The key concept from the Department of Justice’s (DOJ) Evaluation of Corporate Compliance Program (Evaluation) is operationalization. For instance, under the query Shared Commitment is the following question – “How is information shared among different components of the company?” Under the Prong relating to Policies and Procedures the Designing Compliance Policies and Procedures asks, “What has been the company’s process for designing and implementing new policies and procedures? Who has been involved in the design of policies and procedures? Have business units/divisions been consulted prior to rolling them out?” Lastly, under the same Prong is Responsibility for Integration, with the following question “Who has been responsible for integrating policies and procedures?”

These questions point to a Chief Compliance Officer (CCO) or compliance practitioner demonstrating how compliance is being burned into the fabric of an organization. While leadership at and from the top has long been considered by both the DOJ and compliance professionals as a key element to move compliance forward, the Evaluation has also crystalized thinking around compliance leadership from the middle and the bottom. I thought about these concepts when reading a recent Financial Times (FT) article by Andrew Hill, entitled “Leadership from the bottom up”. I was particularly struck by a quote from Shlomo Ben-Hur, a professor at IMD business school, who said, “We teach the top 5 per cent — but the majority of this work is carried out by the other 95 per cent.”

In Ben-Hur’s work he found that many executives came from the middle management ranks. They tended to be persons “with a determination to “take what I have responsibility for and make it truly great.”” Anecdotally, he related “They typically said, ‘I’ve responsibility for the minibus,’ and people then asked them to drive bigger and bigger buses until one day they drove the whole business.”” Think of the military and the responsibility given to front line commanders and how that “is increasingly reflected at large companies.”

The key for companies is that senior management must “find ways to transmit leadership skills to people who do not have ‘leader’ in their job description and will probably never attend a top-level leadership program.” Hill noted, “Ben-Hur’s work has focused on ensuring that managers understand how to assign the right jobs to their team members and motivate them to perform well, using theories of behavioural change that senior executives have typically never learnt on their way to the top. Dedicated managers well below the executive board need to know how to use these tools.”

For the CCO or compliance practitioner, this provides a clear path to help in the operationalizing of compliance by providing the tools to persons far down the organization to put compliance into the operations of a business. One thing Hill writes about is a company should nuture such learning because by doing so, it will both teach practical skills around compliance but also foster a strong internal network of compliance advocates who can move initiatives up and down and organization. Moreover, as these individuals progress through the company ranks, they can take their compliance message with them at each new level.

Building on the writings of Hill and the work of Professor Ben-Hur, my suggestion is to build a Compliance Excellence Center in your company. Bring in middle-managers to focus on understanding not only their roles in compliance but also how to assign the right team members to a compliance initiative and motivate employees going forward. Hill wrote that Airbus has recently established a corporate ‘university’ to spread leadership ideas through the company. Airbus’ theory behind this push is “being a leader isn’t just about being a vice-president; it’s about being able to push the company towards new ways of doing things and executing the things we have to execute. That could [apply to] a blue-collar worker on the shop floor or a VP.”

A key is not simply to train such middle and front line managers on compliance but getting them to consider rollout, effectiveness, testing and improvement. In other words, as Jay Martin would say, it is all about execution. One way to help facilitate this is through exercises using incentives to “make leadership insights stick and change workplace behavior.” Hill also writes that concepts from entrepreneurship can assist in such learning by encouraging managers to “think and act independently” to operationalize compliance. Finally, never forget mentoring as a manner to spread good compliance practices throughout a company if a more formal approach is not possible.

Too often, strategies to move a compliance program or even an initiative come from the top of an organization and are pushed down. To fully operationalize compliance, you must have leadership in compliance further down the organization which (hopefully) has been a part of the design process and can lead the implementation throughout an organization. 

Three Key Takeaways

  1. While tone at the top is critical, the tone at the bottom can actually work to more fully operationalize compliance.
  2. 95% of the work is done at this bottom level.
  3. Use HR to come up with a strategy to move compliance into the bottom for more complete operationalization.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

 

 

 

 

 

 

 

The role of Human Resources (HR) in anti-corruption compliance programs, is often underestimated. If your company has a culture where compliance is perceived to be in competition or worse yet antithetical to HR, the company certainly is not hitting on all cylinders and maybe moving towards dysfunction. Another way you can operationalize compliance is in HR’s involvement of employee promotion. In Prong 8 of the Evaluation of Corporate Compliance Programs it asks the following question, Have there been any examples of actions taken (e.g., promotions or awards denied) as a result of compliance and ethics considerations?

