7K0A0246Today, I continue my exploration of the resolution documents from the long-standing Foreign Corrupt Practices Act (FCPA) probe into the Dutch telecom giant VimpelCom Ltd. (VimpelCom) for a spectacular, long-standing bribery scheme for the company to garner the rights to the mobile communications business in Uzbekistan. There were multiple bribery schemes appear to have been approved at the highest levels of the company and should provide a wealth of case studies on bribery schemes for the compliance professional going forward. Today, I want to begin with the initial start of the scheme and then discuss what led to the first bribery payment in what I term the fraudulent buy-out.

Board of Directors and Senior Management Involvement

VimpelCom sought to enter the telecom market through the acquisition of a local player, Unitel LLC (Unitel), as an entrée into the Uzbekistan market. Unitel made clear to VimpelCom that to have access to, obtain and retain business in the Uzbeki telecom space, VimpelCom would have to, according to the VimpelCom Deferred Prosecution Agreement (DPA), “regularly pay Foreign Officials millions of dollars”.

As discussed yesterday with the acquisition of Unitel VimpelCom acquired another entity LLC Barkie Uzbekistan Telecom (Butzel), that was at least partially owned by an Uzbeki government official, who hid their interest through a shell company, which was known to VimpelCom. VimpelCom did not articulate a legitimate business reason for the deal and paid $60MM for Buztel.

As laid out in the VimpleCom’s Information, its senior management was well aware of the potential FCPA risk. The Information stated, “From the beginning of VIMPELCOM’s deliberations concerning its entry into Uzbekistan, there was an acknowledgment of the serious FCPA risks associated with certain VIMPELCOM management’s recommendation to purchase Buztel in addition to Unitel… Documents prepared for the December 13, 2005 Finance Committee meeting explained that Buztel was owned by a Russian company “and a partner” without further detailing the identity of the “partner.” The materials documented that “[t]hrough a local partner, [VIMPELCOM was] in a preferred position to purchase both assets . . . .”” The Finance Committee “identified the likelihood of corruption and expressed concerns.” Even with these reservations, the Finance Committee failed to identify the local partners.

But there was even more specific cautions around a FCPA violation when one Finance Committee member ““expressed concern on the structure of the deal and FCPA issues” and noted “that if [VIMPELCOM] goes into this deal under this structure and if the structure violates the FCPA picture, [VIMPELCOM’s] name could be damaged.”” The Finance Committee voted to move forward with the Buztel portion of the transaction “provided that all issues related to the FCPA should be resolved.”

These concerns moved up to the VimpelCom Board of Directors. In a December, 2005 Board meeting, “the likelihood of corruption was further discussed” and that “there was a recognition that a thorough analysis was needed to ensure that the Buztel payment was not merely a corrupt pretext for other services and favors. There were also numerous requests to ensure that the deal complied with the FCPA. Ultimately, VIMPELCOM’s board approved the Buztel and Unitel acquisitions, with a condition that FCPA analysis from an international law firm be provided to VIMPELCOM.”

Here VimpelCom management defrauded its own Board of Directors. The Information states, “VIMPELCOM’s management then sought FCPA advice that could be used to satisfy the board’s requirement while allowing VIMPELCOM to proceed with a knowingly corrupt deal. Despite the known risks of Foreign Official’s involvement in Buztel, certain VIMPELCOM management obtained FCPA legal opinions from an international law firm supporting the acquisition of Unitel and Buztel; however, certain VIMPELCOM management did not disclose to the law firm Foreign Official’s known association with Buztel. As a result, the legal opinion did not address the critical issue identified by the VIMPELCOM board as a prerequisite to the acquisition. Management limited the law firm’s FCPA review of the transaction to ensure that the legal opinion would be favorable. Having obtained a limited FCPA legal opinion designed to ostensibly satisfy the board’s requirement, certain VIMPELCOM management then proceeded with the Buztel acquisition and corrupt entry into the Uzbek market.”

