Ethical Behavior in the Navy – Lessons for the Non-Military Compliance Practitioner

What exactly is doing business in an ethical manner? I believe that the answer is different for each company. Ethical behavior can translate into doing business in a manner that does not jeopardize the safety of others and how you treat co-workers and subordinates. One of the things that I think ethical behavior entails is doing business within the rules, regulations and obligations of your business. For US companies doing business internationally, one of things this means is doing business within the parameters of the Foreign Corrupt Practices Act (FCPA).

But what if your business is named the US Navy? A recent article in the New York Times (NYT), entitled “Admiral at Center of Inquiry is Censured”, by reporters C. J. Chivers and Thom Shanker explored some of these issues. The article discussed the discipline action taken against “Rear Adm. Charles M. Gaouette, who led Carrier Strike Group Three, which included the aircraft carrier John C. Stennis, had been accused of using profanity in a public setting and making at least two racially insensitive comments, officials familiar with the investigation said.” The article noted that his “case arrived as a worrisomely large number of senior military officers have been investigated or fired for poor judgment, malfeasance, sexual improprieties or sexual violence over the last year.”

Further, the article reported that due to the number of such cases, the new Secretary of Defense, Chuck Hagel, sent out an internal memo to the Pentagon’s top brass, which was also provided to the NYT. In this memo, Hagel “urging a renewed “commitment to values-based ethical conduct.” Further Hagel said that “Each of us must rededicate ourselves to upholding the principles of sound leadership,” and that “Our culture must exemplify both professional excellence and ethical judgment.”

Interestingly, this discipline of Admiral Gaouette, was instituted by a compliant by Navy Captain Ronald Reis, the commander of the Stennis. Reis himself was accused of not following “normal protocols for driving the ship through busy shipping lanes, and ran a bridge in which the surface officers under his command felt tense and unable to offer their input, the officers said. Three officers and two former officers familiar with the ship’s bridge procedures said the captain tended to act alone and by eye, and not carefully track the Stennis’s position relative to other vessels in crowded seas; one of them said he tended “to fly the ship.””

Lastly, the article quoted the former officer for the following “We’re not talking about how Ron worked with the harbor pilot when docking at a pier. We’re talking about how he was driving through congested seas. People were concerned when he was driving because they were concerned he would hit something.”

According to the article, Gaouette was cleared of any criminal violations but was given a “set of administrative penalties which will effectively end his career” in the Navy as “the full inspector-general’s report was ordered to be attached to the admiral’s service record, where it will block his chances at promotion or future command, officials said.”

I recognize that most compliance practitioners do not work for the military but there are some very valuable lessons for the compliance practitioner that can be gleaned from the article.

Ethical Leadership

The few references in the NYT piece to Hagel’s internal memo are quite telling. Like most military organizations, the US Navy relies on strong discipline throughout the ranks. However, this does not mean that a senior officer can act abusively to lesser ranked officers. The article noted that “Navy officials declined to provide details, or discuss precisely what Admiral Gaouette said that Captain Reis and the inspector general deemed insensitive.” Nevertheless, whatever was said would be appear to outside what the Navy believed was tolerable. So intolerable in fact, that it ended Admiral Gaouette’s career.

Treatment of Whistleblower

It was Captain Reis who filed the complaint against Admiral Gaouette, not the other way around. The article reported that “After Admiral Gaouette had ordered the captain to slow down as the vessel was steaming through ship traffic in the Malacca Strait in excess of 20 knots, the officers said, Captain Reis filed a complaint to the inspector general, claiming the admiral was abusive.” The Navy followed through and investigated a senior officer in a situation where it appeared that the junior officer had engaged in conduct where the junior officer did not follow standard Navy protocols. In other words, the Navy did not blame the person who filed the complaint for his actions which may have even led to Admiral Gaouette’s interactions with the Captain.

Discipline

As noted, the conduct which Admiral Gaouette engaged in was so far out of line or unethical that it ended his Navy career. For any compliance program to work there must be both a carrot and a stick, meaning that violation of a company’s ethical values must be punished. In the Navy, abusing a subordinate is something that violates its standards for ethics based conduct. Nothing speaks more strongly than actions and for the Navy to discipline a senior officer in such a manner speaks directly to its commitment of “upholding the principles of sound leadership” that Hagel spoke about in his internal memo.