The 2012 FCPA Guidance expounded further, “[M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well. For at the end of the day, the most effective way to communicate that “doing the right thing” is a priority is to reward it. Conversely, if employees are led to believe that, when it comes to compensation and career advancement, all that counts is short-term profitability, and that cutting ethical corners is an ac­ceptable way of getting there, they’ll perform to that measure. To cite an example from a different walk of life: a college football coach can be told that the graduation rates of his players are what matters, but he’ll know differently if the sole focus of his contract extension talks or the decision to fire him is his win-loss record. In other words make compliance significant for professional growth in your organization and it will help to drive the message of doing business in compliance.

I thought about these concepts when I read an article in the Corner Office column of the Sunday New York Times (NYT), where columnist Adam Bryant interviewed Sally Smith, the Chief Executive of Buffalo Wild Wings, the restaurant chain. She had some interesting concepts not only around leadership but thoughts on the hiring and promotion functions, which are useful for any Chief Compliance Officer (CCO) or compliance practitioner striving to drive compliance into the DNA of a company.

Here Smith had some thoughts put in a manner on promotions not often articulated. One of her cornerstones is to search out the best person for any open position, whether through an external hire or internal promotion. Bryant stated that Smith said “We use the phrase “wait for great” in hiring. When you have an open position, don’t settle for someone who doesn’t quite have the cultural match or skill set you want. It’s better to wait for the right person.”

Smith articulated some different skills that she uses to help make such a determination. Once a potential hire or promotion gets to her level for an interview, she will assume that person is technically competent but “I assume that you’re competent, but I’ll probe a bit to make sure you know what you’re talking about. And then I’ll say, “If I asked the person in the office next to you about you, what would they say?””

Passion and curiosity are other areas that Smith believes is important to probe during the hiring or promotion process. In the area of passion, Smith will “Often ask, “What do you do in your free time?” If they’re passionate about something, I know they’re going to bring that passion to the workplace.” Smith believes curiosity is important because it helps to determine whether a prospective hire will fit into the Buffalo Wild Wings culture. Bryant wrote, “I look for curiosity too, because if you’re curious and thinking about how things work, you’ll fit well in our culture. So I’ll ask about the last book they read, or the book that had the greatest impact on them.” Smith also inquires about jobs or assignments that went well and “ones that went off the tracks. You ask enough questions around those and you can determine whether they’re going to need a huge support team.”

I found these insights by Smith very useful for a compliance practitioner and the hiring and promotion functions in a compliance program. By asking questions about compliance you can not only find out the candidates thoughts on compliance but you will also begin to communicate the importance of such precepts to them in this process. Now further imagine how powerful such a technique could be if a Chief Executive asked such questions around compliance when they were involved in the hiring or promotion process. Talk about setting a tone at the top from the start of someone’s career at that company. But the most important single item I gleaned from Bryant’s interview of Smith was the “Wait for great” phrase. If this were a part of the compliance discussion during promotion or hiring that could lead to having a workforce committed to doing business in the right way.

Three Key Takeaways

  1. Denying a promotion or award due to an employee’s ethical lapses.
  2. Use promotions to reinforce your company’s commitment to compliance and ethics.
  3. Should you wait for great?

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

The Evaluation of Corporate Compliance Programs document makes clear that operationalization of compliance into an organization should be done at multiple levels in a company. Creating an ethical culture is an important step for any company to burn compliance into the DNA of a business. It must be done at every level of an organization on a continuous basis.

In an article in the Harvard Business Journal (HBJ) online publication by Christopher McLaverty and Annie McKee, entitled “What You Can Do to Improve Ethics at Your Company”, the authors surveyed C-suite executives and noted, “More often the dilemmas were the result of competing interests, misaligned incentives, clashing cultures.” Based on this study and their prior work, the authors noted three major obstacles to ethical behavior.