Fraudulent Stock Transfer

But that was only the start as VimpelCom then entered into a partnership with the foreign official who was given an ownership interest in Unitel, through the shell corporation. The shell company held an option to sell this interest back to VimpelCom in 2009. It would appear that the owner of the shell corporation was well known within both VimpelCom and Unitel but both entities referred to this person as the “partner” or “local partner”. VimpelCom set up partnership where, “Shell Company obtained an indirect interest of approximately 7% in Unitel for $20 million, and Shell Company received an option to sell its shares back to Unitel in 2009 for between $57.5 million and $60 million for a guaranteed net profit of at least $37.5 million.”

VimpelCom’s Board was required to and did approve the partnership but as with the original acquisition, “approval again was conditioned on “FCPA analysis by an international law firm” and required that the “the identity of the Partner . . . [be] presented to and approved by the Finance Committee.” VIMPELCOM received an FCPA opinion on the sale of the indirect interest in Unitel to Shell Company on or about August 30, 2006. The FCPA advice VIMPELCOM received was not based on important details that were known to certain VIMPELCOM management and that certain VIMPELCOM management failed to provide to outside counsel, including Foreign Official’s control of Shell Company. In addition, documents, including minutes from the Finance Committee’s meeting on August 28, 2006, failed to identify the true identity of the local partner by name while noting the “extremely sensitive” nature of the issue.”

Some three years later, the shell company exercised its option to be bought out of the partnership for $57.5MM, after having invested $20MM. This netted a profit of $37.5MM. Unfortunately for all involved, they routed the payments for the transaction through financial institutions in the US, thereby creating FCPA jurisdiction.

Discussion

Under the facts presented in the settlement documents, VimpelCom would probably have done these transactions regardless of their criminal and civil exposure. The Board was told point blank that VimpelCom would have a very difficult time breaking into the Uzbekistan telecom market without the additional acquisition of Buztel and if did not do so, “would be “in opposition to a very powerful opponent and bring [the] threat of revocation of licenses after the acquisition of Unitel [as a] stand-alone.””

Yet this is where the rubber hits the road. If a company is willing to commit bribery and engage in corruption to secure business no amount of doing compliance is going to help. If senior management is ready, willing and able to lie, cheat and steal from its own Board, there is not much even a best practices compliance program can do.

This is why enforcement plays a key role in the fight against corruption. Even with the recognized risk, specifically under the FCPA, VimpelCom was willing to pay bribes to get business in Uzbekistan. Someone, somewhere at sometime in the company had to stand up and say ‘stop’ we are not going to break the law to do business.

It also points out the interconnected nature of a business solution to the legal problem of bribery and corruption. As reported in the FCPA Blog, “VimpelCom is part of Norway’s Telenor. Norway’s government owns 54 percent of Telenor. Telenor’s chairman Svein Aaser resigned in October 2015 because of the investigation. Norway’s industry minister Monica Maeland complained that Telenor had withheld information about the investigation from her and parliament.”

Telenor has a business responsibility to monitor and keep an eye out on its assets. This is not the situation where you and I might buy stock in a US company. Telenor was the majority shareholder and certainly would have been able to check on its substantial investment. There is a reason that lenders are now requiring their customers to have a best practices compliance program in their loan covenants. It is to protect their investments. The more corporate owners inquire into compliance programs of their entitles, the more compliance we will have going forward.

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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, 2016

7K0A0032I have been exploring the PTC Inc. Foreign Corrupt Practices Act (FCPA) settlement this week. It included a Non-Prosecution Agreement (NPA) from the Department of Justice (DOJ) with two Chinese subsidiaries and a Cease and Desist Order (Order) from the Securities and Exchange Commission (SEC). Today I want to review some of the lessons a Chief Compliance Officer (CCO) or compliance practitioner might apply to a FCPA compliance program.

PTC sustained both books and records and internal controls violations. The books and records violations occurred because the Chinese subsidiaries improperly recorded bribes on their books and records disguised as legitimate commissions and business expenses. These were then rolled up into the corporate parent’s books and records.

