In this episode, I explore why Wells Fargo needs a true compliance expert on its Board of Directors. The Wells Fargo Board needs someone with compliance expertise to oversee of the role of the Chief Compliance Officer (CCO) and the bank’s compliance function which clearly was not up to the task of preventing illegal or even unethical conduct. With Board oversight of compliance, the senior executives provide the Board with a certain level of information and reporting which is an outcome of how senior management and the C-Suite has defined the compliance risk appetite.

My plea to the company is to hire someone with direct compliance experience for this final seat on the Board of Directors. While some Directors has experience in the regulatory world is very different from experience in the compliance realm which focuses on the mission, vision and values of a corporation through the tripartite process of prevent, detect and remediate. In addition to getting its regulatory house in order, Wells Fargo has one very large culture problem which needs compliance expertise. Even for a former Bank president, the issue of compliance is at the absolute forefront of Wells Fargo’s miasma.

I continue my leadership series based upon the lives of US Presidents by looking at leadership lessons from the fourth President, James Madison. Madison lived a life full enough for several people. He served as both a member of the Virginia House of Delegates and a member of the Continental Congress prior to the Constitutional Convention. After the Convention, he was one of the key leaders in the movement to ratify the Constitution, both in Virginia and across the nation. His collaboration with Alexander Hamilton and John Jay produced The Federalist Papers, among the most important treatises in support of the Constitution and still widely read today and still coming in today at Number 3 on the amazon.com best seller list of books dealing with the Constitution.

In the first Congress in 1789, Madison became the floor leader in the House of Representatives, drafting many general laws. Most significantly for the Constitution and the Country, he drafted the first ten amendments to the Constitution. For this he is known also as the “Father of the Bill of Rights.” He worked closely with President George Washington to organize the new federal government. In 1791, he and Thomas Jefferson broke with the with the Federalist Party and led the organization of the Democratic-Republican Party. In response to the Alien and Sedition Acts, Jefferson and Madison drafted the Kentucky and Virginia Resolutions, arguing that states can nullify unconstitutional laws.

From 1801–1809, he served as the third President Thomas Jefferson’s Secretary of State. In this role, he oversaw the Louisiana Purchase, which more than doubled the nation’s size. Madison succeeded Jefferson as president in 1809, was re-elected in 1812, and presided over renewed prosperity for several years. After the failure of diplomatic protests and a trade embargo against the United Kingdom, he led the US into the War of 1812. The war demonstrated that the US had neither a strong army nor financial system. As a result, Madison supported a stronger national government and military, as well as chartering the Second National Bank, after having allowed the First National Bank’s charter to lapse.

That short summary barely begins to scratch the surface of Madison’s achievements. Yet within it one can see multiple leadership lessons going forward for the CCO. An article, entitled “Lessons From The Life Of James Madison, The Father Of The U.S. Constitution”, considered five lessons from his attempts to reform the Articles of Confederation, which he considered a failure. Yet he was not able to initially convince enough states to do so. But Madison learned from this initial setback. Madison did five things which a CCO can learn from going forward.

  1. Madison drafted a new Constitution which would become the basis of the current US Constitution. Yet he did not take credit for it, giving the credit to Virginia Governor Edmund Randolph. Leadership lesson – You can actually accomplish quite a bit more if you are unconcerned with who receives the credit.
  2. Madison determined that more states would attend a Constitutional Convention if the country’s most significant figure, George Washington, attended. Madison worked quite diligently to get Washington to attend, which he was successful in doing. Leadership lesson – Draw powerful allies who others in your organization will respect.
  3. Madison recognized there would need to be a record of what was agreed to as the debates proceeded so he volunteered to act as secretary for the Convention. Leadership lesson – You must Document, Document, and Document your business process, including compliance. If you do not do so, people will not understand what their obligations are going forward. Do not forget the regulators role, if it is not documented, it never happened.
  4. Madison created a team to articulate the need for a strong federal government, as opposed to the decentralized Articles of Confederation. This increased his voice and his presence. Leadership lesson – Tone at the top does more than provide the voice of one person. It should be the tone from senior management and the Board all the way down in your organization.
  5. After the Convention, there was still the job of persuading 9 of the 13 original states to ratify the newly drafted Constitution. Here is one of the signature innovations Madison created, that being a series of newspaper articles which were collected into The Federalist Papers with Hamilton and Jay. Not only did they help to persuade a reluctant nation but they have stayed with us as some of democracy’s greatest political commentary ever. Leadership lesson – Use the tools available to you to communicate. In 1798 it was newspapers, in 2017 that means social media and other tools a millennium work force will utilize.

