IMG_0833One of the things any Chief Compliance Officer (CCO), or indeed any business leader, must manage is team conflict. In a recent Harvard Business Review (HBR) article, entitled “How to Preempt Team Conflict”, Ginka Toegel and Jean-Louis Barsoux reported on their study of team conflict. The article posits that team conflict can erupt not solely from the differences in opinion of disparate corporate disciplines but also from “perceived incompatibility in the way different team members think.” In other words, it is about the process and not about the content. (I am sure about now my process analyst wife is thinking, as I told you many times…) To remedy this problem, the authors promote a five step approach which considers how team members “look, act, speak, think and feel, to immunize the team against unproductive conflict when the pressure is on.”

The authors believe that leaders should allow team members to meet and engage in ‘five conversations’ around these areas. Through these conversations, they believe leaders can identify areas of potential friction, which might arise when the pressure is on the group. By getting these areas out into the open before the pressure hits, they believe the “teams establish a foundation of trust and understanding and are able to set ground rules for effective collaboration.” The five areas can be broken down as follows:

Look: Spotting the Difference

The authors believe that team members often have reactions “triggered by differences in the way people present themselves” so the goal of this discussion is to have “team members reflect on how they intend to come across to others—and how they actually do.” This can be as broad as dressing in a suit where the atmosphere is business casual to a lawyer using literary references in a technical software or engineering meeting.

The authors suggested this conversation could be facilitated with some of the following questions:

In your world…

  • what makes a good first impression? A bad one?
  • what do you notice first about others (dress, speech, demeanor)?
  • what does that make you think about them (rigid, pushy, lazy)?
  • what intangible credentials do you value (education, experience, connections)?
  • how do you perceive status differences?”

Act: Misjudging Behavior

It is almost axiomatic that “on diverse teams, clashing behavioral norms are a common source of trouble.” This prong can include issues as broad as personal space to being punctual and respectful of the group’s time. Equally, it can be such things as keeping the group on a tight schedule or building in flexibility for project direction changes. Here you can simply think of the difference manner in which an American, German, South Korean and Saudi Arabian (and anywhere in between) might act. The authors conclude, “It’s important to establish team norms around all these behaviors up front to avoid unnecessary antagonism.”

The authors suggested this conversation could be facilitated with some of the following questions:

In your world…

  • how important are punctuality and time limits?
  • are there consequences of being late or missing deadlines?
  • what is a comfortable physical distance for interacting in the workplace?
  • should people volunteer for assignments or wait to be nominated?
  • what group behaviors are valued (helping others, not complaining)?”

Speak: Dividing by Language

Unfortunately for Mr. Translations, this section does not mean you need to employ a translation service but it does recognize that different cultures use different communication styles. The authors recognize that even native speakers of the same language can have differences in the way they express themselves. Yet when your team consists of a wide variety of cultures, this effect can be magnified. The authors note that “depending on context, culture, and other factors, “yes” can mean “maybe” or “let’s try it” or even “no way.”” Moreover, “even laudable organizational goals can engender troublesome communication dynamics.”

The authors suggested this conversation could be facilitated with some of the following questions:

In your world…

  • is a promise an aspiration or a guarantee?
  • which is most important: directness or harmony?
  • are irony and sarcasm appreciated?
  • do interruptions signal interest or rudeness?
  • does silence mean reflection or disengagement?
  • should dissenting views be aired in public or discussed off-line?
  • is unsolicited feedback welcome?”

Think: Occupying Different Mindsets

As a recovering lawyer and the son of an engineer, I can certainly appreciate the differences in a legal approach from an engineering perspective. The authors do as well, writing, “Perhaps the biggest source of conflict on teams stems from the way in which members think about the work they’re doing. Their varied personalities and experiences make them alert to varying signals and cause them to take different approaches to problem solving and decision making. This can result in their working at cross-purposes. As one executive with a U.S. apparel company noted: “There is often tension between the ready-fire-aim types on our team and the more analytical colleagues.””

The authors cited to two separate examples of how this gulf was breached. In the first example the leadership of a team was rotated to align with the phase of the project so that “During the more creative and conceptual phases, the free-thinkers would be in charge, while analytical and detail-oriented members would take over evaluation, organization, and implementation activities.” In a second example, involving scientists and executives in a biotech company, “a facilitator used role play to help the two groups better understand each other’s perspective.”