Initially was the issue of corporate change. The authors stated, “Companies can warp their own ethical climate by pushing too much change from the top, too quickly and too frequently. Leaders in the study reported having to implement staff reduction targets, dispose of big businesses in major markets, and lead mergers and acquisitions. Some of these activities included inherent conflicts of interest; others simply caused leaders to have to act counter to their values. Many leaders felt poorly prepared for the dilemmas they faced and felt compelled to take decisions they later regretted.”

The second was the age old dilemma of compensation where incentives tended to drive certain behaviors or, as the authors stated, “People do what they are rewarded to do, and most leaders are rewarded for hitting targets.” Of course the most recent example is Wells Fargo where employee compensation was based solely on the number of accounts they opened. Yet such incentive based behavior was not limited to front line employees as the authors stated, “The lure of incentives are a problem in boardrooms too: Bonus payments and executive share schemes are often based on short-term business metrics, which can be counter to long-term success.”

Finally, was an area which may require a Chief Compliance Officer (CCO) or compliance practitioner to think through several different calculi; cross cultural differences. Obviously some countries have gift giving cultures but this is more than simply the value of a gift to give at Christmas, it involves cultures where gift giving may be a part of the overall business relationship. The authors cited examples such as “closing a sales office in Japan, breaking a verbal promise made during after-work drinks in China, or ignoring “sleeping” business partners in a Saudi Arabian deal, all of which have cultural and ethical components.”

An interesting insight was teaching employees how to understand what matters in an organization. This is not simply the written Codes but how things really work. The authors posited three questions: (1) How are employees paid? Obviously a compensation plan is a critical benchmark. If it is solely based on ‘eat what you kill’, focusing on the short term, it may presage problems down the road. (2) Who gets promoted and why? This is not simply whether the high producer gets promoted but how about those who speak up and raise ethical issues. Are they subtly (or not so subtly) discriminated against or held back from promotion? (3) How do employees feel about their organization? Although it seems straight-forward, if your employees are disengaged or worse yet, ashamed about your company, you might be an ethical time bomb waiting to happen.

The authors then turned to initiatives that the interviewees had successfully used in their own organizations to improve the ethical climate. While noting that there is some importance in the corporate governance documents, such as a Code of Conduct and policies and procedures, the authors averred “Companies become ethical one person at a time, one decision at a time.” This means employees need to understand their organizations underlying culture. They stated, “Self-awareness enables you to build and strengthen that inner compass. Organizational awareness enables you to identify the forces in your company’s culture and processes that could drive you and others to do the wrong thing. You also need emotional self-control: it takes courage to step away from the crowd and do the right thing.”

To have such courage, the authors noted many employees who did speak up had a personal network which operates as “an informal sounding board and can highlight options and choices that the leader may not have considered. When making ethical decisions, it’s important to recognize that your way isn’t the only way, and that even mandated choices will have consequences that you must deal with.” This is yet another reason for the breaking down of silos in a corporate organization because “The challenge is that most leaders have networks full of people who think and act like them and many fail to seek out diverse opinions, especially in highly charged situations. Instead, they hunker down with people who have similar beliefs and values. This can lead to particularly dire consequences in cross-cultural environments.”

Finally, and perhaps most intuitively, is speaking up. Here business leaders must encourage not only a speak up culture but also one of no retaliation. But it is more than this as Vanessa Rossi, FCPA Due Diligence Counsel at Baker Hughes Inc. noted in a panel discussion to the Greater Houston Business and Ethics Roundtable, it is more tones at the tops as for many employee’s senior leadership resides in the form of their direct manager. The authors phrase it as “If you find you need to speak up, there will be a number of choices to be made. Do you talk to the boss? Consult with peers? Work with advisory functions such as legal, compliance or human resources? You can draw on your personal network for support and guidance on the right way forward within the context of your unique situation.”

Ethics and compliance blend together in the corporate world. It is not just the responsibility of CCOs and compliance practitioners but of senior managers to support those employees who want to do the right thing. While written protocols are significant in both detection and prevention, one should never lose sight of a corporate culture as a way to positively impact your workforce and company going forward.

Three Key Takeaways

  1. Beware of the three obstacles to creating an ethical culture.
  2. What really matters in your company?
  3. A speak up culture will improve the operational performance of your business.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.

