Welcome to the September edition of my yearlong podcast series of One Month to a More Effective Compliance Program. In the month of September, I will be focusing on innovation in compliance. I will look at innovation from a variety of angles including AI and ComTech, structural innovations, tools and tactics and innovation in leadership. At this end of September, you will have a number of solid ideas you can use to move your compliance program forward.

I begin this month by considering the starting point, which is an innovation strategy. In the most recent Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) issued by the Department of Justice they all include an element along the following strictures, “The Company will conduct periodic reviews and testing of its anti-corruption compliance code, policies, and procedures designed to evaluate and improve their effectiveness in preventing and detecting violations of anti-corruption laws and the Company’s anti-corruption code, policies, and procedures, taking into account relevant developments in the field and evolving international and industry standards.”[Emphasis supplied]. This means that the DOJ expects innovation in your compliance program to keep up with evolving international and industry standards. This requires you to implement an innovation strategy.

All of this means you should begin with an innovation strategy for your compliance program. Gary P. Pisano, in an article in the Harvard Business Review (HBR), entitled “You Need an Innovation Strategy” discussed such an approach. He began by stating the problem that many companies face is that “innovation remains a frustrating pursuit.” The key to success is something that every CCO or compliance practitioner should take to heart; a compliance practitioner must be able to lay out an innovation strategy for compliance that details the efforts will support the overall business strategy. This means creating an innovation strategy for compliance that will create value for customers of compliance, IE., employees, third parties and customer, show how the company will capture that compliance value going forward and finally which types of compliance innovation to pursue.

First, some basic definitions useful for the compliance practitioner to think through innovation in the compliance function. Pisano defined a “strategy is nothing more than a commitment to a set of coherent, mutually reinforcing policies or behaviors aimed at achieving a specific competitive goal.” If you have a good strategy, it can promote alignment among diverse groups in a company, help to clarify objectives and priorities and guide your focus on those objectives. It can also be modified as necessary and with sufficient feedback.

There are several questions you need to consider in connecting innovation to strategy. Initially, how will innovation create value for the customers of compliance; IE., your employees and relevant third parties? Your innovation can make compliance faster, easier, quicker, nimbler and so on. Focus on that creation of value going forward. Pisano’s next question was “How will the company capture a share of the value its innovations generate?” He suggests companies think through how to “keep their own position in the [compliance] ecosystem strong” through innovation. Next what types of innovation will allow the company to create and capture value, and what resources should each type receive, such as a change in technology and a change in a business process. Both are equally valid.

Obviously senior management has a key role around innovation in compliance, as innovation can be driven downward or backward if there is not sufficient management support. This means not only must there be sufficient resources allocated but management must also incentivize the business units to proceed with implementing the innovations. Another area where senior management is critical is with making trade-offs. A supply-push approach comes when your innovation is focused on something that does not yet exist, for example if you are initially implementing a FCPA compliance regime. A demand-pull approach works more closely with your existing customer base to determine what they might need and work to implement innovation around those needs.

The author noted there are four essential tasks in creating and implementing an innovation strategy. Task 1 is to “answer the question “How are we expecting innovation to create value for customers and for our company?” and then explain that to the organization.” Task 2 “is to create a high-level plan for allocating resources to the different kinds of innovation.” Task 3 is “to manage trade-offs. Because every function will naturally want to serve its own interests, only senior leaders can make the choices that are best for the whole company.” Finally, task 4 dovetails with what almost every DOJ or speaker from the Securities and Exchange Commission (SEC) I have ever heard say when they talk about the basics of any best practices compliance program. It is that both compliance and innovation strategies must evolve. Pisano wrote that every innovation “strategy represents a hypothesis that is tested against the unfolding realities of markets, technologies, regulations, and competitors. Just as product designs must evolve to stay competitive, so too must innovation strategies. Like the process of innovation itself, an innovation strategy involves continual experimentation, learning, and adaptation.”

You must recognize that your compliance program will have to be innovative. Start with a strategy which has senior management buy-in and support, then move to implement. Finally use data in a feedback loop to fine tune your innovations. Innovation in compliance is one of the key differences between those who advocate static compliance standards embodied in a written compliance program and those who advocate an operationalized compliance program is that the latter creates an active, vibrant and effective compliance program. That is the bottom line for innovation. 

Three Key Takeaways

  1. Both the DOJ and SEC expect innovation in your compliance program.
  2. Innovation in compliance should have a strategy going forward.
  3. The key is to demonstrate how the compliance innovation will benefit the business going forward.


This month’s podcast series is sponsored by Oversight Systems, Inc. Oversight’s automated transaction monitoring solution, Insights on Demand for FCPA, operationalizes your compliance program. For more information, go to OversightSystems.com.