With a wild ride of FCPA cases over the past week, Jay Rosen and myself are back in the FCPA saddle  again to take a look at some of the top compliance stories from the past week.

  1. Société Générale S.A. becomes No. 5 in the Top 10 of FCPA settlements, paying $585MM for bribes paid to garner business in Libya. Dick Cassin reports in the FCPA Blog. Henry Cutter reports in the WSJ Risk and Compliance Journal. Jaclyn Jaeger gives full coverage to the FCPA and LIBOR violations in Compliance Week. (sub req’d)
  2. Legg Mason pays $71MM for being SocGen’s partner and fellow bribery schemer in Libya. Dick Cassin breaks the story (as usual) in the FCPA Blog. Tom blogs on Legg Mason hereand notes the inter-relatedness of the two matters in another blog here. The Legg Mason NPA is available here.
  3. Credit Suisse pays $47MM to settle a princeling FCPA enforcement action for its illegal hiring of sons and daughters of Chinese government officials. Dick Cassin reports in the FCPA Blog.
  4. In another princeling matter, Jonathan Browning and Donal Griffin report in Bloombergthat Deutsche Bank AG is under FCPA scrutiny for similar practices involving sons and daughters of Russian government officials.
  5. The new Director of the UK Serious Fraud Office is a Yank. See report by Dick Cassin in the FCPA Blog. Mara Lemos Stein asks if she will recharge the SFO in the WSJ Risk and Compliance Journal. The Bribery Act guys, Barry Vitou and Richard Kovalevsky QC give their take on com.
  6. Channelling his inner Churchill, Mike Volkov asks what happens when corporate leaders fail to listen. Find out in Corruption, Crime and Compliance.
  7. Netflix is more than a disruptor in movie watching and entertainment. It’s corporate governance model is also quite unique. Bill Snyder tells us how in Insights by Stanford Business.
  8. The devastating and company closing sanctions against ZTE will be lifted based upon a new deal with the Department of Commerce. Dick Cassin reports in the FCPA Blog. Anna Swanson reports in the NYT. Sam Rubenfeld reports in the WSJ Risk and Compliance Journal. Alex Lawson, writing in Law360 asks if sanction relief is now for sale?
  9. Tom announces a new Compliance Master Class, which will be held in Houston on June 21 & 22. Information and registration is available here. Learn about compliance from the guy who wrote the book on compliance.
  10. Support your local book sellers! River Oaks Bookstore, 3270 Westheimer, in Houston is now stockingThe Complete Compliance Handbook. Tom will be on hand for a book signing on Thursday, June 28 from 5:30 to 7.
  11. Tom’s new book The Complete Compliance Handbookremains a hot seller. It is available oncom. Purchase an autographed copy here. It is reviewed in the FCPA Blog, Radical Complianceand Corruption, Crime and Compliance.
  12. Tom has a great five-part series on Suspension and Debarment with AMI Managing Director Rod Grandon. Check out all five topics. Part 1-Introduction; Part 2-the differences between suspension and debarment; Part 3-Convergence of suspension and debarment and the FCPA; Part 4-what is present responsibility?; and Part 5-Remedies and Compliance. It is available on the FCPA Compliance Report, iTunes, Libsyn, YouTubeand JDSupra.

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.

Red Schoendienst died this week. At 95, he was the oldest living member of the Baseball Hall of Fame; that honor now falls to Tommy Lasorda. Schoendienst played in the National League (NL), primarily for the St. Louis Cardinals from 1945 to 1963, before I had much of a baseball consciousness. He became the club’s manager in late 1964, after St. Louis had defeated the New York Yankees in a memorable seven game series. Schoendienst managed the club for 11 years, until 1976 when he was fired. My most vivid memories of Schoendienst were from his piloting the club to two consecutive World Series appearances, in 1967 and 1968. In the former, the Cards beat the Boston Red Sox in seven games; in the latter, the Cards lost in seven games to the Detroit Tigers. It is Schoendienst’s tenure with the Cardinals as a Manger which informs today’s blog post of a managing your middle act as a CCO.

