Over the past few blog posts, I have been exploring a recent article in Harvard Business Review (HBR)  by Gary P. Pisano, entitled “The Hard Truth About Innovative Cultures”. Today, I will try and wrap it together for the Chief Compliance Officer (CCO) and compliance professional who needs to have innovation in compliance function or lead innovation in a corporate. For the CCO the key will be leadership throughout the process, which, as Pisano intones, is hard.

While there are those who do not believe that a compliance function should be anything other than a paper, check the box compliance program, out in the real world, this is recognized as wholly insufficient to create an effective compliance program. However, even inside a corporation there can be resistance to innovation in compliance as many other corporate functions fear losing influence and power to the compliance function. The sad reality is that many corporations allow such cultures to flourish and those are usually the ones who fall prey to ethical lapses leading to civil lawsuits and criminal charges under anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA).

Pisano phrases it somewhat differently writing, “All cultural changes are difficult. Organizational cultures are like social contracts specifying the rules of membership. When leaders set out to change the culture of an organization, they are in a sense breaking a social contract. It should not be surprising, then, that many people inside an organization—particularly those thriving under the existing rules—resist.” As a CCO, you must overcome this reticence to make such changes. He believes there are three key obstacles you will have to overcome to move forward in this process.

First, because “innovative cultures require a combination of seemingly contradictory behaviors, they risk creating confusion.” If a project fails how should you react? Is this the time to celebrate failure or was there input from the experience that can form the basis of another iteration? Simply put, did you learn from the failure or was it so catastrophic that heads must role? Pisano notes, “Without clarity around these nuances, people can easily get confused and even cynical about leadership’s intentions.”

Second, as we have seen in this blog post series, while some corporate behaviors required for innovative cultures are very likable and easy to embrace; others are viewed with greater skepticism. Many lawyers think of innovation as a free-for-all. However, many others in an organization see the rational legal mind as an unnecessary constraint on creativity. These tensions may lead those who take comfort in the anonymity of consensus not welcoming a move towards personal accountability. While some in your organization will adapt readily to the new rules others will not thrive. As the leader, you must be ready to intercede if required.

Third, like all corporate culture, an innovative culture tends to be systems of interdependent behaviors. This means an innovative change cannot be implemented in a piecemeal fashion. The behaviors which make culture complement and reinforce one another. Pisano believes this means, “Highly competent people will be more comfortable with decision making and accountability—and their “failures” are likely to yield learning rather than waste. Disciplined experimentation will cost less and yield more useful information—so, again, tolerance for failed experiments becomes prudent rather than shortsighted. Accountability makes it much easier to be flat—and flat organizations create a rapid flow of information, which leads to faster, smarter decision making.”

Just because something is difficult does not mean you should forestall doing it. While leading innovation in compliance may not rise to the Jack Kennedy level of “We choose to go to the Moon in this decade and do the other things, not because they are easy, but because they are hard”, there is room for maneuver. US financial regulators recognized this last December when they released the “Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing”. This document stated, in part, “The Agencies recognize that private sector innovation, including new ways of using existing tools or adopting new technologies, can help banks identify and report money laundering, terrorist financing, and other illicit financial activity by enhancing the effectiveness and efficiency of banks’ BSA/AML compliance programs. To assist banks in this effort, the Agencies are committed to continued engagement with the private sector and other interested parties.”

Clearly the regulators recognize that it is regulatory interest for innovation in compliance to occur. While this statement was on anti-money laundering compliance innovation, I believe the same will hold true from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) in anti-corruption compliance. Simply put, innovation in compliance is in everyone’s interest, the regulators and businesses. While it may be hard, every CCO needs to be ready, willing and able to lead innovation in their organization.

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