I found this article provided many things for the compliance practitioner to think about. It showed the Navy’s commitment to have an organization run with ethics. It may be that your company could learn something from this example.

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, 2013

Moving Compliance through an Organization

We often talk about tone at the top. But in many ways it is tone further down the organization which is more important for this is where the rubber hits the road and compliance is done on a day to day basis. I recently saw a couple of articles in the March/April Issue of the SCCE Magazine which discussed the “How-To” of compliance. They drove home several excellent ideas on specific steps that the compliance practitioner can use to move the compliance discussion from simply a tone from senior management that we will do business the right way down into middle and lower levels of the company where most of the business gets done.

The first article entitled “Success: You hit the target you aim at” is by Frank Navran . In this article, one of the things that Navran discussed was expanding on the “How-To” of making change in ethics and compliance occurs throughout the organization. He listed seven steps which he believed can not only make change happen but can make it stick as well.

1. Position, philosophy and belief. Interestingly, Navran begins not with a top down item but a bottom up approach. He believes that an “organization’s and senior leadership’s positions can typically be improved, supplemented, and/or modified with input from employees and other stakeholders.” Further, once all company stakeholders, both up and down the chain, have inputted into the organization’s core beliefs, they will become “integral to the identity of an organization.”
2. Formal organizational systems. Navran believes that formal systems are needed to guide everyone’s “day-to-day behaviors” in an organization. Without these formal structures in place, even the most robust informal system for doing business in an ethical and compliant manner can be “demolished by one or two serious infractions.”
3. Informal leadership systems. Navran nails this concept by stating the “Informal leadership is not about what we say. Rather it is about what we do.”
4. Measures, rewards and sanctions. Navran notes that typically what we measure is what you get. This makes it imperative that ethical standards are communicated as clearly as the “objective outcomes that are the more conventional measures of success.” It is equally important that the sanctions for non-ethical or non-compliant behavior be levied and such conduct not allowed to continue.
5. Communications and education strategy. It matters not only what we say but how we say it. Navran emphasizes that “If we want our commitment to ethics to be credible, then it has to be reflected in both our words and actions. It has to be mirrored in what we teach, both formally and by example.”
6. Response to critical events. Navran believes that the most important indicia “in determining what others believe to be our priorities is how we behave in response to a critical event. What we do when the stakes are high, time is short, and the pressure is on reveals our priorities and our principles.” So when the pressure is on and the whole world is watching, if leaders act according to their stated vows of doing business ethically and in compliance, this will send a strong signal to the rest of the company. And, simply put, if they do not employees will understand their true values.
7. Hidden agendas. If employees believe that leaders have a hidden agenda, they lose credibility as a leader. Navran thinks that it is important that the “perceived motives and agendas are consistent with how we behave and what we say, expect, or require of others.”

Navran ended his story with an interesting parable, that of the “wrong rock”. In this story, a manager asks you to perform a task, which is to go outside and get a rock. You do so. When you return, the manager says that you did not get the rock he wanted. Navran derives from this tale, that “If you know the goal and the associated success criteria, it is easier to succeed the first time.” So if doing business in an ethical and compliant manner is your goal, it will help employees if you provide to them the values you wish them to hold through your own actions.

The second article which caught my eye was authored by Shelley Aul and Christina Reese and is entitled “Your board is engaged, but what about management?” In this article, the authors discuss some of the questions presented at a session at the SCCE 2012 Annual Conference. In this session, they asked the following questions, “what about your organization’s “mood in the middle” and “buzz at the bottom”?” They listed some of the successes they heard from the conference attendees for engagement of all employees in compliance and ethics. The suggestions included:

1.      Create an Ethical leadership award - Award management and employees for going above and beyond expectations.

2.      Host an internal ethics and compliance conference - Have your company host an in-person or virtual conference with management where they learn about ethics and compliance topics that are important to them and their roles.

3.      Create ethics and compliance liaisons/champions/networks - Identify employees from across your organization who can act as an extension to your program. The representatives can be leveraged to share information with employees and they can relate information back to you to help improve the program.

4.      Create ethics and compliance targets and goals - Implement an ethics and compliance component into performance reviews and bonus goals for all employees.

5.      Sponsor Ethics and Compliance Week - Work with management to participate in a companywide Ethics and Compliance Week.