Further, PTC either did not have appropriate internal controls or if they did have them they were clearly inadequate. While a CCO should expect (or at least hope) that internal controls at locations outside the US are of the same effectiveness as internal controls within US business units and at the US corporate office; unfortunately, that might not always be the case. It is often the case that corporate level internal controls are stronger than those in foreign business units. That would certainly appear to be the case with PTC.

For each of the bribery schemes in place there was a failure of internal controls. In the scheme where the commission was decided after the sales was concluded, so as to know how much money to bake into the commission rate for the bribe payment, the Chinese subsidiary “sales staff reported to a PTC employee who had authority over the commission approval process.” So there was at least a control in place, yet that control was not effective because the PTC oversight did not work at all.

This also speaks to an internal control weakness that allows one corporate employee to have oversight over an approval process. This is simply not a sufficient control. First, and foremost, there should be multiple levels of controls for the commissions of third party representatives as they are the highest risk under the FCPA. Compound that with the known high risk of doing business in China and you can immediately spot the internal controls failure.

The breadth and scope of the Chinese subsidiaries bribery schemes also points up to an issue that Scott Lane, Executive Chairman of the Red Flag Group, has articulated. Lane talked about the line of sight for a CCO or compliance practitioner into the life cycle of a transaction to review it from the compliance perspective. Lane simply drew an imaginary line from his eyes forward to demonstrate the straightforward nature of his concept.

Why is such straight-line visibility lacking in the PTC case? It was because the ongoing nature of the transactions, literally across several years. As noted in the Order, “PTC-China employees spread the overseas travel payments over several contracts, each with its own COD budget. Because many deals with SOEs involved long term contracts that took several years to complete, the actual sightseeing trip sometimes occurred up to two to three years after the deal was negotiated.” Without such a line of sight, there may well be no manner for the CCO to ascertain if bribe payments were made later or somehow charged to different contracts.

One anomalous fact about this case was how long it seemed to linger around. Some of the conduct at issue began as far back as 2005. Apparently the corporate office in the US did discover the illegal conduct until, according to the Order, “PTC only discovered the improper payments to or for the benefit of Chinese government officials, while investigating complaints concerning a senior PTC-China salesperson.” It would certainly appear that multiple parties were asleep at the wheel for such corruption to go on for so long, even if PTC-China was actively working to hide and disguise its illegal acts.

Yet, it is the next part that is really a head scratcher. The Order notes, “PTC voluntarily self-reported the results of its internal investigation to the Commission and responded to information requests from the Commission staff. PTC did not, however, uncover or disclose the full scope and extent of PTC-China’s FCPA issues until 2014.” The NPA was even more detailed about the company’s lack of full disclosure when it said, “the Companies did not receive voluntary credit disclosure because, although the Companies, through their parent corporation PTC Inc., reported to the Office [DOJ] in 2011 certain misconduct identified through a then-ongoing internal investigation, they did not voluntarily disclose relevant facts known to PTC Inc. at the time of the initial disclosure until the Office uncovered salient facts regarding the companies responsibility for improper travel and entertainment expenses at issue independently and brought them to the Companies attention, after which the Companies disclosed information that they had learned as part of an earlier investigation.”

It cannot be determined from the resolution documents whether PTC got some incredibly bad legal advice or made a costly decision. However, for any CCO the clear message is that if you do self-disclose, you must not hide back any facts. This does not mean you have to waive privilege and turn over your entire investigation file, including opinions from your outside counsel. But you do have to turn over facts you uncover. For this lack of forthrightness, it cost the company in the range of seven figures in its settlement with the DOJ.