In this episode, Jay and I have a wide-ranging discussion on compliance and ethics. We discuss:

  1. Why powerful people fail to stop bad behavior by their underlings. Click here for the article.
  2. Some policy management lesson, courtesy United Airlines. Click here for Matt Kelly’s article on Radical Compliance.
  3. Why you shouldn’t linger too long in the wrong compliance position. See Julie DiMauro’s blog post on the FCPA Blog.
  4. Bribe recipient in the Gerald and Patricia Green FCPA case gets 50 years in prison. See article in the FCPA Blog.
  5. Using data to operationalize your compliance program. Read Tom’s blog post, by clicking here.
  6. What the New York state Department of Financial Services new regulation on cybersecurity for financial services companies means for compliance officers. See Tom’s blog post by clicking here.
  7. Jay previews his weekend report.

Jay Rosen new contact information:

Jay Rosen, CCEP

Vice President, Business Development

Monitoring Specialist

Affiliated Monitors, Inc.

Mobile (310) 729-6746

Toll Free (866)-201-0903

JRosen@affiliatedmonitors.com

What happens when a company delivers a superior product or service which is enthusiastically embraced by the consuming public, has a contented, if not equally enthusiastic, public facing work force and the business itself makes money, hand over fist? You might say that it is a company that you want to participate in as an investor. Now you add in what can only be described as a toxic culture and a corporate ‘win-at-all costs’ attitude. Would you still be interested? This paradox exists today at Uber. Several recent very unflattering events have put the company and its Chief Executive Officer (CEO) Travis Kalanick in a very unfavorable light. The question is does it matter in a company with an estimated value well north of $50 million?

In a Financial Times (FT) Big Read piece, entitled “Crisis inside the ‘cult of Travis’”, it was reported that the crises began in February when a former female Uber engineer, “went public with her account of sexual harassment and rampant sexism inside the company. Susan Fowler described how the human resources department ignored her complaints, which included being propositioned by her boss.” Even after reporting her complaints to HR, she was told the miscreant was a ‘high producer’ and there would be no discipline for his actions. Kalanick responded that the events “were “abhorrent and against everything Uber stands for” and set up a task force to investigate” which is headed by former Attorney General Eric Holder.

Next came what the FT termed as an “unflattering” video recording where Kalanick berated an Uber driver who had told him he had been forced to declare bankruptcy from his work at Uber. Kalanick’s response was “Some people don’t like to take responsibility for their own shit. They blame everything in their life on somebody else.” Sounds like the type of CEO you would want to run away from as fast as possible, doesn’t it? Kalanick later apologized and said he was “ashamed” of his conduct and “I must fundamentally change as a leader and grow up.”

Also revealed was the company’s technological tool to evade law enforcement and regulators with its Greyball program. All of this was after Kalanick and Uber took public relations hits for (1) agreeing to cozy up to the Trump Administration and (2) refusing to participate in the initial taxicab boycott at JFK airport when the Administration’s first Muslim ban was put into effect. This tone deafness was only exceeded by the company charging surge pricing when breaking the boycott. Both events led to a the #deleteuber campaign. All of these events have cost the company 5% market share which has migrated to its rival Lyft.

Perhaps none of this is too surprising given the company’s stated cultural values of “super-pumpedness and fierceness”. In a Business Week piece, an Uber spokesperson defined these values as: “Super Pumpedness — Bring energy and infectious enthusiasm to everything you do. For Managers: Motivate and inspire team members to perform their best, and stretch themselves professionally. Fierceness — Be fierce. Do whatever it takes to make Uber a success, even when it’s hard and takes some risk to get there.”

These values and what the FT calls “the cult of Travis” has led to what can only, most generously, be termed as one very toxic workplace. The FT said, “Uber that is extreme, even by the standards of US tech start-ups. Former employees interviewed by the Financial Times talk about gruelling work hours and a dog-eat-dog ethic reminiscent of the worst excesses of Wall Street.” One former Uber employee said, “When I joined it was like walking into a buzzsaw. It was a hostile culture.”

