Blackie SherrodBlackie Sherrod died last week. To any reader of sports pages across the nation and most particularly in Texas, Sherrod was about as good as it got. For me, he was right up there with Red Smith, Frank DeFord and Shirley Povich as one of the greatest sports writers of the second half of the 20th Century. His columns on the Dallas Cowboys in the 1960s and 1970s were truly pieces of art to be marveled at when savoring. He also had the good sense to hire Dan Jenkins and Bud Shrake as young sportswriters.

I thought about Sherrod when I read a recent article in the Harvard Business Review (HBR), entitled “Making Exit Interviews Count, authors Everett Spain and Boris Groysberg assert that exit interviews, when conducted with care, can be a very useful tool in two important areas: to increase employee engagement, to reveal what may not be working in the organization.

The authors believe that exit interviews can provide insight into what employees are thinking, reveal problems in the organization, and shed light on the competitive landscape. They believe that companies should focus on six goals in their exit interviews, that there must be an emphasis in both “tactics and techniques” and, finally, that the process is a continuing conversation.

I.      Overall Goals

  1. Uncover issues relating to HR. The authors find organizations “that conduct exit interviews almost always pursue this goal but often focus too narrowly on salary and benefits.” The problem with this approach is that salary concerns are not usually what drives employees to seek employment elsewhere. It is almost always something else. The article stated, “One leader from a food and beverage company told us that exit interviews inform his company’s succession planning and talent management process.”
  1. Understand employees’ perceptions of the work itself. Here the authors require that the person conducting the exit interview understand the departing employee’s job design, working conditions, culture, and peers. By understanding and questioning the employee on this information, the exit interview “can help managers improve employee motivation, efficiency, coordination, and effectiveness.”
  1. Gain insight into managers’ leadership styles and effectiveness. Leadership style is an important reason many employees depart for greener pastures. By inquiring into and understanding this dynamic, an organization can begin to “reinforce positive managers and identify toxic ones. One executive at a major restaurant chain told us that several exit interviews she’d recently conducted revealed that micromanagement was a big problem. The conversations, she said, “led to some very tangible outcomes,”” such as establishing training and development initiatives to create better managers.”
  1. Learn about HR benchmarks (salary, benefits) at competing organizations. While salaries and compensation packages are usually not the driver of departures, they certainly do play a role. You should use the exit interview to do some benchmarking. The authors cited to a HR executive at a global food and beverage who noted, “We use exit interviews to see how competitive we are against other employers: time off, ability to advance, different benefits, and pay packages. And we want to see who is poaching our people.”
  1. Foster innovation by soliciting ideas for improving the organization. The authors believe that exit interviews should go beyond the departing employee’s “immediate experience to cover broader areas, such as company strategy, marketing, operations, systems, competition, and the structure of his or her division.” They cite as one “emerging best practice is to ask every departing employee something along the lines of “Please complete the sentence ‘I don’t know why the company doesn’t just ____.’” This approach may reveal trends which can be incorporated into future innovations.”
  1. Create lifelong advocates for the organization. I found this one perhaps the most innovative, yet in many ways the most basic, which is of course to treat departing employees with dignity, respect and gratitude. Such treatment at departure may well encourage departing employees to recommend their former companies to potential employees, to use and recommend the companies’ products and services, and to create business alliances between their former and new employers. The authors cite to one North American financial services executive for the following, “You want [a departing employee] to leave as an ambassador and customer.”

II.     Tactics and Techniques

The authors believe that leaving such exit interviews simply to the Human Resources (HR) function is too simplistic an approach because “this approach marginalizes the process and suggests that it is an operational duty rather than a strategic opportunity. Human resources may administer the program day to day, but it is imperative that the right line leaders participate in the interviews and that the executive committee oversees the program’s design, execution, and results.”

The authors believe that exit interviews conducted by “Second-line managers (direct supervisors’ managers) typically receive more-honest feedback precisely because they’re one step removed from the employee. Also, these managers are in a position to follow up immediately and effectively. Their participation signals that the company cares about the opinions of departing employees.” Beyond this level, the authors believe that someone other than in the direct line should conduct the additional interview. I would suggest that this would be an appropriate location for the compliance department to become directly involved.