Yet, PTC did receive a partial credit of 15% “off the bottom of the Sentencing Guidelines fine range for their cooperation in “collecting, analyzing and organizing voluminous evidence and information for”” the DOJ. Moreover, the company also took significant remedial steps during the pendency of the investigation. According to the Order, PTC, “also revised its pre-existing compliance program, updated and enhanced its financial accounting controls and its compliance protocols and policies worldwide, and implemented additional specific enhancements in China. These steps included: (1) reviewing and enhancing its anti-bribery policy, code of ethics, and gifts and entertainment policies to correct previous deficiencies; (2) establishing a dedicated compliance team, including a chief compliance officer and a new compliance director in China; (3) expanding its other compliance resources in China, including hiring a new vice president of finance for Asia and adding additional legal staff in China; (4) hiring a new management team in China, including a new China President; (5) enhancing its FCPA training for employees; (6) severing its relationships with the business partners that were implicated in the FCPA violations and discontinuing the use of COD partners or business referral partners generally; (7) implementing a comprehensive due diligence program for all other business partners that includes a risk-scoring system operated by a third party vendor and that includes FCPA training as part of the onboarding process; (8) obtaining quarterly anti-corruption certifications from sales staff; and (9) undertaking periodic compliance audits.”

I wanted to highlight three of these remedial steps that stand out. The first was the clean sweep of management form PTC-China and bringing in dedicated legal and compliance staff for the Chinese subsidiaries. The second was a risk-based scoring system for evaluating third parties and FCPA training as a part of the third party onboarding process. Many companies perform due diligence on third parties but this solution points to using that information to risk rank third parties for evaluation and management purposes. Finally, there were the quarterly anti-corruption certifications from the sales staff. This last point might be a very powerful and cost effective ‘stop and think’ control, particularly if they have to make the certification for any third parties which have assisted them in their sales efforts.

The PTC-FCPA enforcement action had much material for consideration by the CCO or compliance professional. Even if the events at issue are over 10 years old, it is an important reminder that everything old is new again and that revisiting your gifts, travel and entertainment, policies, procedures and internal controls would be a good exercise to engage in from time-to-time. It also reminds us all that having a compliance program, including appropriate internal controls, is only the starting point. A company must also do compliance for those policies, procedures and internal controls to be effective. As a final note, a company cannot hide facts from the government after they self-disclose. If you are not prepared to present all facts, you will only put yourself and your company in a worse position.

 

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, 2016

7K0A0116Yesterday I began a (now) three-part series on the Foreign Corrupt Practices Act (FCPA) enforcement actions involving PTC Inc. (PTC), Parametric Technology (Shanghai) Software Co. Ltd. and Parametric Technology (Hong Kong) Limited. PTC was previously known as Parametric Technology Corporation, and the two other companies were wholly owned subsidiaries (collectively PTC-China).

Today I want to consider some of the lessons to be learned from these enforcement actions. The Chinese subsidiaries settled with the Department of Justice (DOJ) via a Non-Prosecution Agreement (NPA) and PTC settled with the Securities and Exchange Commission (SEC) via an agreed Cease and Desist Order (Order), through a SEC Administrative Proceeding. These two settlement mechanisms mean there was no judicial involvement as nothing was filed in federal court.

Funding the Bribery Schemes

The bribery schemes utilized by the Chinese subsidiaries provide some excellent lessons for any compliance practitioner. The foremost thing to understand is that any bribery scheme is fraud and that means the perpetrators are going to try and hide it. No current bribery scheme is done in the open, even if top management is in on the act, as with Jack Stanley at KBR in the Nigerian bribery scheme. Someone, somewhere is going to try and hide what he or she is doing. That is why there are three parts to any best practices compliance program: prevent, detect and remediate. Just as the employees out in the field have a legal obligation not to violate the FCPA, a corporation sitting back home in America has the obligation to work to detect any bribery its employees might be engaging in.

The Chinese subsidiaries used at least three separate schemes to finance the bribe payments. The first was through an inflated commission scheme where the commission rate for their third party business partners, who facilitated the transactions, was between 15% to 30%. The problem was that the commission rate was not fixed until at or near the time the transaction was completed. Although PTC-China reported up the chain to the US parent, there was nothing in the record that would suggest PTC did anything other than approve the commission rate.

A second bribe funding mechanism was through fraudulent billing of third party business partners. Here the scheme was more sophisticated as the Chinese state-owned entity representative would sign off that the third party business partner had delivered certain services and then the PTC-China would make payment to these corrupt third party business partners. Of course there was no independent verification these services were actually delivered by the third party business representative.