The authors suggested this conversation could be facilitated with some of the following questions:

In your world…

  • is uncertainty viewed as a threat or an opportunity?
  • what’s more important: the big picture or the details?
  • is it better to be reliable or flexible?
  • what is the attitude toward failure?
  • how do people tolerate deviations from the plan?” 

Feel: Charting Emotions

Often there will be a wide variation in the way team members convey emotions and even passion and how they manage these same emotions. This can be true for both positive, including enthusiasm, and negative emotions, such as venting or even keeping thing bottled up for too long. The authors noted, “The tendency to signal irritation or discontent indirectly—through withdrawal, sarcasm, and privately complaining about one another—can be just as destructive as volatile outbursts and intimidation. It’s important to address the causes of disengagement directly, through open inquiry and debate, and come up with ways to disagree productively.”

The authors suggested this conversation could be facilitated with some of the following questions:

In your world…

  • what emotions (positive and negative) are acceptable and unacceptable to display in a business context?
  • how do people express anger or enthusiasm?
  • how would you react if you were annoyed with a teammate (with silence, body language, humor, through a third party)?”

This article provides solid guidance for the CCO or any business leader on not only how to anticipate conflict but concrete steps to head it off. The author’s conclude by noting that a benefit of these five conversations is that, “We’ve found that they include greater participation, improved creativity, and, ultimately, smarter decision making.” If you can achieve this on any project involving any corporate team, you have achieved something significant.

 

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

Innovation 2I continue my Innovation in Compliance series today by discussing “superforecasting” and its use by a compliance function. Imagine that as a Chief Compliance Officer (CCO), you could create a team which might well dramatically improve your company’s forecasting ability, but to do so you would be required to expose just how unreliable the professional corporate forecasters have been? Could you do so and, more importantly, would you do so? I have been thinking about that question quite a bit as I have researched the area of superforecasting. Most generally this is the predictive capability that organizations have used. However, the new “superforecasting” movement, led by Philip E. Tetlock and others, has been gaining strength to help improve this capability.

The concepts around superforecasting came of age after the intelligence failures leading up to the Iraq War. This led to the founding of the Good Judgment Project, which had as key component a multi-year predictive tournament, which was a series of gaming exercises pitting amateurs against professional intelligence analysts. The results of the Good Judgment Project was presented in a recent Harvard Business Review (HBR) article, by Tetlock and Paul J. H. Schoemaker, entitled “Superforecasting: How to Upgrade Your Company’s Judgment”. The authors had three general observations. First “talented generalists can outperform specialists in making forecasts.” Second, “carefully crafted training can enhance predictive acumen.” Third, “well-run teams can outperform individuals.”

To move to superforecasting, the authors laid out four precepts. The first is to find the sweet spot, which is somewhere between predictions that are “entirely straight-forward or seemingly impossible.” They note the sweet spot “that companies should focus on is forecasts for which some data, logic, and analysis can be used but seasoned judgment and careful questioning also play key roles. Predicting the commercial potential of drugs in clinical trials requires scientific expertise as well as business judgment.” I find the same to be true in compliance where “Assessors of acquisition candidates draw on formal scoring models, but they must also gauge intangibles such as cultural fit, the chemistry among leaders, and the likelihood that anticipated synergies will actually materialize.”

Next is to train for good judgment. This requires employees to learn the basics in such techniques as probability concepts, the definition of what is to be predicted and an understanding of numerical probabilities. As cognitive biases are widely know to skew judgment, companies need to raise awareness for this issue to arise. Finally, training to understand the psychology behind such biases narrowed predictive domains.

Next is to build the right kind of teams. The initial thing to realize is the importance of the composition of the team. The authors found that “cautious, humble, open-minded, analytical – and good with numbers. In assembling teams, companies should look for natural forecasters who show an alertness to bias, a knack for sound reasoning, and a respect for data.” Equally critical is that the “forecasting teams be intellectually diverse. At least one member should have domain expertise (a finance professional on a budget forecasting team, for example), but nonexperts are essential too – particularly ones who won’t shy away from challenging the presumed experts. Don’t underestimate these generalists.” Clearly your compliance superforecasting team should draw from the diversity within your organization not only in discipline but in temperament as well.