The leadership lessons from Madison did not end with his work on the Constitution. His presidential tenure provides several important leadership lessons for the CCO as well. Most notably was his response to the War of 1812, where he found the national army was in disarray when the conflict began and from the economic perspective, his failure to renew the charter of the First National Bank of the United States had severely impeded the government’s ability to finance the war effort.

His response to both issues demonstrated that when faced with facts on the ground which do not support your thesis or even your beliefs you need to change your program going forward. Madison did not think the US should have a standing army so allowed the army to fall into a placid state at the beginning of the crisis. From this, Madison resolved to strengthen the national army, most notably professionalizing the training of the officer corps at West Point.

The second significant issue was the First National Bank of the United States, whose charter Madison had allowed to expire in 1811. Recognizing his actions had damaged the country’s ability to pay for the War of 1812, Madison led the fight to charter the Second Bank of the United States in 1816. The Second Bank lasted until its charter lapsed under President Andrew Jackson in 1832.

Madison’s evolution on these final two issues points up a key ingredient for every CCO to be open to the think of those with whom you disagree. Madison made clear that when the situation demonstrated the ideas of others, even opponents, had merit he would incorporate their ideas and thinking into his own thinking. The Second Bank of the United States and standing military are but two examples.

Sitting here in 2017, we tend to see history through our own experience. We see Madison and the other founding fathers as a line of certainty running from the Declaration of Independence up to this day. However, in 1812 there was no certainty that the American experiment would survive. That it did continues to be a tribute to leaders like Madison who were able to adapt to circumstances to create a more perfect union of states.

 

For those interested in further exploring leadership lessons from Dunkirk, check out my podcast, 12 O’Clock High  where Richard Lummis explore the film, the history and much more on iTunes or on this site by clicking here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2017

If you have not seen it, I would suggest you go to see what I believe is the summer’s top movie, Dunkirk. It is great cinema, good history and presents the view of soldier on the ground from the English perspective. It unfolds on land, sea and air; in decreasing time frames of one week, one day and one hour. I was lucky enough to see it in glorious 70MM wide screen so the resolution was outstanding. I do not think a spoiler alert is really necessary to tell you the British managed to evacuate nearly 400,000 men from certain annihilation. It may have begun as a disastrous retreat but it ended as a glorious victory which continues to inspire Brits today. As we were leaving the theater, my wife said it made her proud to be British.

There are several leadership lessons which I believe can be learned from the British (and German) experiences at Dunkirk, which was a series of battles, campaigns and events that lasted from May 25, 1940 until June 4, 1940. Obviously, Winston Churchill was the key English political figure in this entire series of events. While most remember his stirring post evacuation speech and apparent iron will to bring the British Army home to continue the fight, as with most of history, it was more nuanced than that simple narrative. The first thing Churchill had to do was navigate a War Cabinet made up of both Tories and Labour ministers where not everyone wanted to continue the fight. Some thought only a peace treaty or negotiation with the Germans would save England from the destruction wrecked on the Continent by Hitler. Churchill was able to move the War Cabinet to a position of resistance.

A Korn Ferry Institute piece, entitled “Dunkirk: What a Military Crisis Can Teach Us”, noted, “Beyond the entertainment value, however, business leaders may find some powerful lessons on the big screen: the importance of organizational agility in the face of a sudden turn of events; being decisive in setting forth and communicating a strategy; and, most important, having the courage to step up and lead in a crisis.” The piece went on state, “Business leaders may never face a crisis of the magnitude of a military battle or the life-or-death consequences of a plane crash. But they can learn lessons from how to emerge successful from urgent and dire events.” The article quoted Gerry McNamara, who said “It takes leaders who can communicate a vision—identify the problem and ‘take a picture’ of what results look like—what success looks like when the problem is resolved”.

Brian Dodd, in his On Leadership blog post entitled “19 Leadership Quotes and Lessons from Dunkirk, provided his thoughts on some of the key leadership lessons from the entire series of events. I found several of them important and I have adapted them for any Chief Compliance Officer (CCO) going forward.