6.      Leverage internal company e-newsletters - Add a “Compliance Corner” to an already existing management-only e-newsletter. In doing so, you can provide information and scenarios to discuss in their department/team meetings, without having to create an additional email.

7.      Create Management toolkits - Develop a toolkit with ethics and compliance resources that management can easily use. Post the toolkit in an online portal and keep it updated when things change.

8.      Meet with new hires - A compliance department representative should meet one-on-one with new hires or newly promoted managers. Explain to them your role, the resources available to them and follow-up with them periodically. The compliance function should develop such relationships early.

9.      Develop peer-to-peer recognition programs - Proactively seek employees who are doing what’s right by asking them to nominate coworkers who have helped them in their jobs. Have management locally recognize those who are selected.

10.  Train the trainers – Train your management to cascade training by having them train their staff on ethics and compliance-related matters.

Both of these articles lay out some excellent, practical ideas that the compliance practitioner can put to use or use to measure a compliance program against. If you are not a member of SCCE, you should join, the reason being is that the information it makes available to the compliance practitioner makes it one of the best value compliance resources on the market.

———————————————————————————————————————————————————————-

Compliance Week needs your help! Compliance Week and Kroll Advisory have teamed up to undertake a major survey on corporate anti-corruption programs, and are asking compliance executives to participate. The survey itself—the 2013 ‘Global Anti-Bribery Benchmarking Report’—can be found here:

http://surveys.harveyresearch.com/se.ashx?s=0D146E2D11F8D225

The survey should take no more than 20 minutes to complete. It asks about the bribery risks you have, procedures you use to train employees and vet third parties, the size of  your compliance team, and more. Rest assured, all submissions will be secure and anonymous. The deadline to submit information is end of business on Friday, March 15.

Results of the survey will first be presented at the Compliance Week 2013 annual conference in Washington, May 20-22 (www.ComplianceWeek.com/conference), and later published in a special supplement of the Compliance Week magazine.

Anyone with questions can contact Compliance Week editor Matt Kelly at mkelly@complianceweek.com.

———————————————————————————————————————————————————————

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, 2013

How To You Move Ethical Values Down Through Your Company?

What do employees want most in their company’s values? That is a question that has plagued companies for many, many years. I would argue that one of the concepts which should be in the conversation is respect for a company’s ethical values. One of the tasks in any company is to get senior and middle management to respect the stated ethics and values of a company, because if they do so, this will be communicated down through the organization. This topic was explored in a recent article, entitled “If the Supervisors Respect Values, So Will Everyone Else”, in the Corner Office section of the New York Times (NYT), when reporter Adam Bryant interviewed Victoria Ransom, the Chief Executive Officer (CEO) of Wildfire, a company which provides social media marketing software.

Company Values

Ransom spoke about the role of senior management in communicating ethical values when she said “Another lesson I’ve learned as the company grows is that you’re only as good as the leaders you have underneath you. And that was sometimes a painful lesson. You might think that because you’re projecting our values, then the rest of the company is experiencing the values.” These senior managers communicate what the company’s ethics and values are to middle management. So while tone at the top is certainly important in setting a standard, she came to appreciate that it must move downward through the entire organization. Ransom came to realize “that the direct supervisors become the most important influence on people in the company. Therefore, a big part of leading becomes your ability to pick and guide the right people.”

Ransom said that when the company was young and small they tried to codify their company values but they did not get far in the process “because it felt forced.” As the company grew she realized that their values needed to be formalized and stated for a couple of reasons. The first was because they wanted to make it clear what was expected of everyone and “particularly because you want the new people who are also hiring to really know the values.” Another important reason was that they had to terminate “a few people because they didn’t live up to the values. If we’re going to be doing that, it’s really important to be clear about what the values are. I think that some of the biggest ways we showed that we lived up to our values were when we made tough decisions about people, especially when it was a high performer who somehow really violated our values, and we took action.” These actions to terminate had a very large effect on the workforce. Ransom said that “it made employees feel like, “Yeah, this company actually puts its money where its mouth is.””

Ransom wanted to make clear to everyone what senior management considered when determining whether employees “are living up to the company culture.” The process started when she and her co-founder spent a weekend writing down what they believed the company’s values were. Then they sat down with the employees in small groups to elicit feedback. Her approach was to look for what they wanted in their employees. They came up with five.

