I recently had the chance to visit with Vincent DiCianni, founder and Chief Executive Officer (CEO), and Eric Feldman, Senior Vice President, of Affiliated Monitors, Inc. (AMI). (AMI sponsors the podcast series This Week in FCPA). In this conversation, we explored corporate culture and what factors influence it.

Over the past few months, senior leaders at both the Department of Justice (DOJ), Deputy Attorney General Rod Rosenstein and Securities and Exchange Commission (SEC) Chairman Jay Clayton, have given speeches discussing the need for appropriate corporate culture around compliance. We therefore begin with the question of ‘what is corporate culture?’ It is not simply a social science question as Feldman believes “culture is everything” for an organization. Culture is a foundational internal control, without which all your other controls are likely to be ineffective. He went on to explain that this mean corporate culture is the way things really are in an organization and the way things really work. While corporate culture can be reflective of the core values of a company, this usually only occurs if a company operationalizes those values throughout an organization.

Feldman emphasized that there can be more than one culture in an organization and that there might well be multiple subcultures in a company. Moreover, you simply cannot force one culture throughout an entire organization. This is because you are dealing with different inputs in every company. He stated, “Culture is made up of all the different people that work for that organization, which means that it’s going to differ by necessity based on population and geography.” This could mean that different locations will have different cultures. Feldman believes that “the linkage between culture and compliance, is that it drives ethical behavior.” Every employee you hire, up to every organization you acquire will change your culture. This is why mergers and acquisitions (M&A) due diligence is so critical.

I asked Feldman about the different kinds of cultural systems which could impact a company. He said it could “involve locations, languages, rituals of heroes and role models and other informal mechanism for building a particular culture. Yet even with subcultures in an organization and throughout the world, the significant thing is to have some overarching key themes of that culture.” This involves being consistent with the core values, integrity and ethical behavior. You must also work to serve your stakeholders.

Another indicium of a strong ethical culture is having a speak up culture. This leads to more formal cultural systems and processes which also impact culture. Here Feldman emphasized the hiring process; who you hire, how you train people and what performance management systems are used throughout the employment tenure. This also leads to the Fair Process Doctrine and whether it is consistently applied within the culture. Finally, are you incentivizing, through measurement, compensation and recognition, the right kind of behavior?

I asked Feldman about holding employees throughout the organization accountable. Feldman responded that it is no longer just top management’s responsibility. There still must be an appropriate tone at the top, but there should also be an appropriate mood at the middle management of an organization as well as a buzz at the bottom of the company about compliance, ethics and values. This is because employees are more influenced by their immediate supervisor and their peers than a faceless CEO, even if that CEO is saying all the right things.

A company does not have an ethical culture unless the top management commits to it going forward. Employees not only listen to what they say but they watch how they act. Employees look for signals about what really counts in an organization. But you must then move down to implementation of this goal. Employees want to know if senior leadership is committed to the company’s core values. But equally important is a sense of organizational justice and fairness. Employees want to not only see they will be treated fairly but there is not a delineation of favorites and non-favorites in an organization. DiCianni emphasized that it is the senior leadership who really drives the alignment between incentives and performance.

DiCianni next turned to one of the key elements for any effective leader, which is listening. Are the senior leaders in the organization listening to their people? He went to explain this meant are they giving their people the opportunity to be heard as to whether or not the employees are receiving those messages? Do the senior leaders get out of the ivory tower, go to the field and meet with employees. Are there town halls or other types of group get-together’s?

Finally, do the employees see whether or not the leaders are living those kinds of values? All of this means establishing good communication from management with line staff. DiCianni stated, “They never take the time to actually go sit with people or have an all hands meeting or just reach out to a few people, have a cup of coffee with them, see how they’re doing. Those kinds of behaviors are very important” in terms of driving ethical behavior from the top.

As many listeners to my podcast, 12 O’Clock High, a podcast on business leadership, know I  consistently talk about the importance of listening for a leader. However DiCianni tied this basic leadership skill directly to an ethical culture. Listening can make employees feel like they are a part of the company but it also allows management to further articulate and expand on their desire for an ethical culture throughout the company. By going out into the field and listening, senior management can further get the mission and vision of the company out and employees will have a greater understanding of how it all applies to them in the field.

DiCianni emphasized how important it is for perception to equal reality. It is one thing for a CEO to say he has an open-door policy; that he wants to hear from anyone about nefarious conduct or that type of conduct which is antithetical to the company’s values. However, if no employee has ever brought forward any information because they are too afraid to approach the CEO there is an obvious disconnect between practice and reality at that company. It is even worse if there has been retaliation for any employee who raised his or her hand in that manner.

Employees are watching for signals on what is important to senior leadership. If top management says compliance is number one but a person who skirts the rules is not disciplined, or worse rewarded through promotion for such conduct; that word gets around. It is more than simply modeling the conduct, it means running your business based upon those ethical values. A key insight is how senior leaders treat their staff. But if senior leadership is only driven by the bottom line, that message will get out to the employees. In short, words are important but actions are where the rubber meets the road.

The key is that there be an alignment between what top management says, coupled with the company’s core values and what the organization says together with what they do. This all comes from senior management getting out of their office and talking to employees in the field to see not only what they think but how they feel. No company aspires to be unethical and most assuredly employees do not want to engage in unethical behavior but if senior management does not talk to employees they will not know how their messages are being received. Feldman says that it does not take long when there is a disconnect between what senior management says and what the employees take away. Feldman finds its disconcerting how little top management really understand their employees. Because of this, senior leaders do not know what messages they are receiving, both verbal and non-verbal.

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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