  1. Smart Leaders Understand The Value Of Partnership – “He’s on me.” “I’m on him.” – Tom Hardy was one of a three-man squadron of British fighter pilots providing air support for the British convoy sent to evacuate the troops. Of the three, one was shot down, one ditched in the Channel and Hardy’s plane ran out of gas, landed on the beach where he scuttled it and he was captured. For any CCO, you should partner with other corporate functions and disciplines to accomplish anything.
  2. Smart Leaders Always Create Options – “Many of the soldiers on boats positioned themselves with an escape route if bombed. This would allow them not to become trapped below and drown.” This is the antithesis of Elizabeth Holmes, Chief Executive Officer (CEO) of Theranos, who famously said if you have a Plan B, you have already failed. In the business world, as in combat, you must have a backup plan as the business situation is never static.
  3. Passivity Is Not a Leadership Strategy – Mr. Dawson noted, “There won’t be a home if we don’t get our men across the Channel.” This is most clearly borne out in the Department of Justice’s (DOJ’s) Evaluation of Corporate Compliance Programs (Evaluation) which focuses on the operationalization or doing compliance. As Hui Chen has noted, the Evaluation is designed to get companies to ask questions about their own compliance program and incorporate the answers into the decision-making calculus going forward.
  4. A Leader’s Greatest Ability Is Their Availability – Mr. Dawson’s son said, “We have to pick up survivors.” He then noted, “To do that we must survive ourselves.” Fortunately for the CCO the business equivalent is not so drastic. However, it does bring up the larger truth that to be successful you need to get out of the office and into the field to meet your troops, whether it be your compliance team or your employee base.
  5. It Takes Everyone To Survive Times Of Desperation – In the English version of the Alamo, hundreds of average citizens sailed their private vessels to Dunkirk to rescue soldiers and get them safely back to England. Chuck Duross once referred to the compliance profession as a company’s “Alamo” to which I gingerly responded that everyone was slaughtered at the Alamo. However, that was not true at Dunkirk and even if a company has sustained systemic compliance violations at the C-Suite level, the company can make a comeback by stepping back and following the requirements under the FCPA Pilot Program.
  6. Ordinary People Have the Capacity to Do Extraordinary Things – Ordinary people used their personal vessels to rescue the soldiers. One of the greatest parts of the Dunkirk story was the response of the ordinary Englishmen and women who responded to the call for boats. Yet these boats largely ferried men from the beaches out to large transport ships moored in deeper waters and did not ferry the men back to England. The is the role that many corporate employees can play for any compliance function, doing their jobs to operationalize compliance.

Given the sad state of current Hollywood movie-making it may not seem a stretch to be the summer’s best film. Yet Director Christopher Nolan made a devastating war film without cursing and without undue gore, all the while communicating the horrors and terror of the individual soldiers at Dunkirk. It is worth it for that accomplishment alone. But also consider it for the leadership lessons you can learn.

 

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, 2017

Jay and I return for a wide-ranging discussion on some of the week’s top compliance and ethics related stories, including:

  1. The Mattis Memo on ethics. See Tom’s blog post on why this Memo is so significant for the compliance practitioner. Also check out Matt Kelly’s blog post on Radical Compliance.
  2. More Data Security Compliance on EU Horizon. See article Mara Lemos Stein’s article in Risk and Compliance Journal in the WSJ.
  3. One of the great musicians of the 20th century died this week, Glen Campbell. Tom pays tribute in a moving blog post.
  4. Matt Kelly explores the intersection of FCPA and non-GAAP financial reporting. See Matt’s article in Radical Compliance.
  5. Jay asks if FCPA defenses counsel are becoming to whiny, based upon an article in GIR (sub req’d) by Jenner & Block lawyers, David Bitkower and Nicholas Barnaby and associate Marguerite Moeller entitled, “DOJ must beware unintended consequences, as multilateral settlements rise
  6. Everything Compliance, Episode 16 is out. It is our first book review episode. We consider Jesse Eisinger’s book the Chickenshit Club. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra. Eisinger and key book source Paul Pelletier have agreed to come on the FCPA Compliance Report to discuss the book next month.
  7. This month’s podcast series on One Month to a More Compliance Program has premiered. In August I review how to have greater continuous improvement in your compliance program. Affiliated Monitors is this month’s sponsor. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTube and JDSupra.
  8. Tom surpasses 2000 blog posts. See his blog post on surpassing 2000 blogs posts here.
  9. Jay discusses his Weekend Report, And you may ask yourself, well How did I get here?

Alan Peckolick, died last week. According to his obituary in the New York Times, he “overcame a failed art school career to emerge as a leading designer of some the world’s most distinctive logos”. In an interview with the Huffington Post, he said, “Basically, for me, if a word was a beautiful word, it wasn’t the sound of the word that intrigued me but the look of the word. I saw each letterform as a piece of design. Cat is not ‘cat’ — it’s c-a-t. That’s what led to the beginning of the expressive topography.” And expressive it was, serving a multiple of visual senses.

