Welcome to the return of Sherlock Holmes week. Over the next few posts, I will be using a Holmes story to illustrate a compliance lesson or issue. Today we begin with the very first Sherlock Holmes short story, The Red-Headed League. While not one of my personal favorites, Conan Doyle said it was his second most favorite Holmes short story. The characters are memorable, with the clownish Jabez Wilson and John Clay.
While studying a prospective client, Jabez Wilson, both Holmes and Watson notice his red hair, which has a distinct flame-like hue. Wilson tells them he answered an ad, based on advice from his assistant, for The Red-Headed League and was awarded a stipend of £4 a week for copying the Encyclopædia Britannica. One day Wilson arrives to find the League has disbanded. Holmes visits Wilson’s pawn shop and sees the clerk, Spaulding, whom he notes may be the ‘fourth smartest man in London’, who recommended Wilson apply to the League, he notices the clerk’s knees are crusted with dirt. Outside the shop, Holmes taps on the pavement in front of the shop.
With the case solved, Holmes calls Detective Jones and Mr. Merryweather, a director of the bank located next door, and advises them they are about to witness a crime. The four hide themselves in the bank vault, waiting in the dark for over an hour until two men, Clay and his helper Archie, emerge from a tunnel cut into the vault’s floor and are captured. Back at Baker Street, Holmes explains to Watson how he solved the case, applauding Clay’s creativity and regretting that such a mind has been wasted on crime.
I use Holmes’ short story to continue my exploration of changing corporate culture based upon the experiences of Indra K. Nooyi, former Chief Executive Officer (CEO) of PepsiCo, Inc., as reported in a Harvard Business Review (HBR) article by Nooyi and Vijay Govindarajan entitled Becoming a Better Corporate Citizen. Yesterday, I introduced the cultural change Nooyi instituted at PepsiCo, called “Performance with Purpose (PwP)”. Today we begin a two-part look at some of the key steps Nooyi and her team took and the lessons for the compliance professional.
A look into the future
PepsiCo did not simply decide it wanted to be a better corporate citizen. It wedded that desire with a rational business process, grounded in increasing profitability. Nooyi had a group of senior executives consider various business scenarios which could negatively impact the company. It was not simply a traditional risk analysis but a way of looking at the market to see not only where PepsiCo needed to position its products but also “If we didn’t create a company where people could bring their whole selves to work, we couldn’t hope to hire or retain the best and brightest people.”
Compliance Lesson: This points to the need for a Chief Compliance Officer (CCO) to do more than a risk assessment and move toward the Superforecasting model. You need to know what risks might be out there and, equally important, how those risks can be incorporated so that your business model is not only more robust but also more return on investment (ROI) driven in that direction.
Another key component was Board support. Nooyi herself put together an entire presentation for the Board. An interesting aspect was that Board members retired; they were replaced by new Board members with a forward-looking commitment. Additionally, the Board further incentivized the PwP program by tying Nooyi’s compensation to it so that it was based on targets hitting marks within the new program. As the authors stated, “That step is critical: It’s how the board becomes the force that holds the CEO responsible for delivering on a purpose-led strategy. Not only will the CEO not be able to deviate without the directors’ involvement, but by setting targets, the board makes itself accountable to all stakeholders, not just shareholders.”
Compliance Lesson: Obviously senior management buy-in is critical but if you are trying to impact an entire culture change, the Board must not simply give its blessing but also be an active partner. Also, just as a company may need to bring in a new Executive Leadership Team (ELT) for a business unit or even the entire company, new Board members committed to the culture change may need to be sought out and placed on the Board. Finally, never forget the power of incentivizing senior management through compensation.
Obviously Nooyi understood that what she wanted to accomplish would have to be marketed internally. While several iterations were considered the phrase ‘Performance with Purpose’ became the best way to communicate that sustainability was critical for the company going forward. But it did not end there as the communication needed to be rolled out literally across the globe. This step is critical for an international organization because, as Nooyi noted, “countries will respond to the message in subtly different ways. Mexico was one country we used for a test. At PepsiCo Mexico, after much discussion, then-chairman Pedro Padierna and his executive committee localized PwP with the tagline “Desempeño con Sendito,” which roughly translates to “performing to obtain something meaningful in a sustainable manner.””
Compliance Lesson: The international aspect of any messaging must always be considered. Sometimes it can a simple translation issue. However, if you allow a business unit or geo-region to have input in a manner that enhances the messaging and communications, it gives them an investment in the new message.
New behaviors and early actions
Here it is important to demonstrate that the culture change is “not just the flavor of the day”. This means you have to put some very high-profile people upfront, which may be done best by bringing in outsiders to drive the culture change. Second, if there are decisions which would have been approved prior to the culture change, they must be overturned under the new culture if they are antithetical to it. Finally, you may well have to let some people go.
Compliance Lesson: For any culture change to work, there must be real and sustained change. This means if a project does not pass muster under the new culture, it must be stopped, withdrawn or rejected. Similarly, there will be employees who do not want to do business ethically and in compliance with the culture change. They will have to leave the organization, one way or another.
Tomorrow I will conclude lessons from the strategy pursued by Nooyi and PepsiCo to transform the culture of PepsiCo into Performance with Purpose.
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© Thomas R. Fox, 2020