One of the areas little commented on for Chief Compliance Officer’s(CCOs) is what to do in their ‘middle act’; meaning after they have come into an organization to deal with the issue(s) that brought them into the fold. This is well past the first 100 days and dealing with potential Foreign Corrupt Practices Act (FCPA) violations. It is usually down the road, several years into a tenure. The question is how you can continue the momentum you developed early on, perhaps even in the honeymoon period, of your tenure with the company. To help answer this line of inquiry, I recently read Harvard Business Review article, entitled “How Successful CEOs Manage Their Middle Act”, by Rodney Zemmel, Matt Cuddihy and Dennis Carey.

While the start and end of a CEO tenure has been fairly explored, the authors found “Very little attention has been focused on the time between those stages—on how chief executives can make the most of the middle years of their tenure.” So they set out to explore this middle ground through structured interviews with 22 long-term CEOs, “asking, among other things, how their priorities, mindsets, and approaches to leadership had evolved; what strategic and organizational moves they had focused on in midtenure; and what they wish they had done differently.” I found their responses and the authors’ analysis had some excellent insights for the CCO about moving forward during the middle of their tenure.

  1. Keep raising the level of your ambition

Even if you have been brought in to clean a prior compliance disaster and managed to successfully navigate through it, you will run the risk of sliding back into what former DuPont CEO Ellen Kullman called the “old normal.” Another way to consider this is that your early momentum may not last and you must “infuse people with the will to continue to focus on the changing environment”. Your business will certainly not sit still so your compliance initiatives must keep in step with your business initiatives.

This does not mean constant motion is required or even desired. Former Eaton CEO Sandy Cutler stated, “Organizations have to be careful at the top not to constantly change the game plan” and the same is true for the overall compliance function. All of this means “thinking ever more ambitiously means continuing to make strategic moves that will keep the company abreast of its changing environment—not engaging in perpetual motion for the sake of change.”

  1. Attack silos and broken processes 

Unfortunately, these two topics are the bane of almost every CCO. However, the middle portion of your CCO tenure can present an opportunity to begin to resolve them. Assuming you have sustained some early wins and built up both credibility and trust, now can be the time you take on more deeply ingrained structural projects. One way to do so, is to cross-pollinate your compliance initiatives with other key business unit leaders. If you can rotate some non-compliance/non-lawyer types into your organization, you not only bring fresh perspectives but you also can potentially create a long-term ally in the organization.

At the end of the day, your job is to help the company manage risk more efficiently and for greater profitability. You can more effectively do this and create a more robust compliance program and getting the system’s right to enable this can greatly enhance your organization. The authors reported on one example from Cisco which built playbooks for processes such as M&A. If everyone is working off the same playbook on your team, it means the business leaders do not have to intervene as often, creating far greater efficiencies and speed.

  1. Talent, talent, and more talent 

A key here is that you should continually evaluate your talent pool. You should consider other disciplines in your organization for talent in compliance. A rotation through compliance is a great way to not only create supporters in other corporate functions but also watch potential team members in action. Consider such questions as “Is this person able to help us carry the compliance ball going forward?” “Do you have the right mix on your compliance team?”

You can also take the opportunity for fuller and more focused reviews. This can facilitate another key part of any leader’s remit; to cultivate and then to unleash the talents of your team. You essentially move from “team captain to coach” in this process. It is also a good time to begin succession planning, thinking “two moves out”.

  1. Build mechanisms for dissent and disruptive ideas 

This would almost seem like the raison d’etre of a CCO, literally throughout the organization. Yet one of the things any leader must fight against is the tendency to become “predictable or shut off from new ideas.” Part of the problem is through the length of any tenure, your direct reports and others will learn what you want to hear so you must constantly fight against that going forward.

To combat this, you must take the initiative to ask people questions about what they really think about how things are going and why they think that way. You can also use this as an opportunity to get out of the ivory tower at the corporate headquarters and visit the organization’s grass roots. One very interesting technique came from former Becton CEO Edward Ludwig who said, “he would bring together a dozen trusted people from the level below his direct reports, give them a two-page summary of the company’s strategy, and invite honest input. “You need to surround yourself with people who are willing to tell you the truth and create mechanisms where they can tell you the truth,” he said. Just as important, “you need to demonstrate that you can act on their input intelligently and will not shoot the messenger.””