After the composition is considered, the authors move to “diverging, evaluating and converging.” The authors suggest “a successful team needs to manage three phases well: a diverging phase, in which the issue, assumptions, and approaches to finding an answer are explored from multiple angles; an evaluating phase, which includes time for productive disagreement; and a converging phase, when the team settles on a prediction. In each of these phases, learning and progress are fastest when questions are focused and feedback is frequent.”

The final component of composition is trust as there must be trust among your team members to facilitate good outcomes. This might also be understood that if the superforecasters demonstrate the errors or miscalculations of others in the firm, not only will they be protected by senior management but their work will be defended. The authors note, “Few things chill a forecasting team faster than a sense that its conclusions could threaten the team itself.”

You then have to “track performance and give feedback” as the authors believe that it is essential to track the prediction outcomes and provide timely feedback to improve forecasting going forward. This also has the added benefit of providing an audit trail so that a company can learn from both the good and bad predictions. This leads to the authors’ next insight, which, in the process, is critical.

Such a feedback loop in the compliance sphere could lead to some of the following questions being posed: What information might others have that you don’t that might affect the compliance risk? What cognitive traps might skew your judgment on this transaction or risk? Why do you believe the company can safely navigate this compliance risk?

Answers to these and other questions can provide insight into not only the specific prediction but also the process by which a team moved forward so that it can be replicated, as appropriate, in the future. Conversely, as the authors write, “Well-run audits can reveal post facto whether forecasters coalesced around a bad anchor, framed the problem poorly, overlooked an important insight, or failed to engage (or even muzzled) team members with dissenting views. Likewise, they can highlight the process steps that led to good forecasts and thereby provide other teams with best practices for improving predictions.”

Like any innovation, there must be a commitment from management on moving forward. There must be data available both internally and research conducted externally with auditable trails on judgments, underlying assumption and data sources. The keys to success include frequent precise predictions and measuring accuracy of predictions for comparison with real-world events. Nevertheless, such an exercise might well be exactly what a compliance function should do going forward. Take the Italian energy company, ENI that has made a huge bet on production out of the African continent. If the company had a solid predictive basis for the risks involved, it could not only assess those risks but also more accurately manage them. It might give the company enough information to take such a seemingly risky business move, when the prediction shows the risk was lower than the ‘experts’ said. Yet the authors end on this note, “But companies will capture this advantage only if respected leaders champion the effort, by broadcasting an openness to trial and error, a willingness to ruffle feathers, and a readiness to expose “what we know that ain’t so” in order to hone the firm’s predictive edge.” It must be so.

 

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

John David CrowJohn David Crow died Wednesday. Until Johnny Football, he was the only football player from Texas A&M University to win the Heisman Trophy. He played under the legendary Paul ‘Bear’ Bryant at A&M and for all of Bryant’s success, Crow was the his only player to win the award given annually to the nation’s best collegiate football player. Crow had a productive professional football career making the Pro-Bowl four times. He was also the Athletic Director at A&M from 1989 to 1993. So here’s to John David Crow, one of the Junction Boys and one of the greatest players in the history of Texas A&M. Finally, let me say something I almost never say, Gig ‘Em, John David.

I thought about John David Crow and his legacy of greatness when I read an article in the June issue of the Harvard Business Review (HBR), entitled “You Need an Innovation Strategy”, by Gary P. Pisano. While Pisano’s article dealt more generally with innovation in marketing, I found it highly relevant for the Chief Compliance Officer (CCO) or compliance practitioner, particularly in the context a Foreign Corrupt Practices Act (FCPA) compliance program. Earlier this week, the Department of Justice (DOJ) announced the resolution of a FCPA investigation involving IAP Worldwide Services, Inc. (IAP) via a Non-Prosecution Agreement (NPA). In the NPA, the company committed to implementing and enhancing a best practices FCPA compliance program. Listed at element 18 of its compliance program is the following: “The Company will conduct periodic reviews and testing of its anti-corruption compliance code, policies, and procedures designed to evaluate and improve their effectiveness in preventing and detecting violations of anti-corruption laws and the Company’s anti-corruption code, policies, and procedures, taking into account relevant developments in the field and evolving international and industry standards.”[Emphasis supplied]

This means that the DOJ expects innovation in your compliance program to keep up with evolving international and industry standards. This requires you to implement an innovation strategy. While Pisano’s article does not specifically focus on compliance, I found that its concepts would help a CCO or compliance practitioner sustain the mandate for innovation in a compliance regime. Pisano’s article begins by stating the problem that many companies face is that “innovation remains a frustrating pursuit.” While acknowledging that failure to execute is an issue, Pisano believes the issue is deeper than simply a failure to execute, he believes there is a “lack of an innovation strategy.”