Finally, abandoning all pretense of a valid transaction, PTC-China moved to a model called “Completely Outsourced Deals or CODs” where the monies used to pay bribes or later the illegal gifts, travel and entertainment were disguised as COD expenses related to success fees or subcontracting payment for business partners. It was through the use of these CODs that PTC-China was able to bury the $1MM+ they spent on gifts, travel and entertainment.

The inflated commission or “success fee” paid to third party business representatives coupled with the fraudulent accounting scheme, exemplified by the CODs, were then used to fund the illegal gifts, travel and entertainment. As was stated in the NPA, “If the business partner was to provide subcontracted services such as information technology services, those services might either be included in the total commission or itemized separately using a line item”; both mechanisms were used to fund and pay bribes.

Gifts, Travel and Entertainment Under the FCPA

Bribing Chinese government officials and representatives of state-owned enterprises is a well known bribery scheme. The number of cases prosecuted for such actions is long in both time and the number of companies. The problem is that payment for such travel, lodging and expenses may run afoul of the prohibition against corrupt payments (or promises of them) made to obtain or retain business. The FCPA allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services” that are “reasonable and bona fide” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).

This affirmative defense, however, is notoriously hard to use because the travel and entertainment must be both reasonable and bona fide. Whatever you might think those two terms might mean; they cannot be defined as sightseeing tours across the US. In the NPA it specified, “Generally, the trips included one or two days of business activities at PTC headquarters in order to justify the trips, proceeded or followed by several days of sightseeing that lacked any business purpose and that was in fact the primary reason for the trip.”

There were a wide variety of illegal gifts provided by PTC-China as well. Gift giving is well known in China and certainly appropriate in some circumstances. Indeed PTC seemed to appreciate this as it had written policies and procedures requiring the following: “$50 monetary limits on the provision of gifts and business entertainment to government officials; requiring PTC-China sales staff to obtain preapprovals for business expenses over $500; and requiring that PTC-China sales staff document the date, place, attendees, and purpose of business entertainment and the recipient.” The problem, as noted in the SEC Order, was “These gifts were improperly recorded as legitimate business expenses.”

Tomorrow, I will review the accounting records violations, including both the internal controls and the books and records failures. I will also have some thoughts on the internal investigation and your conduct with the DOJ after you have self-disclosed a potential FCPA violation. Finally, I will consider the Deferred Prosecution Agreement (DPA) the SEC executed with former PTC-China employee, Yu Kai Yuan, in conjunction with settlement.

 

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, 2016

Live at LeedsOn the 14th February 1970 The Who recorded what I consider to be the best, or at the very least my favorite, live album of all-time. They recorded their concert at the University of Leeds and the resulting album was named The Who – Live at Leeds. The accolades were almost immediate; Nik Cohn, music critic for The New York Times (NYT), praised the album as “the definitive hard-rock holocaust” and “the best live rock album ever made”. Jonathan Eisen, from Circus Magazine, wrote “that not since that album [Tommy] has there been one “quite so incredibly heavy, so inspired with the kind of kinetic energy that the Who have managed to harness” here.”

The album has stood the test of time. Writing for the CD reissue in 1995, Tom Sinclair, of Entertainment Weekly, noted, “Few bands ever moved a mountain of sound around with this much dexterity and power.” If you really want to feel the clout of rock and roll, by a band at the height of powers, simply fire up side 2 for Magic Bus and My Generation. 

Recording any concert and releasing it as a live album is always a risk because of the vagaries of live recording, outside the studio setting. However The Who planned to release the concert recording as a live album. This decision enabled the group to bring together the proper technology to create the great concert experience which was The Who.

Similarly, moving from the written standards of compliance into the realm of doing compliance can also be fraught with difficulties. I thought about this quandary when reading a recent article in the MIT Sloan Management Review, entitled “Getting Workplace Safety Right by Mark Pagell, Anthony Veltri and David Johnson. The authors basic thesis is that companies get safety wrong because they equate doing business safely with a loss in productivity. This is often heard in the compliance realm as well, usually along the lines that doing business in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA) costs companies not only doing business efficiency but costs companies business. As the authors note, this is a “false trade-off”. I have adapted their ideas around safety for the Chief Compliance Officer (CCO) or compliance practitioner.