  1. Spend your leadership with bold moves

If you have done well and are into the middle of your CCO tenure, you should have the internal leadership capital to tackle some big projects. Go to your CEO or Board of Directors and lay out a vision for compliance 2022 or something similar. Show them how and, more importantly, why a best practices compliance program will not only increase company efficiency but also company profitability. Study such initiatives as PepsiCo’s Performance with Purchaseand incorporate those elements that would work for or within your organization. Former Reynold CEO Susan Cameron told the authors, “In midtenure you have the opportunity to envisage a different enterprise and then to make some disposals and acquisitions to support that,” she said. “Once you have developed confidence in yourself and your top team and are satisfied with the business plan and operating model, you need to dream and strategize about what could be.”

Perhaps the most interesting observation the authors came to was that your CCO career is in many ways like life’s journey. It is not a unidimensional continuum. It is series of distinct phases; early term, middle term and late term. Based upon this, “Leaders need to look at the organization and the markets in which it plays with fresh eyes and keep evolving their strategy and approach to their team. They can’t take their foot off the gas—if anything, they need to push down harder.” Great thoughts to keep in mind as your CCO tenure progresses.

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, 2018

One of the challenges many compliance practitioners face when they move up in their careers is to move from tactical to strategic thinking. It is a requirement for any Chief Compliance Officer (CCO) to be able to think strategically as well as tactically but as you move up the corporate ladder, the strategic becomes more important. Strategic thinking is not something taught in law schools and in most business programs. Fortunately I came across a blog post on SpinSucks entitled, “Strategic Thinking in PR” by Gini Dietrich which laid out six steps you can take to improve this key part of your leadership toolkit. The six steps are as follows: (1) Anticipate; (2) Think critically; (3) Interpret; (4) Decide; (5) align; and (6) Learn.

Before we get to those six steps, we should consider why it is so difficult to make the move from tactical expert to strategic thinker. Dietrich believes it is for a couple of reasons. First, we tend to not to really define strategy and that vagueness allows it means different things to different people. Secondly there are not very many people can teach it adequately, which means not very many people understand it.

In this episode we consider the presidency of the 10th President, John Tyler. Tyler was the first president to ascend to the position after the death of President in office, William Henry Harrison. This ascendency, as his presidency was fraught with difficulties and conflict. We consider the following:

  1. Tyler was not viewed as a legitimate president as he ascended due to the death of a President in office, William Henry Harrison.
  2. Tyler was the first President against whom impeachment proceedings were brought.
  3. Tyler had no real political base while President as he had been in the Democratic Party up until he became a Whig to run in 1840.
  4. Tyler was the first President to veto legislation based upon policy, not constitutional considerations.
  5. Tyler was the first President to have a mass Cabinet resignation.
  6. Tyler was the first President to have his Cabinet nominees defeated in the Senate.
  7. Tyler was the only President to face an open, armed rebellion from a State, the Dorr Rebellion in Rhode Island; up until Lincoln.

In addition to the foregoing Richard Lummis and I consider the leadership lessons from Tyler in the following areas:

  1. His ascension to the Presidency and establishment of the Tyler Principle for succession.
  2. Economic issues including the tariff and veto of the Bank bills.
  3. His handling of the Dorr Rebellion
  4. Texas Annexation
  5. The Princeton Incident

One of the most constant things about the compliance profession is its dynamism. Compliance programs are not static and the compliance profession is not static. Today’s cutting edge in compliance will be tomorrow’s best practice which will be next month’s standard expectation. While this drives those who focus on the law around compliance batty, properly understanding compliance as a business process makes this continuum clear. However, this means that any Chief Compliance Officer (CCO) or compliance practitioner must not only understand this uncertainty but embrace it to make their compliance programs respond to an ever changing legal and business environment. CCO leadership must be as dynamic as the corporate compliance programs they oversee.

Yesterday I wrote about the shift in corporate focus that brought Starbucks a huge reputational black eye, when a store manager had two African-Americans waiting in store for a colleague arrested for trespassing. Obviously the current economic and political realities for any American business can literally turn on a dime (or even a tweet). I was therefore interested in a recent article in the MIT Sloan Management Review, entitled “The Five Steps All Leaders Must Take in the Age of Uncertainty”, by Martin Reeves, Simon Levin, Johann D. Harnoss, and Daichi Ueda. The authors thesis is that “business leaders need a new mental model to better understand the complex interplay between companies, economies and societies.” I can only add this requirement is even more true for the CCO and compliance practitioner to move towards this theory.