The specifications of who should be interviewed should also be considered. As departing employees can certainly be ambassadors for the organization, high level or senior management should be listed. However, from the compliance perspective, any employee who comes from a high-risk area, sector, market or geography should also be considered.

The authors point to the timing of the interviews as a key to productivity. They have seen interviews during the mid point between the announcement to depart and the actual departure date as a good time. (Of course, this assumes a policy more enlightened than asking an employee to leave immediately in such circumstances.) Yet some companies have waited until after the employee has departed because, as one person interviewed for the article noted, “They normally tell us very honestly why, and often we respond with programs to work on the problems.”

While a face-to-face interview is always deemed the most appropriate, if an employee has departed, this may not be feasible. The authors noted that some companies conduct telephone interviews or even online surveys. Nonetheless whichever method is used should have structure around the questions and questioning because “the strength of standardized interview questions is that the make it easier to spot trends.”

The penultimate issue is how will your company use this information? The authors write that the distribution of the information obtained “should respect the sensitivity of the data and protect interviewees’ candor, particularly about their bosses.” Moreover the “the distribution of data should be timed according to the executive decision cycle.”

Ultimately, always remember this is a continuing conversation that the authors call “retention conversations”. Think about using the exit interview questions and techniques with existing employees to build upon the internal data you might analyze during transaction analysis. These retention conversations, together with exit interviews can be not only a useful tool but also a critical one as well for the compliance function.

 

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

 

 

Lear's FoolI conclude my week honoring the 400th anniversary of the death of Shakespeare by using my favorite character in all his work to introduce today’s post. He is The Fool from King Lear. Of Shakespeare’s many theatrical innovations, his transformation of The Fool from the Renaissance Court Jester of songs, music, storytelling, medieval satire and physical comedy to commentator is right up there for me. The Fool became closer to the Greek Chorus. Shakespeare brought the Chorus commentary function back. As noted in Wikipedia, “Where the jester often regaled his audience with various skills aimed to amuse, Shakespeare’s fool, consistent with Shakespeare’s revolutionary ideas about theater, became a complex character who could highlight more important issues. Like Shakespeare’s other characters, the fool began to speak outside of the narrow confines of exemplary morality. Shakespeare’s fools address themes of love, psychic turmoil, personal identity, and many other innumerable themes that arise in Shakespeare”.

While Lear’s Fool was actually a font of wisdom and commentary, the same cannot always be said for the corporate fools who put evidence of bribery and corruption in emails, excel spreadsheets and PowerPoint slide deck presentations. In Foreign Corrupt Practices Act (FCPA) training I always remind attendees that if you put your bribery scheme in emails, it will be uncovered. Further, if you put together an excel spreadsheet tying your nefarious acts, such as hiring the family member of a foreign official or state owned enterprise employee to the award of a contract, it will be uncovered. Now I find I must supplement my training to add the following admonition: do not put your fraudulent scheme in a PowerPoint slide deck for presentation to senior management.

The issue previously arose with our friends at GlaxoSmithKline PLC (GSK) who put together such a presentation in 2013 for targeted bribery campaign code named “Vasily” borrowing its name from Vasily Zaytsev, a noted Russian sniper during World War II. According to Wall Street Journal (WSJ) reporter Laurie Burkitt the campaign “targeted 48 doctors and planned to reward them with either a percentage of the cash value of the prescription or educational credits, based on the number of prescriptions the doctors made.” While Burkitt did note “A Glaxo spokesman has said the company probed the ‘Vasily’ program and [the] investigation has found that while the proposal didn’t contain anything untoward, the program was never implemented.” But, from my experience, if you have a bribery scheme that has its own code name enshrined in a PowerPoint slide deck presentation, even if you never implemented that scheme, it probably means that the propensity for such is pervasive throughout the system.

Yet now we have more and greater evidence of corporate tomfoolery from the Volkswagen (VW) emissions-testing scandal. In an article in the New York Times (NYT), entitled “VW Presentation in ’06 Showed How to Foil Emissions Tests”, Jack Ewing reported that a top technology executive at VW prepared a PowerPoint presentation for management in 2006, laying out in detail how the automaker could cheat on emissions tests in the United States. Ewing wrote, “It provides the most direct link yet to the genesis of the deception at Volkswagen, which admitted late last year that 11 million vehicles worldwide were equipped with software to cheat on tests that measured pollution in emissions.”