The lion’s share of companies the authors studied can be summed up with the following unattributed quote, “There are times, of course, when certain things get tweaked to get results.” That sounds like the statement of business development that wants to get things done rather than do business in compliance. The starting point for education is that any company must emphasize compliance as a “defining value of the organization.” It does not do any good for a company to have a compliance program in place only to have senior management exempt out a transaction the first time a difficult choice comes up.

In the arena of compliance, similarly to the sphere of safety, the answer is to wed a culture and organizational capability around compliance. Do not segregate it but embed it into your organizational processes through a monitoring system with five qualities: “(1) contributing to a process for concurrently monitoring and improving safety and production; (2) identifying who is accountable for the monitoring and improvement; (3) directing the design of work that is [complaint] and productive; (4) facilitating communication between management and [employees]; and (5) informing human resources decisions about compensation, hiring, firing, and promotion” related to compliance issues.

In addition to the foregoing, there are four essential cultural values around compliance. They are (1) commitment, (2) discipline, (3) prevention and (4) participation.

Commitment

Almost all companies claim they are committed to doing business ethically and in compliance. The issue is really where compliance ranks among a plethora of priorities. If systems are sometimes tweaked to get work done, then compliance is clearly a priority only when it does not affect sales production. But as noted by the new Department of Justice (DOJ) Compliance Counsel, Hui Chen, commitment is also shown in the budgeting and resource process. Moreover, actions speak louder than words as a company’s HR decisions must prioritize, recognize, and reward both employees and managers who show accountability to compliance in their communications and behaviors.

Discipline

Of course it all starts with the Fair Process Doctrine. There must be a formal process in place so that everyone understands if they violate the company Code of Conduct or do business in violation of the FCPA, there will be even handed discipline put in place. Managers who hold employees accountable to formal processes are willing to discipline employees for deviation from the stated policy or procedure. In other words, if you violate a rule, you might lose pay, get sent home, or get demoted. In such organizations, when HR conducts performance reviews, doing business in compliance is a key performance indicator.

Prevention

Whether you use the FCPA Guidance formulation of prevent, detect and remediate; McNulty’s Maxim No. 1 – What did you do to stop it?, or some other formulation, you must have a strong prevent prong in your compliance regime. Companies simply cannot sit around waiting for a violation to occur and hope that either they will not get caught or they can remediate before any serious penalty is applied by the government. You need to have a long-term perspective and focus on both simultaneous and continuous improvement.

Participation

This means engagement of your employees in your compliance program. Companies that have moved compliance from simply a legal requirement to a capability are at a competitive advantage because they are better run companies. Ethisphere’s World’s Most Ethical Companies awards demonstrate this year after year. While certainly all employees should be responsible for compliance, it is also incumbent for a company to maintain an organizational wide accountability for compliance. But employees take their clues from management and if the compliance function is not part of the executive leadership function of the company or is provided with scant resources, employees will notice this and respond to what they perceive to be management’s priorities. Employees need to see the CCO, or compliance professional, out in the field, in training, in town halls with senior management or another mechanism to show that compliance has value for the company.

The concepts and acumens from the world of safety continue to provide insights for the CCO or compliance practitioner. Fostering the culture of compliance not only gives a company a business advantage, it makes a company a better-run organization.

While you are considering these points, you may wish to check out these YouTube postings of Magic Bus and My Generation from The Who – Live at Leeds.

 

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, 2016

Sam SpenceSam Spence died last week. His was not a name that many folks were aware of generally and even in the sports world where he made his greatest mark. Yet he was a prime mover in the explosion of growth by the National Football League (NFL) from the 1960s up to today. What was his role in this? Spence was the composer for the soundtracks to NFL Films. Together with the pioneer and founder of NFL Films, Ed Sabol, his 35-time Emmy decorated son, Steve Sabol, and narrator John Facenda, a/k/a “the Voice of God”, they formed the core of the NFL Films team who worked to put together the story of professional football in America.