The issue is that companies are all parts of much broader “business ecosystems — that are embedded in local and national economies, which in turn are interwoven with societies.” Changes made at one level, for example, the sourcing practices of US retailers, can directly influence higher-level systems, so “the economic value and social status of manufacturing skills” in a way totally unforeseen. The authors believe their system will assist business leaders to understand, adjust to and shape these feedback dynamics. Put another way, it is more fully operationalizing compliance which makes companies run more efficiently and provides a competitive business advantage.

Leaders in compliance need to master the art of fully operationalizing compliance systems, rather than just operating them, which means not merely extending their current game to learn and understand a new set of priorities and capabilities. The authors set out five steps to effectively shape the extended system in which they participate, which I have adapted for the compliance practitioner.

  1. Observe and understand the broader system.Compliance professionals must situate an operationalized compliance program in the context of a wider system that includes consumers, ecosystem partners, media institutions, and policymakers. This means understanding the key players and their interests and mapping out the important relationships and risks between them. Often, opportunities for and risks to the business become visible only by considering the broader system beyond traditional industry boundaries in a more comprehensive risk management program.
  1. Master the art of intervening in the system.Compliance leaders need to learn how to intervene effectively in a complex adaptive system. A common managerial mistake is to limit oneself to direct leverage points. Instead, seemingly softer indirect points can often provide more leverage in complex systems. By finding an indirect but more powerful leverage point a CCO can move compliance forward in a manner that more fully integrates the controls of compliance into the business. Using soft skills is one of the key ways a CCO or compliance practitioner exudes influence and this skill is a must.
  1. Orchestrate collaboration in the system.This point directly relates to the CCO or compliance professional as the orchestra conductor. Not only must the compliance leader work in a manner which requires striking a balance between the often-conflicting needs of companies and the broader system that they constitute but such a person “must foster mutualism and trust among the companies.” This goes beyond simply “modeling the right behaviors by creating value for the overall system but also actively surfacing and resolving tension within the system.” A compliance professional should help all stakeholders to “improve and sharpen their value proposition, whereas unsurfaced tension increases the risk of deeper disruptions down the road.” 
  1. Foresee and manage systemwide risks.The authors note that with “the increasing interconnectedness and interdependence of companies, many corporate risks present themselves to the entire system rather than to individual companies. To manage systemwide risks, leaders must be able to detect potential threats to the system’s health and have the courage to preemptively change practices to avert them.” This requires an active “antennae that sense changing political, social, and technological signals; articulate the risks these developments bring; and also act as disruptors to prod other stakeholders in the system to adopt new behaviors, even when the direct benefits to their own companies are not clear or immediate.” Here you can think of the Volkswagen (VW) emissions scandal and its negative impact on not only the German automobile industry but also the German national brand of quality and excellence.
  1. Lead with a new mindset.This is one of the biggest changes CCOs and compliance practitioners must embrace. Most of us are lawyers and these types of skills are sorely missing from law school curricula. Compliance professionals simply cannot rely only on formal authority or a chain of command when working on their system. As Jenny O’Brien and Roy Snell continually remind us, they are purveyors of persuasion. Moreover, they must leverage informal ways of exercising leadership that can transcend organizational boundaries and certainly beyond the hidebound legal dichotomy of us v. them. The authors note, “these actions transform leadership from a position of authority into an activity that can create broader influence. This transformation requires, at its root, a mindset shift from thinking in reductionist models” of performance toward more holistic models of system performance. Compliance professionals who not only embrace this new paradigm but also work towards managing this shift are bound to create an advantage for their company as well as their wider ecosystem.

What compliance leaders must do is have a broader business and social ecosystems vision. The authors call it “nested complex adaptive systems: multilevel, interconnected, dynamic systems hosting local interactions that can give rise to unpredictable global effects and vice versa. Acknowledging the unpredictability, nonlinearity, and circularity of cause-and-effect relationships within these systems is a notable departure from the simpler, linear models that underpin traditional mechanistic management thinking.” Finally, do not fear change but embrace it. Businesses change every day and while a CCO does not have to do so, if you stand still you will surely lose ground.

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, 2018