The article noted, “It is not known how widely the presentation was distributed at Volkswagen. But its existence, and the proposal it made to install the software, highlight a series of flawed decisions at the embattled carmaker surrounding the emissions problem.” Moreover, “As the PowerPoint underscored, people inside Volkswagen were aware that its diesel engines were polluting significantly more than allowed. Yet company executives repeatedly rejected proposals to improve the emissions equipment, according to two Volkswagen employees present at meetings where the proposals were discussed.”

As more and more of the internal investigation dribbles out, VW’s claim that its emission-testing defeat device was the creation of a small group of ‘rogue engineers’ is rightly dying a death of 1000 cuts. The company began to understand that “The pattern of those [regulatory] tests, the presentation said, was entirely predictable. And a piece of code embedded in the software that controlled the engine could recognize that pattern, activating equipment to reduce emissions just for testing purposes.” This language demonstrates not only the reason behind the defeat device but the requisite mens rea to prove intent to deceive.

But VW did not stop at this aha moment of realization. The company made the defeat device better over the years. The article reported that the defeat device had been enhanced over the years. The software that allowed VW cars to appreciate when the car was being tested, differentiated from when the car was in use on the road. It measured such criteria as determining whether the steering wheel was in use and “During regulators’ tests, the engine software would turn up the pollution controls. When it was on the road, equipment designed to neutralize harmful nitrogen oxides would turned down, resulting in emissions that were up to 40 times the legal limit.” In tech terms, the software was upgraded from defeat device 1.0 to 2.0 and beyond to “detect other telltale signs of a regulatory test.”

The rogue employee defense was never going to work. To have software in place for over 10 years designed to defraud a regulatory scheme, requires a wide swath of knowledge in any organization. But not only within the organization, those vendors in the supply chain, which supplied component parts or products had to be in on the entire scheme as well. Moreover, the very top of the company has been shown to have been aware of these issues. Ewing said, “The management board led by Martin Winterkorn, the chief executive who resigned in September after the admission of cheating, repeatedly rebuffed lower-ranking employees who submitted technical proposals for upgrading the emissions controls, according to the two people who attended meetings where the proposals were discussed. The management board rejected the proposals because of cost”.

You might think only idiots would put into emails, spreadsheets and PowerPoint presentations not only intent to violate laws but also their plans. As bad as all of this is, it points to an even greater insight relevant to FCPA enforcement, that being the Myth of the Rogue Employee. Davide Torsello and Alison Taylor, in a post in the FCPA Blog, detailed some of the major reasons why the myth is just that, a myth. The VW PowerPoint adds yet another spike in its coffin. If your corporate culture is such that you not only communicate internally about illegal conduct but also record those communications, it speaks to a culture that supports and embraces skirting the rules. Commentators who claim that companies should not be punished by the actions of a small group of employees miss this greater truth; these employees would not engage in illegal conduct if their company, either through compensation, succession or other remuneration, did not reward them for engaging in such conduct.

That is the greater truth that Lear’s Fool would impart to corporate management.

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

OthelloWhich play in Shakespeare’s cannon presents the biggest clash of cultures, which leads to the most catastrophic result? I would have to opine Othello, one of the great tragedies in all of Shakespeare. Othello, a Moor and General in the service of the Venetian republic, wins great honors on the fields of battle with the Turks. He also wins the hand of the lovely Desdemona. However, off the battlefields, Othello falls prey to the whiles of Iago, who convinces Othello of the infidelity of his bride. Othello murders his wife and then, realizing his mistake, takes his own life.

There are many culture clashes going on in the play. The military ethos vs. the deceit of civilian life, African tribal culture vs. the isolation of life in Venice, and even the warm bloodedness of a Moor vs. the chilly civilization of 16th century Venice. Yet it all leads to one thing – destruction.

One of the more difficult things to predict in a merger and acquisition (M&A) context is how the cultures of the two entities will merge. Further, while many mergers claim to be a ‘merger of equals’ the reality is far different as there is always one corporate winner that continues to exist and one corporate loser that simply ceases to exist. This is true across industries and countries; witness the debacle of DaimlerChrysler and the slow downhill slide of United after its merger with Continental.

