets and difficulty providing the right quantity or quality of support. Too many visits and over-monitoring can prove as damaging as neglect.” The downward looking foundering is compounded because there are equally detrimental issues when looking back to the corporate HQ because of limited influence in the provinces. Indeed, executives in outside US markets often feel they are at the end of very long and not very straight chain of events and decisions. Such provincially located employees often feel, “Their requests and ideas are unheeded and their ways of operating aren’t considered. Feeling neither involved nor trusted, many subsidiary executives lack the motivation and self-confidence needed to pursue independent initiatives.”
Some of the examples the authors found in their research included that the head office shows a strong bias to investments closer to home, so the money is pumped into the corporate office or at least in the US only. An age-old complaint from anyone who has ever worked in a bureaucracy is that the corporate office is unresponsive to requests, sales leads, or opportunities from the periphery. Another complaint is that there is inevitably a wide gap between the composition of the top leadership team and the global reach of the group as there is usually no one from outside the home continent of the corporate headquarters. When it comes to talented folks from the provinces, often such talent from is not brought to the US or even promoted beyond their regions. Compounding this problem is that the ebb and flow of visits and secondments is exclusively from HQ to subsidiary. Rarely does a company look to the provinces for innovation or new practices because they are assumed to have local relevance only. Finally, and if you have ever been on the receiving end of this one, visits from the US headquarters are always more about HQ demands than subsidiary needs.
Yet a company needs to look more than simply up and down the chain as the authors believe there are horizontal dynamics that can bedevil the situation. It centers around the same technique used by airlines in the US, the hub and spoke system. Regarding this corporate model the authors write, “While the satellites compete for attention from headquarters, they maintain little contact with each other unless it’s orchestrated by the center. There isn’t much discussion of, or support for, efforts in other parts of the world, particularly between core subsidiaries and those on the periphery.” The final point is that “executives at local operations lack the autonomy or status to engage meaningfully with senior local decision makers.”
The authors gave several examples of the lack of appropriate horizontal relations. One is where the subsidiaries have little contact with each other that is not mediated by corporate headquarters. Another is where there are only a “few third-country nationals as subsidiary heads.” There tends to be little awareness of what is going on in non-core subsidiaries and no regular contact with colleagues in other subsidiaries. Finally, if a company finds it difficult to recruit locally, that can be a clear sign in the lack of horizontal relations.
All of these factors are symptoms of too much control by the US corporate headquarters. In the compliance world, this translates into a rules based compliance program that does not emphasize the values based nature of culture. The emphasis on such a top-down rules based approach can clearly get lost in the translation, but, more importantly, it could well appear as a thumb on the back of any employee outside the US region.
Tomorrow, I will review some of the authors’ proscriptions and how they might translate into your spreading your culture of compliance outside the corporate office in the US.
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© Thomas R. Fox, 2016