FCPA Compliance and Ethics Blog

January 15, 2014

Compliance Networks as Knowledge Networks

7K0A0246As compliance programs mature, they become less top down driven and more inculcated into the DNA of a company. The more doing business ethically and in compliance becomes part of the way your company does business, the better off you will be down the road. One of the methods that you can use is to set up a compliance network within your organization. I recently read an article in the Fall issue of the MIT Sloan Management Review, entitled “Designing Effective Knowledge Networks”, by Katrina Pugh and Laurence Prusak, in which they discussed knowledge network design as a mechanism to facilitate desired behaviors and outcomes. I found their ideas very useful in the compliance context.

Generally speaking, knowledge networks are a “collection of individuals and teams who come together across organizational, spatial and disciplinary boundaries to invent and share a body of knowledge. The focus of such networks is usually on developing, distributing and applying knowledge.” This is what a compliance regime should strive for within a company’s organizational structure. The authors believe that with the design of an effective knowledge network, a company can not only affect dynamics but also drive behaviors. In designing such a knowledge network, the authors postulate that there are “8 dimensions of a knowledge network” which encompass strategic, structural and tactical issues which must be considered. They are as follows:

  1. What is your Leaders’ shared theory of change?
  2. What are the objectives/outcomes/purposes of the knowledge network?
  3. What is the role of expertise and experimental learning in the knowledge network?
  4. What is your inclusion and participation in the knowledge network?
  5. What is the operating model of your knowledge network?
  6. How do you convene structures and infrastructures for your knowledge network?
  7. What is your facilitation and social norm development?
  8. What are your measurements, how do you elicit feedback and provide incentives?

Leaders’ Shared Theory of Change

This dimension is “as much about being explicit about how to have an impact as about how to be a leadership team. We found that good leaders were role models, inspiring members to act, and they did not delegate work such as being online and responding to discussions.” You should be able to describe the mechanism through which compliance will have an impact on both the organization generally and employees individually. This dimension encompasses such issues as how will employees learn and adapt their compliance knowledge into action.

Objectives/Outcomes/Purposes

Here the authors suggest a formal charter to define the “purpose and target outcomes.” In the compliance arena, this may be the Code of Business Conduct or other foundational document for your compliance program. Components can also be drawn from you policy and procedures. But the key under this dimension is that there is community purpose, norms, values and outcomes which are documented for moving forward.

Role of Expert and Learner

For the compliance knowledge network, this dimension signifies communication both downward and up the command chain of the company. So not only should an organization be open to innovation on issues but upper management should also encourage participation and must listen. There are different ways in which compliance can be achieved and these lines of communication need to be fostered. But, equally importantly, this dimension speaks to internal company reporting and whistle-blowing.

Inclusion and Participation

A compliance network positions the network among other operations within the company’s organizational models. A compliance network should seek out cognitive, geographical and professional diversity, or an amalgamation of separate social networks within your organization. You may also need to balance technical or operational expertise with convening or networking skills. You could create profiles for the types of people you want within your compliance network to allow you to easily and early on identify candidates for the network.

Operating Model

Your compliance leadership should decide what roles, responsibilities and decision processes are needed for your compliance network. All stakeholders should be described in the operating model, and there should be clarity about how resources are allocated. This should be true for core team members as well as small project teams or working groups that assemble for just a few months to complete a task.

Convening Infrastructures

This dimension concerns the structures which are used to build cohesion, connectivity, collaboration and engagement. Core network teams may develop a matrix for the channels or vehicles that are used to identify both the purpose and the team members who will be involved. Even with the social media that is available in today’s business world, the authors believe “recent research that found that teams’ performance correlated directly to the frequency and variety of real-time interactions.” The degree of face-to-face and voice-to-voice interaction depends on the compliance objectives involved. Rapid idea development and innovation require live discussions (online or in meetings), while intellectual capital management requires document management and broadcast communication. However it may be that if you have a wide compliance knowledge network, in many countries, a text based approach may be more appropriate, particularly if English is a second language to many of your team members.

 Facilitation and Social Norm Development

 The authors advocate that certain compliance network members be designated as “facilitators and change agents” whose role would include leading “members in meetings, discussions, games, events and other interactions to draw out their hidden insights or to provoke a common curiosity.” Added to this concept, the authors believe that “Social norms — such as inclusion, openness, transparency, accountability, curiosity and quality — are integrated explicitly into the facilitation processes. For example, respect for diversity could be conveyed in the tone and language of meeting agendas, discussions, blogs and quick polls.” This means not only prodding and pulling questions and answers from team participants but sometimes translating concepts for the group’s benefit.

Measurement, Feedback and Incentives

Some of the things that you need to consider under this dimension are what are the outcomes you are trying to achieve and how will you know when you meet them; in other words, what metrics will you employ? You will need to consider evidence of failure or success in the compliance network participation as well as mechanisms to incentivize employees to be involved. The authors recognize that performance metrics for compliance network performance can be “elusive” but they believe that by having a map with ongoing checkpoints, which delineates the pathway between inputs and outcomes, can be a key technique to aid in measurement. The authors note that “Incentives include the extrinsic (community celebrations or letters or appreciation directed to managers or network members) as well as the intrinsic (learning something new or solving a problem quickly). High-performing network leaders manage to minimize bureaucratic review and tie performance to incentives quickly so that members feel pride, connection and even healthy competition.”

One of the goals of any compliance program is to become part of the fabric of a corporation. Ironically, some of the most innovative compliance initiatives are made by companies with a sole Chief Compliance Officer and a miniscule compliance budget who is forced to ‘do more with less’. Creating a compliance knowledge network can be one manner in which to leverage your employee talent base across your organization. However you go about it and whatever your reasons might be, in creating a compliance knowledge network, you will drive compliance into the DNA of your company.

 Episode 33 of the FCPA Compliance and Ethics Report is up. In this episode I visit with Bruce Carton, Founder and Editor of Securities Docket.com on his top SEC issues from 2013. You can check out the interview by clicking here. It is also available for download on iTunes.

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.

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