• Passion: Do you really have a thirst and appetite for your work?
• Humility and Integrity: Treat your co-workers with respect and dignity.
• Courage: Speak up – if you have a great idea, tell us, and if you disagree with people in the room, speak up.
• Curiosity: They wanted folks who would constantly question and learn, not only about the company but about the industry.
• Impact: Are you having an impact at the company?
• Be outward-looking: Do good and do right by each other.

Leadership

Ransom came to realize that as her company’s leader, more was expected from her. Her employees listened to what she said. This is one of the best descriptions of ‘tone at the top’ that I’ve seen. Ransom “started to realize how what you say can have such an influence. You can’t just say things off the cuff anymore, because people take it so much more seriously than you ever meant it. And that can be good and bad. The bad is that you might say something sort of flippant, or you’re trying to be really transparent and honest with the team about the challenges we may have. But that can get passed on down the line and repeated until there’s a panic.”

But equally important was what she does not say. This is because she learned “how comforting what I say can be to the team, even if I’m not giving the answers. I thought at first that I always needed to be able to give them the solution, but I realized that actually that wasn’t needed at all. All that was needed was acknowledging the challenges, and showing that we’re on top of it and we get it.”

Ransom had an equally valuable insight when she talked about senior management and ethical values. She believes that “the best way to undermine a company’s values is to put people in leadership positions who are not adhering to the values. Then it completely starts to fall flat until you take action and move those people out, and then everyone gets faith in the values again. It can be restored so quickly. You just see that people are happier.”

I found the Ransom interview to be quite useful to the compliance practitioner. She makes clear that ‘tone at the top’ is only one key to instituting ethical values throughout your organization. It also means ‘tone in the middle’ and ‘tone at the bottom’. But she points out not only how to establish that tone but more importantly how to walk the walk of ethics and compliance. Her interview also showed the importance of establishing the values that you want in your company. By doing more than simply writing and then announcing them, through her work with small employee groups she was able to get buy-in from everyone. This was more than communication, this was collaboration. If you make your employees feel that they are a part of the process you will have greater success in your mission to bring ethical values to your organization.

============================================================================================

Please join Patrick Taylor, CEO of Oversight Systems and myself tomorrow afternoon for a webinar on Anti Corruption and On-going Transaction Monitoring. The webinar will be at 2 PM EST and is free. For registration and information click 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, 2013

Leadership Lessons for the Compliance Practitioner from Abraham Lincoln

The recent film about Abraham Lincoln has focused the nation’s attention once again on the President that many believe was our greatest President. In a recent article in the New York Times (NYT), entitled “Lincoln’s School of Management”, Nancy F. Koehn, a historian at the Harvard School of Business, wrote about Lincoln’s experience in drafting and issuing the Emancipation Proclamation as “one of the best ways to appreciate his strengths as a leader.” I found that Koehn’s article was relevant to the Chief Compliance Officer (CCO) or other compliance practitioner as they tackle the job of instituting or maintaining a culture of compliance throughout an organization.

Stay True to Your Compliance Vision

During the initial period of the Civil War, when the Union suffered a series of military defeats at Bull Run and particularly in the Seven Days’ Battles, Lincoln described his state “as nearly inconsolable as I could be and live.” Nevertheless, Lincoln persevered throughout these dark times due to his “resilience and commitment to preserve the Union.” From this, Koehn believes that business leaders must have the “ability to experience negative emotions without falling through the floorboards.” This can certainly be true in the compliance world. Just as Lincoln’s deep faith nurtured his vision, the CCO or compliance practitioner needs to stay true to their vision of compliance and ethics for their company.

Gather Information from a Wide Range of People

One of the things that Lincoln was good at was “how he gathered advice and information from a wide range of people, including those who did not agree with him. This is important in building a business because you have to listen to customers, employees, suppliers and investors, including those who are critical of what you are doing.” The compliance practice is one business area where there are no trade secrets on how to operate a business. There may be specific issues relating to investigations or similar areas but generally most CCOs and compliance practitioners can find information about the evolving world of best practices from other CCOs and compliance practitioners. Of course there is a wealth of written information available as well. But beyond other CCOs and compliance practitioners, there is information available from the business folks in a company. Just because a business person pushes back on some compliance mandate does not mean they are wrong. Just as Lincoln took advice from those who did not always agree with him, a CCO or compliance practitioner should consider the input that they receive from outside the compliance department.