As Bruce Weber wrote in his New York Times (NYT) obituary, “Spence and his music helped fashion an identity for the game that made it seem more dramatic and inspiring.” Why was Spence so important to me? It was not the driving beats of today that he selected for his soundtracks but the wide variety of symphonic tunes that were both dramatic and inspiring. I watched NFL Films mostly in the 1970s and years later when I became a symphony aficionado I recognized music I had first heard in the NFL Films presentations. The one that struck me the most was Dvorak’s New World Symphony, which I first heard courtesy of Sam Spence.

The original quartet who started NFL Films is now in the great beyond. I am sure they are all creating some great films and videos for us all.

While Spence’s contributions to NFL Films were not as well known as the others mentioned above, they were a part of the fabric, DNA and what made the presentations so powerful. Indeed his music was so intertwined with the Films it became seamless with the visual presentations. I found this an interesting way to consider the difference in management and leadership.

In the NYT Corner Office section, Adam Bryant interviewed Walt Bettinger, Chief Executive Officer (CEO) of Charles Schwab Corporation, for an article entitled “You’ve Got to Open Up to Move Up”. In this article Bettinger talked about an idea rarely considered by a Chief Compliance Officer (CCO), which is the difference in leadership from management. Most CCOs are technically competent in the Foreign Corrupt Practices Act (FCPA) or other anti-corruption law. Put another way, they are technically competent at the management of a best practices compliance program. Yet they struggle not only to be seen as leaders but also to engage in leadership rather than simply managing.

Bettinger draws a sharp distinction between the two roles. He states the following: “There’s a contractual relationship with your manager. And you can do your job and fulfill the terms of that contract and never really have your heart in it.” He contrasted this with leadership, which he view as “something completely different.” He went on to note, “With leadership, you make a decision every day about whether you choose to follow someone. And you make it in your heart, not your head. The ability to inspire followership is so different than management, and it requires transparency, authenticity, vulnerability and all things that are completely unnatural to you when you are trying to build and achieve and accomplish.” Which does your employee base see you as, in your role as CCO?

As a perquisite for leadership, as opposed management, Bettinger had some interesting thoughts. He said that to be a leader, you have to open up. Moreover, you have to be vulnerable and be ready to share with people. Finally he indicated, “it was more important than anything to share with people the great failures in my life as opposed to the successes.” In other words, you have to get people to trust you.

Channeling his inner Dale Carnegie, Bettinger also spoke about the importance of learning about everyone. He gave a great example of a final exam he took in his final year of college, in a business strategies class. He was trying to maintain a 4.0 grade average and dutifully prepare for the final exam. When he got the test paper, it had one question, “What was the name of the lady who cleans this building?” Of course, Bettinger had no idea and failed the exam. It may seem harsh but it taught him a life-long lesson to know the name of that person in every position he has held since that time. Yet another difference between management and leadership.

As a final note about the difference between management and leadership, Bettinger has what can only be called an unorthodox approach regarding his approach to hiring. He said that one of the things to do is meet a candidate over breakfast. However, he gets there early and will “pull the manager of the restaurant aside, and say, “I want you to mess up the order of the person who’s going to be joining me. It’ll be O.K., and I’ll give a good tip, but mess up their order.”

He does this because he wants to see how the candidate will respond to that simple adversity. He wants to know if they will become upset, frustrated or simply deal with it in the course of the breakfast. Bettinger believes, “It’s just another way to get a look inside their heart rather than their head” because “We’re all going to make mistakes. The question is how are we going to recover when we make them, and are we going to be respectful to others when they make them?”

As a CCO you will be called on for several different roles in an organization. Certainly technical competence as a subject matter expert (SME) in your compliance program is a minimum. Yet never forget that the consumers of compliance are the company employees. The more leadership you show them, using some of the technics subscribed to by Bettinger, can be very useful to help foster that position for you going forward.

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, 2016