I found some of his basic definitions most useful for the compliance practitioner to think through innovation in the compliance function. Pisano wrote, “A strategy is nothing more than a commitment to a set of coherent, mutually reinforcing policies or behaviors aimed at achieving a specific competitive goal. Good strategies promote alignment among diverse groups within an organization, clarify objectives and priorities, and help focus efforts around them. Companies regularly define their overall business strategy (their scope and positioning) and specify how various functions – such as marketing, operations, finance, and R&D – will support it. But during my more than two decades studying and consulting for companies in a broad range of industries, I have found that firms rarely articulate strategies to align their innovation efforts with their business strategies.”

The key to success is something that every CCO or compliance practitioner should take to heart. Paraphrasing Pisano for the compliance practitioner is that the compliance function “should articulate an innovation strategy that stipulates how their [compliance] innovation efforts will support the overall business strategy.” Moreover, “creating an innovation strategy involves determining how innovation will create value for customers [of compliance, i.e. Employees], how the company will capture that [compliance] value, and which types of [compliance] innovation to pursue.”

Pisano posed several questions around this key area of connecting innovation to strategy. Initially he asked, “How will innovation create value for potential customers?” In my formula, customers become employees or others who will make use of your compliance innovation going forward. Here you should focus on the benefit for your end-using customer. Your innovation can make compliance faster, easier, quicker, more nimble and so on. But focus on that creation of value going forward. Pisano’s next question was “How will the company capture a shore of the value its innovations generate?” He suggests companies think through how to “keep their own position in the [compliance] ecosystem strong” through innovation. Pisano next asked, “What types of innovation will allow the company to create and capture value, and what resources should each type receive?” Here Pisano notes two major forms of innovation equally applicable to the CCO or compliance practitioner. They are a change in technology and a change in a business process. Both are equally valid.

Another problem that Pisano addresses is termed “overcoming prevailing winds” and this means that innovation can be driven downward or backward if there is not sufficient management support. This means not only must there be sufficient resource allocations but management must also incentivize the business units to proceed with implementing the innovations, particularly “when an organization needs to change its prevailing patterns.”

Another area Pisano addresses is “managing trade-offs” because it is inherent in any innovation strategy that there will be trade-offs. Here he terms the two key differences as “supply-push” and “demand-pull”. The supply-push approach comes when your innovation is focused on something that does not yet exist, for example if you are initially implementing a FCPA compliance regime. The demand-pull approach works more closely with your existing customer base to determine what they might need and work to implement innovation around those needs.

Interestingly Pisano ends his article with a discussion about “the leadership challenge”. I say interestingly because I would have thought that was required up front as it is the function of senior management to create the capacity for innovation in the first instance. Pisano writes, “There are four essential tasks in creating and implementing an innovation strategy.” Task 1 is to “answer the question “How are we expecting innovation to create value for customers and for our company?” and then explain that to the organization.” Task 2 “is to create a high-level plan for allocating resources to the different kinds of innovation.” Task 3 is “to manage trade-offs. Because every function will naturally want to serve its own interests, only senior leaders can make the choices that are best for the whole company.” Finally, task 4 dovetails with what almost every DOJ/SEC speaker I have ever heard say when they talk about the basics of any best practices compliance program. It is that “innovation strategies must evolve. Any strategy represents a hypothesis that is tested against the unfolding realities of markets, technologies, regulations, and competitors. Just as product designs must evolve to stay competitive, so too must innovation strategies. Like the process of innovation itself, an innovation strategy involves continual experimentation, learning, and adaptation.”

