One of the topics I enjoy exploring the most is all things around innovation in compliance. In fact, I dedicate an entire podcast to just that topic, which is aptly named Innovation in Compliance. The reason there is so much innovation in the compliance profession largely draws from how the professional came into existence and how it has evolved. Compliance was seen as a legal response to laws such as the Foreign Corrupt Practices Act (FCPA). The 1992 US Sentencing Guidelines cemented the requirement of a compliance program for a company which violated the FCPA, to receive a reduction in a fine or penalty under the Sentencing Guidelines. Over the next few blog posts, I am going to explore aspects of innovation in compliance.
As FCPA enforcement mushroomed in the past decade and the government’s concepts around what constituted a best practices compliance program grew, companies and compliance practitioners began to understand that compliance is not seen as a legal response to a law but rather as a business process which can make a company run more efficiently and, at the end of the day, more profitably. As the Compliance Evangelist, I try to write, speak, podcast and continue the conversation that this is good news for compliance. But innovation is not easy. Even now, many of my legal brethren still believe that a compliance program exists only to protect a company from legal liability. Moreover, when a problem arises, they want to circle the wagons to defend the corporation, rather than conduct a full investigation, and hide the problem, which they wrongly believe will protect the company from legal liability.
All of this brings us to Herb Kelleher, who died last week. Kelleher was a lawyer and co-founder of Southwest Airlines (SW) and was certainly part of the company’s driving force. The airline’s vision was to be a regional carrier, taking passengers between Houston and Dallas and San Antonio. However they were fought tooth and nail by the then existing carriers (or more correctly formerly existing carriers), such as Eastern, National, TWA and most notably Braniff, which were highly regulated and did not want competition from the upstart. It took four years of litigation but SW finally got the legal right to fly in 1971. By 1978, Kelleher had moved from legal advisor to Chairman of the Board of the company and in 1981, he became Chief Executive Officer (CEO).
As noted in a Financial Times (FT) Op-Ed, entitled “Business lessons from a pioneer of cheap flights”, both “Kelleher and Southwest exemplified how challenging the business-as-usual approach can advance a whole industry. Southwest introduced innovations now standard across the low-cost airline sector.” Yet SW did more with one of the oldest innovation techniques known to man, it reduced complexity and thereby its costs and staffing. It did so by “flying only one type of plane, on point-to-point routes often to second-tier airports, instead of using a hub-and-spoke model.” SW did not cater with traditional food offering, which gave faster turn times allowing its planes to fly more flights a day. You were never fed more than peanuts on SW, except donuts on the early morning flights. Before liquor liability laws came to the fore, SW was the only airline to offer free adult beverages.
All of these innovations were literally revolutionary to a very different type of airline industry than exists today. Yet perhaps the greatest innovation Kelleher envisioned and put into place involved the company’s employees. The airline industry traditionally had horrid employee relations, with unions and management at each other’s throats. This made, if not enemies but certainly adversaries out of two groups which should have been focused on customer service and quality. SW had the philosophy that if employees were happy and wanted to come to work, the customer service would improve and the customers would notice the difference. When times got tough, SW didn’t lay off employees first, which is the want of so many organizations. For instance, during one tough stretch SW “cancelled the lease on one of its four aircraft rather than laying off staff. In return, it asked employees to cut the remaining planes’ turnround times from 55 minutes to just 15.” While this “was not Kelleher’s idea, he admitted later, but “I had the good sense not to mess that up when everybody in the investment world was calling for us to change”.”
And boy did we. It was clear that SW employees enjoyed what they were doing and were having fun at it. At a time when most airline pilots only growled when they came over the intercom, the SW pilots would just as soon pull an April Fool’s prank on the entire airplane announcing that John Wayne was on flight. They could also take the humor in a more pointed direction, as described by the FT, ““Good morning, ladies and gentlemen,” went one in-flight announcement: “Those of you who wish to smoke, please file out to our lounge on the wing, where you can enjoy our feature film, Gone With The Wind.””
The FT concluded its piece by stating, “An authentic leader before management gurus started writing books on authentic leadership, Kelleher’s philosophy influenced later airline entrepreneurs.” Yet his lessons for business leadership apply more widely. Since the financial crisis, trust has ebbed away from big business, for good reason. The Southwest co-founder’s career shows how innovative leaders who enjoy running a business — and make it fun and worthwhile for customers — may hold some of the keys to restoring that trust.”
This trust is for a variety of stakeholders. Obviously, employees are part of those who should trust company management but it also others, such as customers and the wider social media. If a company goes the other direction, such as … [you name the corporate scandal here] it will be damaged in the marketplace for years to come. This is where innovation in compliance comes in. Kelleher was as innovative a leader as there has been in the airline industry over the past 50 years. Yet many of his innovations were working with existing structures, strictures and constraints to create something which led the pack. Compliance professionals should draw inspiration from him.
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© Thomas R. Fox, 2019