I thought about Peckolick and his work when I recently visited with Vincent DiCianni, President and Founder of Affiliated Monitors, Inc. and Eric Feldman, Senior Vice President (SVP) and Managing Director, Corporate Ethics and Compliance Programs also at Affiliated Monitors, Inc. about voluntary monitoring. One of the insights I gained was achieving multiple and intersecting compliance goals through voluntary monitoring. These are the goals laid out in the 2012 FCPA Guidance and Department of Justice’s (DOJ’s) Evaluation of Corporate Compliance Programs (Evaluation) as both continuous improvement and analysis and remediation of non-compliant conduct under the Foreign Corrupt Practices Act (FCPA).

According Feldman, voluntary monitoring is an approach where a company “uses the services of an independent monitor in order to find out how their program is working and to be able to use that data with government regulators and law enforcement to demonstrate their due diligence in creating and continuously improving their corporate ethics and compliance program.” There are at least two different types of voluntary monitoring. Feldman articulated the first as “reactive proactivity” which is the situation where a company determines it has a potential compliance violation and they bring in an independent monitor to address the issue.

The genesis for this type of monitoring is some event, such as a whistleblower report, internal report or investigation or detect control picking up information which warrants additional investigation. Feldman provided a couple of examples. The first might be “where one business unit has a problem and they’re worried about the other business units and they want to get an assessment.” Another situation could be there is a problem in a sector or “industry and they know that that industry is being scrutinized by law enforcement or the regulators and they fully expect the regulators or law enforcement to be coming in and looking at them.” Yet another area could be in a geographic area such as China or another high-risk region.

DiCianni noted there is a second type of voluntary monitorship. It is where a company wants a true independent “to come in to test the quality of the program to see how impactful” the company’s compliance program is operating. It could assess a variety of issues, such as the compliance internal controls to test their benchmarking of a company’s compliance program. In this type of voluntary monitorship, the examiner is not focusing on one issue or region as laid out in the first example but it is broader.

Moreover, it allows a true independent to perform the assessment as DiCianni noted, “it’s very difficult for companies and for compliance officers and their teams to self-assess the strength of their programs. They just have difficulty doing that. It’s just not an easy thing for them to get their hands on, how good a job am I doing? By having an independent come in with no skin in the game, with complete objectivity, neutrality, no judgements, or pre-judging the work, looking at the company’s program, the quality of the program, the makeup of the team, the organizational structure, where it’s placed. All of those kinds of things are parts of this voluntary approach.” 

The benefits of both types of voluntary monitoring are multifold. It certainly helps to meet the Control Testing requirement found in the Evaluation. The 2012 FCPA Guidance stated, “An organization should take the time to review and test its controls, and it should think critically about its potential weaknesses and risk areas.” This type of approach can provide benefits if a company finds itself in FCPA hot water, as both the DOJ and Securities Exchange Commission (SEC) “will give meaningful credit to thoughtful efforts to create a sustainable compliance program if a problem is later discovered. Similarly, undertaking proactive evaluations before a problem strikes can lower the applicable penalty range under the U.S. Sentencing Guidelines.” Yet the Guidance intones a business reason for the use of such techniques as voluntary monitoring when it stated, “Although the nature and the frequency of proactive evaluations may vary depending on the size and complexity of an organization, the idea behind such efforts is the same: continuous improvement and sustainability.”

Feldman pointed out yet another reason for such a proactive approach. It can create an administrative record, which a company can use to demonstrate it has remedied the problems. Equally important it establishes the company is maintaining its commitment to doing business in compliance. The key is the independence of the monitoring personnel so they can present an accurate, unbiased opinion.

He presented the example of a company which had been debarred by the US government and needed to demonstrate an acceptable level of compliance to get off the debar list. He and his team performed a baseline assessment and from there developed a remediation plan, which the company implemented. After six months or so, he and his team came back to assess the progress made by the company. From this follow-up assessment, they generated a report which was used in a submission to the government which essentially noted, “We are now ready to be a responsible contractor as defined by the federal acquisition regulations and we propose an administrative agreement with continued monitored that would move it from voluntary monitoring over to mandatory monitoring for the next three years.”

Voluntary monitoring is an excellent technique through which a company can engage in continuous improvement. Nonetheless it has many other benefits as well, including regulatory and evidence in a criminal investigation if needed under anti-corruption laws such as the FCPA. The bottom line is that all those scenarios might justify a company to engage a voluntary monitorship to come in and do a complete ethics and compliance and cultural assessment or audit of their organization.

 

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, 2017