Pisano’s article provides the CCO or compliance practitioner with a framework to think through to help bring the innovation to a compliance program. I would have put leadership first, both in the compliance department and at senior management level. But however you go about it, you must recognize that your compliance program will have to evolve. That is one of the key differences between those who advocate static compliance standards embodied in a written compliance program and those who advocate that it is Doing Compliance that creates an active, vibrant and effect compliance program.

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, 2015

Hound of the BaskervillesToday we honor Conan Doyle’s third Sherlock Homes novel, The Hound of the Baskervilles. The novel, originally serialized in The Strand from 1901 to 1902, is generally recognized by Sherlockians as the premier Doyle work regarding his fictional detective. Interestingly, Bertram Fletcher Robinson, a 30-year-old journalist, assisted Doyle with the plot for this novel.

Doyle’s idea for the story derived from the legend of Richard Cabell, which was a tale of a hellish hound and a cursed country squire. Squire Cabell was a hunting man and who was described as a “monstrously evil man”. He had a reputation “for, amongst other things, immorality and having sold his soul to the Devil. He was also alleged to have murdered his wife. As the story goes, Cabell was laid to rest in ‘the sepulchre’, but night of his interment saw a phantom pack of hounds come baying across the moor to howl at his tomb. From that night onwards, he could be found leading the phantom pack across the moor, usually on the anniversary of his death. If the pack were not out hunting, they could be found ranging around his grave howling and shrieking. In an attempt to lay the soul to rest, the villagers built a large building around the tomb, and to be doubly sure a huge slab was placed. To add good measure, the folklore of the county where the tale occurs, Devon, includes tales of a fearsome supernatural dog known as the Yeth hound.”

The Hound of the Baskervilles was a tale that appeared to have supernatural implications. Yet, upon closer examination, a more temporal solution was determined. I thought of this novel when reading the article entitled “Build an Innovation Engine in 90 Days” by Scott D. Anthony, David S. Duncan and Pontus M. A. Siren in the December 2014 issue of the Harvard Business Review (HBR). I found their insights quite useful for the Chief Compliance Officer (CCO) or compliance practitioner who might be faced with implementing or enhancing a compliance solution for an organization as the authors’ insights could also be used to help a CCO or compliance practitioner move a compliance function down into the DNA of an organization to make compliance a more standard process for doing everyday commercial operations.

The authors recognize that innovative ideas get brought to the marketplace often through “individual heroism and a heavy dose of serendipity” but companies need a mechanism to “make the process more reliable and repeatable without making major organizational changes.” To do so, they suggested a solution they call the “minimum viable innovation system” which can bring an innovation to fruition within 90 days. I have adapted their system for the compliance function.

Day 1 To 30 – Define Your Innovation Buckets

Initially the authors note that innovations can either be inward or outward facing. “In one are innovations that extend today’s business, either by enhancing existing offerings or by improving internal operations. In the other are innovations that generate new growth by reaching new customer segments or new markets, often through new business models.” This is also true in the compliance function as your compliance program relates to your own internal clients, customers and your third parties. It all begins with two steps (1) Determine between compliance goals and current operations; and (2) determine broad categories of compliance solutions which could fill that gap. If your gap is large, you might sub-divide your compliance efforts so that “you can map them to different directions for future [compliance] growth.” Per the authors recommendations you probably should not take on more than three as an initial effort.

Day 20 To 50 – Zero in on a Few Strategic Opportunity Areas

In this time frame, the authors believe that you meet with your customer base to “probe unmet needs”. As one class of your compliance customers will be your internal employee base, you can use a wide number of mechanisms to accomplish this, including town meetings, compliance focus groups or meetings with individual employees. You should also look outside your company by engaging in benchmarking through investigation on new developments in your industry and in the compliance space. This is also a time when you can best use big data through an appropriate data analytic approach to spots trends in your organization that might present opportunities for compliance innovation.

You should synthesize this down and the authors recommend the following, “lock the members of the senior leadership team in a room for an afternoon, share the findings, and instruct them not to leave until they have identified three strategic opportunity areas that each combine the following”: (1) A compliance function that no one is addressing very well; (2) Enable a technological solution that will enable your business unit to perform a compliance function much more easily, cheaply, or conveniently, or a change in the compliance landscape that is greatly intensifying the need for that job; and (3) Incorporate some special capability of your company that will give you an advantage in seizing this compliance opportunity.

