Over the past few blog posts, I have been exploring a recent article in Harvard Business Review by Gary P. Pisano, entitled “The Hard Truth About Innovative Cultures”. Pisano says the conventional wisdom is innovative cultures are generally depicted as pretty fun, being psychologically safe, highly collaborative, and nonhierarchical. But his research found that they are hard to create and sustain because the easy-to-like behaviors that get so much attention are only one side of the coin. They must be counterbalanced by some tougher and, frankly, less fun behaviors. In this piece, I finish with the key elements needed to foster success around innovation. Tomorrow, I will try and wrap it together for the Chief Compliance Officer (CCO) and compliance professional who needs to be innovative or lead innovation in a corporate compliance function.

Yesterday, we considered Pisano’s thesis that fostering innovation is very misunderstood. Corporate attributes such as a tolerance for failure and a willingness to experiment must be tempered with “intolerance for incompetence, rigorous discipline, brutal candor, a high level of individual accountability and strong leadership.” As a CCO, your role is to manage these tensions, addressing uncertainty and confusion with decisiveness and transparency. If you do not, the innovation you seek will likely fail.

Psychologically safe but brutally candid

Here the author says that employees must feel safe to speak up. CCOs know having a speak up culture is one of the best ways to have an ethical culture. This point directly ties to correlative findings in Associate Professor Stephen Stubben and Assistant Professor Kyle Welch’s seminal work “Evidence on Use and Efficacy of Internal Whistleblowing Systems”.An employee who trusts their organization enough to raise his or her hand to report unethical conduct will be more likely to raise their hand to make suggestions to make the company run more efficiently and, at the end of the day, more profitably.

Pisano extends this insight to “Psychological safety is an organizational climate in which individuals feel they can speak truthfully and openly about problems without fear of reprisal. Decades of research on this concept by Harvard Business School professor Amy Edmondson indicate that psychologically safe environments not only help organizations avoid catastrophic errors but also support learning and innovation.”

But this point is more than being willing to or even raising your hand. It is being willing to accept the same critiques and criticism that you will dish out in the corporate setting. Pisano writes, “In some organizations, people are very comfortable confronting one another about their ideas, methods, and results. Criticism is sharp. People are expected to be able to defend their proposals with data or logic. In other places, the climate is more polite. Disagreements are restrained. Words are carefully parsed. Critiques are muffled (at least in the open). To challenge too strongly is to risk looking like you’re not a team player.” However, when it comes to innovation, candid wins out every time.

Pisano ends this section with an apt quote about General Dwight D. Eisenhower, from biographer Geoffrey Perret, who wrote that the General said before D-Day, “I consider it the duty of anyone who sees a flaw in this plan not to hesitate to say so. I have no sympathy with anyone, whatever his station, who will not brook criticism. We are here to get the best possible results.”

Collaboration with individual accountability

Here Pisano directly hits at one of the key issues in compliance. Unfortunately collaboration is often a “poison for rapid decision making”. To remedy this, he says the answer is to pair accountability where individuals are not only expected to make decisions but own the consequences of those decisions. Your organization can have both attributes as there can be a committee review but specific individuals are charged with making decisions. Pisano writes, “Accountability and collaboration can be complementary, and accountability can drive collaboration. Consider an organization where you personally will be held accountable for specific decisions. There is no hiding. You own the decisions you make, for better or worse. The last thing you would do is shut yourself off from feedback or from enlisting the cooperation and collaboration of people inside and outside the organization who can help you.”

As a CCO you should facilitate this culture in your organization by publicly holding yourself accountable with your compliance team. It also takes leadership courage because if you point back to specific employees in your compliance department, it could well stifle all risk taking going forward. If that happens the entire compliance function will be worse off and it will more than negatively impact the perception of compliance within your organization.

Flat but strong leadership

Culturally flat organizations provide many opportunities for talented employees to make decisions. Indeed this can form part of the basis for a more fully operationalized compliance program throughout a company, beyond simply the compliance function. This is because “Culturally flat organizations can typically respond more quickly to rapidly changing circumstances because decision making is decentralized and closer to the sources of relevant information. They tend to generate a richer diversity of ideas than hierarchical ones, because they tap the knowledge, expertise, and perspectives of a broader community of contributors.”

Yet the key in flat organizations is strong leadership which provides “clear strategic priorities and directions.” Pisano cautions that this is a balancing act and requires “a deft hand” by leadership. He writes, “Getting the balance right between flatness and strong leadership is hard on top management and on employees throughout the organization. For senior leaders, it requires the capacity to articulate compelling visions and strategies (big-picture stuff) while simultaneously being adept and competent with technical and operational issues. For employees, flatness requires them to develop their own strong leadership capacities and be comfortable with taking action and being accountable for their decisions.”

Tomorrow I will conclude with how the CCO should lead the organization’s journey for innovation in compliance.

In addition to Pisano’s article, you should check out his interview on the HBR IdeaCast by clicking here.

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, 2019