Game 1 of the World Series is in the books and the Washington Nationals prevailed over the hometown heroes. The pitching duel between Gerrit Cole and Max Scherzer failed to materialize as Cole gave up more runs in the game than he had in the entire post-season and lost his first game after 19 consecutive wins. On to Game 2 tonight. Apparently #Natitude is a thing.
One of the key areas of evolution of compliance has been from the lawyer-driven paper programs of the prior decade to the operationalization of compliance, as emphasized in the 2017 Evaluation of Corporate Compliance Programs, to the focus on culture as laid out in the Evaluation of Corporate Compliance Programs, 2019 Guidance. When you overlay the technological advancements that see compliance as a business process, it is clear that when properly utilized, compliance can drive not simply more rigorous compliance to and adherence with legal requirements but also can be used as a driver of greater business efficiency and at the end of the day, greater profitability.
This type of approach emphasizes a more holistic approach to compliance, seeing the inter-connections with a wide variety of siloed internal corporate departments and an external third parties as a part of the compliance landscape. This is particularly true of third parties, who were originally high compliance risks but now are viewed as a part of the compliance and process solution. Such a holistic approach builds on many business concepts, going back as far as Edward Demming.
I was therefore quite intrigued by a recent Harvard Business Review (HBR) article by Thomas W. Malnight, Ivy Buche and Charles Dhanaraj, entitled “Put Purpose at the Core of Your Business”. In it the authors posit that building purpose into their business strategies did more than simply creating shared value, improving employee morale and commitment, giving back to the community or helping to improve environment. The authors found that the high-growth companies in their study had moved purpose from the periphery of their strategy to its core – where, with committed leadership and financial investment, they had used it to generate sustained profitable growth, stay relevant in a rapidly changing world, and deepen ties with their stakeholders.
This is directly the link I see between more effective compliance creating more efficient business process, leading to greater profitability. In short, the authors found that “purpose played two important strategic roles: It helped companies redefine the playing field, and it allowed them to reshape the value proposition. And that, in turn, enabled them to overcome the challenges of slowing growth and declining profitability.” Having robust compliance, coupled with this purpose, can help a company achieve high growth. Today, I will begin a two-part blog post series looking at purpose and how it ties into what I posit is the Ethical Edge.
The first thing purpose can do is to help a company not level the playing field but redefine it. The authors noted that low growth companies “spend most of their time fighting for market share on one playing field, which naturally restricts their growth potential. And because most aggressive battles take place in industries that are slowing down, gains in market share come at a high cost, often eroding profits and competitive advantage as offerings become commoditized.” Conversely, they believe that high-growth companies are not “limited to their current playing field. Instead, they think about whole ecosystems, where connected interests and relationships among multiple stakeholders create more opportunities. But these firms don’t approach ecosystems haphazardly. They let purpose be their guide.”
This is a key area for compliance. Compliance should not slow a business down. It should allow a company to be more nimble and more agile to manage a higher risk portfolio. Put another way, you do not have brakes on a car to slow down, you have brakes on a car so that you can drive fast. The same is true of compliance. An effective compliance program should allow your organization to move more quickly on business opportunities, whether they be as large as a corporate merger or acquisition (M&A) or some as relatively routine as responding to a Request for Proposal (RFP).
The authors pointed to an example in the pet-food industry, Purina PetCare, the largest player in North America; and Mars Petcare, the global leader. The authors noted they have similar purposes. Purina has “Better with pets”. Mars Petcare has “A better world for pets”. Moreover, both companies wanted “to develop new products that will help customers improve their pets’ health.” Yet here the companies diverged as Purina focused on the pet-food playing field and is applying purpose in some inspiring social initiatives. Mars Petcare has used purpose to propel its expansion in the broader field of pet health.
You immediately see how Mars Petcare redefined its market. It evolved from the product business to the service business, with a product adjunct. It was not easy or simple as the authors stated, it was “a radical change for an asset-heavy company that for 75 years had relied on the production and sale of goods. To succeed, the company had to build completely different core competencies and devise a new organizational structure. Many companies in this dangerously open-ended situation might have flailed, but Mars Petcare did not. It was able to pull off a transformation because it ensured that every move it made was aligned with the same core purpose. And it’s not done yet: The company is now bringing that sense of purpose to efforts to expand into pet-activity monitoring with “smart” collars.”
The next area is reshaping your companies value proposition. Once again, compliance can not only lead the way but make this more possible in your company by improving overall business process. This is not simply a transaction approach but rather “a purpose-driven approach facilitates growth in new ecosystems, it allows companies to broaden their mission, create a holistic value proposition, and deliver lifetime benefits to customers.” The compliance key here is trust and trust is an outgrowth of culture, which is what the Department of Justice (DOJ) says you need to assess, improve and monitor in the 2019 Guidance.
It is not simply having trust inside your organization but with your external stakeholders as well. This is part of beauty of the Business Roundtable’s Statement on the Purpose of a Corporation. By focusing on stakeholders beyond the shareholders you begin to see how designing compliance and purpose into your overall business strategy provides a more holistic approach.
Please join me tomorrow where I report on Game 2 and we consider how to develop and foster purpose.
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© Thomas R. Fox, 2019