Day 20 To 70 – Form a Small Dedicated Team to Develop the Innovations

Here the authors suggest three steps. First, dedicate a handful of the company to developing the compliance innovations. Second, work with the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) to eliminate “zombie” compliance projects. Third is to develop a process checklist.

Everyone in a corporation has a day job. This is particularly true for a CCO or compliance practitioner. While there is no need for your compliance innovation team to be particularly large, the authors suggest that it have the capability “to handle at least two ideas once, since there will be inevitable course corrections and failure.” The authors define zombie projects as “walking undead that shuffle along slowly but aren’t headed anywhere.” Their reference hails to both the elimination of the AMC show The Walking Dead and the zombie banks from the Japanese financial crisis of the 1990s. The reference to the AMC television offering is that these projects are dead on arrival for a variety of reasons. The reference to the Japanese financial crisis is that because as long as these zombie projects exist, they will consume compliance innovation resources. Here the authors suggest identifying and deleting projects that hare neither core nor strategic.

Developing a checklist is a critical process step because it requires you to create a protocol to make sure you do not omit any critical step throughout the process. In order to develop this checklist, the authors suggest asking the following questions. (1) Is your compliance innovation team “spearheaded by a small, focused team of people who have relevant experience or are prepared to learn as they go?” (2) Has your compliance innovation team spent enough time directly with your business function to develop an understanding of what they can use going forward? (3) Was appropriate benchmarking performed? (4) Has your compliance innovation team defined the internal customer(s) and paths for reaching others? (5) Is your compliance innovation team’s idea “consistent with a strategic opportunity area in which the company has a compelling advantage?” (6) Does your compliance innovation team have a plan for testing? Does each test have a clear objective, a hypothesis, specific predictions, and a tactical execution plan?

Day 45 To 90 – Create a Mechanism to Shepherd Projects

During this time frame, the authors suggest two major goals for oversight. First is that the CCO needs to select and train compliance leaders to oversee the innovation team and to establish oversight rules. The group of compliance leaders who will have the autonomy to make decisions about starting, stopping, or redirecting compliance innovation projects. You should take care not to simply replicate the current executive committee, because if you do, it will be too easy for group members to default to their corporate-planning mindset or to let day-to-day business creep into discussions about compliance innovations meant to fulfill long-term goals.

The authors turned to the world of Venture Capital (VC) funding to help this group work on compliance initiatives. (1) There can be disagreement about which projects to move forward, your committee does not require unanimity. (2) The group should set a threshold monetary level that the project team(s) can spend without having to come back for every funding request. (3) Your compliance innovation projects should not be locked into a 3/6 month or other budget cycles. It may take time but when the time for review or a GO/NO GO decision to be made the oversight team needs to be ready to convene and make a decision. From this point you should be ready to pressure test your compliance innovation.

The authors’ formulation is an excellent way for a CCO or compliance practitioner to think through the process to design and create innovation in your compliance function. Just as Holmes methodically worked through the clues in front of him (and some behind him) in the The Hound of the Baskervilles you can use this protocol to assist you moving 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, 2014

 

 

 

 

Sign of FourToday we honor Conan Doyle’s second Sherlock Homes novel, The Sign of Four. The novel was published in 1890 but the story is set in 1888. The story entails a complex plot involving service in East India Company, India, the Indian Rebellion of 1857, a stolen treasure, and a secret pact among four convicts and two corrupt prison guards. It presents the detective’s drug habit and humanizes him in a way that had not been done by Doyle to-date. It also has a rather happy ending as it introduces us to Dr. Watson’s future wife, Mary Morstan to whom he proposes at the end of the novel.

The Sign of Four was an intricate tale with many strands woven throughout. I thought of this novel when reading the article entitled “Leading Your Team into the Unknown” by Nathan Furr and Jeffrey H. Dyer in the December 2014 issue of the Harvard Business Review (HBR). I found their insights quite useful for the Chief Compliance Officer (CCO) or compliance practitioner who might be faced with implementing or enhancing a compliance solution for an organization. But equally interesting, were that the authors’ insights could also be used to help a CCO or compliance practitioner help move a compliance function down into the DNA of an organization to make compliance a more standard process for doing everyday commercial operations.