How can the company change this clear perception of toxicity? Normally one might expect shareholders to demand a change. Indeed, the FT noted that such behavior “would not be tolerated in publicly traded company.” However, Uber is private and only has investors. They had hoped to cash in when the company went public but with these recent PR disasters, there is talk the initial public offering (IPO) will not occur until 2019 “because it will take the company that long to recover.” Employees are equally stuck because many were lured with stock options which are illiquid until the company goes public.

Yet many Uber employees are now voting on such cultural values and antics with their feet. Another FT article, entitled “Hail and farewell as Uber staff eyes exit”, quoted Guillaume Champagne, president at SCGC Executive Search, who said “From a purely financial perspective, Uber would need to become an awful place for them to leave.” Nevertheless, in the past few weeks, Mr. Champagne has seen an increase of about 5-10 per cent in the number of people interested in leaving, particularly those who are “a bit less of a culture fit.” Finally, “employees who planned to stay with Uber through its eventual initial public offering are reconsidering.” The article quoted one un-named executive, who said “Previously it was difficult to get them [Uber employees] because of their stock. Now they don’t seem so confident about what that’s worth.”

There are several stakeholders at play here. The investor class, Kalanick as deity with absolute power in the company, employees looking for that great IPO pot at the end of the rainbow when the company goes public and the public which is the beneficiary of one of the greatest service innovations in transportation in the past 100 years. Will Uber’s culture change? Probably not as long as Kalanick leads the organization. Tone is set at the top and when you have such a CEO who places a dog-eat-dog culture over values, it permeates throughout the organization. As the FT Big Read piece concluded, “Everyone knows what TK is really like,” says a former employee, using Mr Kalanick’s nickname. “Even if he comes back with crocodile tears, it has happened so many times everyone knows how he really feels.”

One of the key, if under-appreciated features, of the Foreign Corrupt Practices Act (FCPA), is that the accounting provisions enforce discipline on companies which desire access to US capital markets through IPOs or stock offerings. If Uber chooses to go public, perhaps some of the worst excesses of CEO Kalanick and his self-imposed buzz saw culture at Uber might be tamed by the requirements of accurate books and records and effective internal controls.

Even if the tone Mr. Kalanick sets as a public company is still his win at all cost persona, the market will step in to sanction him through a drop in share prices. Minority investors with voting rights, truly independent directors forming a stronger board and activist shareholders can also bring a form of discipline and clarity to end the current cultural miasma at the company. While it may well take time for true cultural change to set in on the company, the steady drip, drip, drip of untoward news might move to something less than what we all have observed over the past few weeks.

The FT editorial board, in a piece entitled “Making Uber’s inner fire burn more evenly,  said, “It is also fantastical to think that Uber chief executive Travis Kalanick, who sets the tone at the company, is going to undergo a personality transplant at the age of 40. The question at Uber, as at other businesses, is how to harvest brilliance while minimising the collateral damage.” The FT went through some of the options open to Uber, including bringing in an executive-type who would be the adult in the room and (hopefully) tame the worst excesses of Kalanick and the company or even a new CEO, bumping Kalanick up to a more senior and advisory role; a more robust Board of Directors, even some new outside blood to fill out an expanded and more independent Board; or if the company goes public and puts appropriate internal controls in place  the market could discipline them through a valuation in line with unacceptable behavior.

All of these avenues have pitfalls. But Uber must change or it will have one very large and public fall. One can almost think of Enron, which at one time claimed to be the 7th largest corporation in America, to see how far all this hubris can humble what may be the highest-flying of entities. We are talking the full Greek god tragedy here because as I noted at the start of this post, when a company delivers a superior product or service which is enthusiastically embraced by the consuming public, has a contented, if not equally enthusiastic, public facing work force and the business itself makes money, hand over fist; a very large part of the public wants it to succeed.

The clearest statement came from, Catherine Choe (aka @CultureFloss), the founder of TFL Compass, who said, “I believe that humans have the capacity to change, and change happens most frequently in the face of trauma. I don’t believe, given the ownership structure of Uber, that there has been any trauma, which has implications for them in the future. The seeds of tragedy are there. It’s entirely in their hands whether those seeds bear fruit in ten years or wither away.”

Uber has to change if it hopes to move to the next level in the corporate world. I for one hope it can do so and maintain the trifecta that has made it one of the top disruptive, start-ups around.

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