One of the most constant things about the compliance profession is its dynamism. Compliance programs are not static and the compliance profession is not static. Today’s cutting edge in compliance will be tomorrow’s best practice which will be next month’s standard expectation. While this drives those who focus on the law around compliance batty, properly understanding compliance as a business process makes this continuum clear. However, this means that any Chief Compliance Officer (CCO) or compliance practitioner must not only understand this uncertainty but embrace it to make their compliance programs respond to an ever changing legal and business environment. CCO leadership must be as dynamic as the corporate compliance programs they oversee.

Yesterday I wrote about the shift in corporate focus that brought Starbucks a huge reputational black eye, when a store manager had two African-Americans waiting in store for a colleague arrested for trespassing. Obviously the current economic and political realities for any American business can literally turn on a dime (or even a tweet). I was therefore interested in a recent article in the MIT Sloan Management Review, entitled “The Five Steps All Leaders Must Take in the Age of Uncertainty”, by Martin Reeves, Simon Levin, Johann D. Harnoss, and Daichi Ueda. The authors thesis is that “business leaders need a new mental model to better understand the complex interplay between companies, economies and societies.” I can only add this requirement is even more true for the CCO and compliance practitioner to move towards this theory.

The issue is that companies are all parts of much broader “business ecosystems — that are embedded in local and national economies, which in turn are interwoven with societies.” Changes made at one level, for example, the sourcing practices of US retailers, can directly influence higher-level systems, so “the economic value and social status of manufacturing skills” in a way totally unforeseen. The authors believe their system will assist business leaders to understand, adjust to and shape these feedback dynamics. Put another way, it is more fully operationalizing compliance which makes companies run more efficiently and provides a competitive business advantage.

Leaders in compliance need to master the art of fully operationalizing compliance systems, rather than just operating them, which means not merely extending their current game to learn and understand a new set of priorities and capabilities. The authors set out five steps to effectively shape the extended system in which they participate, which I have adapted for the compliance practitioner.

  1. Observe and understand the broader system.Compliance professionals must situate an operationalized compliance program in the context of a wider system that includes consumers, ecosystem partners, media institutions, and policymakers. This means understanding the key players and their interests and mapping out the important relationships and risks between them. Often, opportunities for and risks to the business become visible only by considering the broader system beyond traditional industry boundaries in a more comprehensive risk management program.
  1. Master the art of intervening in the system.Compliance leaders need to learn how to intervene effectively in a complex adaptive system. A common managerial mistake is to limit oneself to direct leverage points. Instead, seemingly softer indirect points can often provide more leverage in complex systems. By finding an indirect but more powerful leverage point a CCO can move compliance forward in a manner that more fully integrates the controls of compliance into the business. Using soft skills is one of the key ways a CCO or compliance practitioner exudes influence and this skill is a must.
  1. Orchestrate collaboration in the system.This point directly relates to the CCO or compliance professional as the orchestra conductor. Not only must the compliance leader work in a manner which requires striking a balance between the often-conflicting needs of companies and the broader system that they constitute but such a person “must foster mutualism and trust among the companies.” This goes beyond simply “modeling the right behaviors by creating value for the overall system but also actively surfacing and resolving tension within the system.” A compliance professional should help all stakeholders to “improve and sharpen their value proposition, whereas unsurfaced tension increases the risk of deeper disruptions down the road.” 
  1. Foresee and manage systemwide risks.The authors note that with “the increasing interconnectedness and interdependence of companies, many corporate risks present themselves to the entire system rather than to individual companies. To manage systemwide risks, leaders must be able to detect potential threats to the system’s health and have the courage to preemptively change practices to avert them.” This requires an active “antennae that sense changing political, social, and technological signals; articulate the risks these developments bring; and also act as disruptors to prod other stakeholders in the system to adopt new behaviors, even when the direct benefits to their own companies are not clear or immediate.” Here you can think of the Volkswagen (VW) emissions scandal and its negative impact on not only the German automobile industry but also the German national brand of quality and excellence.
  1. Lead with a new mindset.This is one of the biggest changes CCOs and compliance practitioners must embrace. Most of us are lawyers and these types of skills are sorely missing from law school curricula. Compliance professionals simply cannot rely only on formal authority or a chain of command when working on their system. As Jenny O’Brien and Roy Snell continually remind us, they are purveyors of persuasion. Moreover, they must leverage informal ways of exercising leadership that can transcend organizational boundaries and certainly beyond the hidebound legal dichotomy of us v. them. The authors note, “these actions transform leadership from a position of authority into an activity that can create broader influence. This transformation requires, at its root, a mindset shift from thinking in reductionist models” of performance toward more holistic models of system performance. Compliance professionals who not only embrace this new paradigm but also work towards managing this shift are bound to create an advantage for their company as well as their wider ecosystem.

What compliance leaders must do is have a broader business and social ecosystems vision. The authors call it “nested complex adaptive systems: multilevel, interconnected, dynamic systems hosting local interactions that can give rise to unpredictable global effects and vice versa. Acknowledging the unpredictability, nonlinearity, and circularity of cause-and-effect relationships within these systems is a notable departure from the simpler, linear models that underpin traditional mechanistic management thinking.” Finally, do not fear change but embrace it. Businesses change every day and while a CCO does not have to do so, if you stand still you will surely lose ground.

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, 2018

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