The authors posit that “Innovation is at heart a process of discovery, and so the role of the person leading it is to set other people down a path, not to short-circuit it by jumping to a conclusion right at the start. To lead innovation, you don’t have to be the next Steve Jobs, nor do you need to guess the future. Rather, you must carve out the mental space within which the innovation process can be carried out. How? First, by setting the expectation that innovation will push boundaries. Fashion designers often include very bold designs in their lines to inspire customers to try more-flamboyant styles. . .You need not go so far. You can push boundaries just as dramatically by demonstrating a willingness to reimagine some of your organization’s most fundamental assumptions about products, customers, and business models.”

For the CCO or compliance practitioner, I think this means that innovation in the compliance function requires a different approach to leadership than the standard command and control or even collaborative approach. For a successful CCO or compliance practitioner this is accomplished by leading compliance integration into the DNA of a company through example and not simply dictated. The authors suggest, “by asking questions rather than making decisions; clearing a path to the unknown for the innovative team rather identifying the end goal; and give people the right kind of time, the right constraints and the right tools” to come up with a solution. I found the authors implications for such an approach appropriately inspiring, “Innovative leaders can create a sustainable competitive advantage not through superiority of a particular invention but by creating an organization that can learn from mistakes faster, more efficiently and more consistently than competitors do.”

The authors provide what they call “A Comprehensive Approach to Innovation” which I have adapted for the CCO or compliance practitioner to facilitate innovation in the compliance function. It consists of four steps. 

  1. Generate Insights. The authors state, “Use questioning, observational, and networking skills to search far and wide for broad insights into problems that may be worth solving.” As a CCO or compliance practitioner, you can push compliance boundaries just as dramatically by demonstrating a willingness to reimagine some of your organization’s most fundamental assumptions about products, customers, and business models. But it means getting out there and seeking input from those outside your direct compliance function.
  1. Identify an Important Problem. Here the authors recommend “Through direct observation look for an unsolved problem or an unfilled emotional or social need that enough people have for the opportunity to be worth pursuing.” This also means giving your team an opportunity to synthesize the issues. You will need to dedicate both resources and time for the process to run its course. I recognize that all corporate employees have a day job so you will need to set aside specific time for such issue identification. In addition to providing resources and time, you will need to provide your innovation team support by removing the inevitable organizational barriers, which will be thrown up in their path.
  1. Develop the Solution. The authors advocate constructing prototypes so rather than building a complete compliance solution, quickly construct a set of simple prototypes of many different compliance tools. For each, start with a theoretical example, if that looks promising internally, move to a virtual prototype to test throughout a pre-selected business unit or process. Start with a visual representation, which could be just a drawing; next move to testing a minimum viable prototype with internal consumers of the compliance solution through the simplest, quickest physical version of the offering you can devise. Finally, pilot test the full-blown compliance solution with a wider audience, including trusted and integral third parties to your organization.
  1. Devise the Business Model. Finally, the authors note that once you have worked out the offering, apply the same experimental approach to developing and testing the components of the business model, including approaches to implementation. They suggest that there are three values to such an approach. The first is that you will have generated “insight value-that is, the insight into the unknown that comes from reducing uncertainty.” The second is “option value-the option upon resolving an unknown, to pursue, alter, or abandon a course of action.” The third is “strategic value” which is both the value derived by your internal compliance consumers but also that of all the knowledge you will have gained throughout the course of the project; what worked and what did not work and, more importantly, why.

As a lawyer who moved into compliance, I initially thought that anti-corruption compliance was a function of telling everyone the rules and having them followed. Some companies are still at this stage of compliance. However, if there is one over-riding theme that the Department of Justice (DOJ) has communicated over the years it is that your compliance function needs to constantly evolve. It certainly must evolve as the corruption risks your company encounters develop but also it should also mature as your compliance program grows and becomes more ingrained in your organization. Innovation is not a concept that comes naturally to lawyers who are generally trained to study the past (i.e. read case law precedent) and apply it going forward. The idea of innovation simply does not jive with what many believe should be a static list of rules and regulations that businesses should operate under. However, as compliance moves into its next phase and becomes the best practice of a well-run business, innovation will become more of a focus.

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, 2014