In the Foreign Corrupt Practices Act (FCPA) space this clash of cultures is often seen. One company may have a robust compliance program, with a commitment from top management to have a best practices compliance program. The other company may put profits before compliance. Whichever company comes out the winner in the merger, it can certainly mean not only conflict but if the winning entity is not seen as valuing compliance, it may mean FCPA investigations and possibly even FCPA violations going forward.

A recent article by Andrew Hill, in the On management column in the Financial Times (FT), entitled “Dealmakers need new tools to predict M&A culture clash”, he focused on the fact that the “potential for cultural mismatch is usually one of the first red flags raised over complex deals.” He went on to state, “There is a crying need to improve the supposedly softer side of dealmaking and cut the great financial and psychological cost of finding out too late that the partners do not get on.”

Hill recognizes it is often difficult to begin such a discussion without engaging in cultural anecdotes or even cultural stereotypes, such as the French and the Americans will never get along or even appreciate how the other does business. Even such tried and tested methods based on “observation and interview can be unsystematic or prone to bias.” He also points out the problems with self-reported surveys that “go stale quickly or suffer from self-censorship.” This is even truer when one company has an ethos of punishing those who actually answer surveys honestly or report incidents. Finally, Hill notes that even questions by one group towards the other can bring a certain biting critique.

Of course all of this comes in the context of the employees from the acquired side that may be fearful for their jobs and employment prospects going forward. I once asked a friend going through a takeover what it was like and he said it was every employee for him or herself, each wondering when they would get axed. Certainly that is not positive either.

Yet even when working towards merging cultures in systematic manner, companies can make miss-steps. Hill points to the Hewlett-Packard acquisitions of Compaq as a classic example. He noted that after the two entities had “poured hours into their due diligence on their contrasting cultures before the deal was complete” which included 138 focus groups, consisting of 127 executives and 1600 staff in 22 countries, they still could not get it right. He pointed to the Compaq cultural value of keeping in touch with all employees through routine reports of what projects they were working on, clashing with the HP culture which saw this same action as “being micromanaged and not trusted.”

The quandary of how to determine cultural clashes is an ongoing problem during any acquisition. However, Hill reported that a new approach may provide some insight. A study, by University of California Professor Sameer Srivastava and Stanford University Professor Amir Goldberg, looked at it from a different angle; the email angle. They crunched “the language in 10.3m internal emails sent over five years by staff at a medium-sized technology company. Comparing the results against personnel records, they were able to map the trajectory of staff as they joined, got used to the culture and stayed, quit or were forced out. Among the findings: the reciprocal use of swear words in emails is one important clue to cultural fit; so are message exchanges about families.”

As Hill dryly noted, “Such studies are valuable not only for those building sweary or homely teams. They could tell managers more about subgroups within supposedly monolithic organisations”. I have previously written about Catelas, a software company that can review your internal emails to determine patterns that might detect nefarious conduct. If you couple the power of such software with the insights of Professors Srivastava and Goldberg, you might be able determine areas of compliance trouble in a merged entity.

This is all the more important with the compressed time frames required after an M&A to complete the acquisition integration as set out in the Ten Hallmarks of An Effective Compliance Program, as laid out in the 2012 FCPA Guidance. Coupled with the Opinion Release 08-02, involving Halliburton and two enforcement actions, Data Systems & Solutions LLC (DS&S) and Johnson and Johnson (J&J), the time frames for your post-acquisition, integration, investigation and any remediation are quite tight. The DOJ makes clear that rigor is needed throughout your entire compliance program, including M&A. This rigor should be viewed as something more than just complying with the FCPA; it should be viewed as just making good business sense.

FCPA Post-Acquisition Time Frame Summary 

Time Frames Halliburton 08-02 J&J DS&S
FCPA Audit 1.     High Risk Agents – 90 days

2.     Medium Risk Agents – 120 Days

3.     Low Risk Agents – 180 days

18 months to conduct full FCPA audit As soon “as practicable
Implement FCPA Compliance Program Immediately upon closing 12 months As soon “as practicable
Training on FCPA Compliance Program 60 days to complete training for high risk employees, 90 days for all others 12 months to complete training As soon “as practicable

Using the approach laid out by the Professors might well give you a leg up on any potential problems that need to be investigated, remediated and reported so that you can receive the benefits of meeting the post-acquisition time lines for a safe harbor. Such an analysis might also tell you if an acquired company or merger partner is as serious about compliance as your company is 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