The Ability to Shift Gears

Koehn wrote that “Lincoln’s ability to shift gears during hard times — without giving up his ultimate goal — is a vital lesson for leaders operating in today’s turbulence. When I teach the case, many executives comment on the importance of shaping one’s tactics to changing circumstances.” Lincoln began drafting the Emancipation Proclamation in late June or early July of 1863. He initially told his Cabinet that he would release it on January 1, 1863. Secretary of State William Seward suggested that the President wait for a Union victory before issuing the Proclamation, “lest it seem the last measure of an exhausted government, a cry for help” to which Lincoln agreed. But after the Union victory at Antietam, Lincoln made the Proclamation public. This dramatically changed the nature of the war from one to save the Union to create a new United States to “one in which slavery was permanently abolished.”

I think that the message for the CCO or compliance practitioner is that you have to be ready to shift gears. One of the frustrations in the compliance practice is that things are constantly in motion if not in flux. But if your commitment to ethics and compliance is the underlying basis of your position, that can be your driving force. As with Lincoln you must communicate your commitment to this larger purpose of doing business with compliance and ethics.

Think Before You Send the Letter or Hit the Send Button

Koehn told the story of Lincoln’s great disappointment after the Battle of Gettysburg when the victorious Union General, George C. Meade, did not follow after the defeated Confederate Army of General Robert E. Lee. Lincoln wrote a letter to Meade expressing his dissatisfaction for Meade’s failure to follow up his victory. Lincoln wrote, “Lee was within your easy grasp, and to have closed upon him would, in connection with our other late successes, have ended the war.” He added: “Your golden opportunity is gone, and I am distressed immeasurably because of it.” But Lincoln did not send the letter. Indeed, “he placed it in an envelope labeled “To Gen. Meade, never sent or signed.” Koehn wrote “Imagine if e-mail had existed in Lincoln’s time and he had hit ‘send’ because he was distressed. The course of history might have taken a very different turn.”

This lesson is forbearance. With the instantaneous ability to communicate around the clock the CCO or compliance practitioner needs to consider the effect of their communications. Here I am not talking about stupid emails, although care should be taken not to engage in that FUBAR as well, but just as with Lincoln, a CCO or compliance practitioner need to face “the challenge of navigating their own and others’ emotions with forethought and consideration.” Sometimes, “the first action that comes to mind is not always the wisest.”

Communicating with Stakeholders

Koehn used the Gettysburg Address as a starting point for a discussion of the need for a CCO or compliance practitioner to communicate. If you desire to make a transformational change, you must communicate with your stakeholders. One thing that Lincoln assuredly did not do was lock himself in an ivory tower or the White House. Lincoln “traveled to battlefields to visit Union troops, and he held open “office” hours in the White House to receive interested citizens — and their countless requests.” Anyone who saw the movie “Lincoln” will remember the scene where he visited Union troops at a hospital, many of whom had lost their limbs in battle. I think that Koehn’s point is that he communicated his vision of what they were sacrificing for the War effort.

This point is absolutely critical for the CCO or compliance practitioner, you have got to put boots on the ground. Sitting in your office and doing the day-to-day work of compliance is simply not enough. First of all, your employee base will appreciate you much more if you get out into the field and will also communicate with you in a much more open manner. But, as important as the above are, this allows you to communicate your vision of doing business with ethics and compliance. This simply cannot be done from your home or corporate office. You must sell your vision to each and every stakeholder in your company.

Leadership Backbone

Koehn found that one of the things that business executives pointed to in any study of Lincoln as a leader was the “strength that Lincoln found to bear the death and destruction of the war and to weather intense opposition and still not relinquish his mission. If there is one point when Lincoln discovered his own leadership backbone, it was surely in conceiving and issuing the Emancipation Proclamation and then committing himself and the country to its broader consequences.” It is important to rise to a challenge if one appears while you are on the watch. Another point Koehn stressed is that the leadership skills Lincoln showed demonstrated that it is the responsibility of a leader “to serve all of the people, and not just one’s self-interest. Lincoln knew that success is best when shared.”

For the CCO or compliance practitioner I think that these points bring up a dichotomy that you must deal with quite often. Sometimes you must say No. You must stand up and tell the business people that you are not doing that deal; you are not flying government officials and their wives to the US in business class or whatever the business guys want to do that violates the Foreign Corrupt Practices Act (FCPA). However, sometimes it is important to understand that you work for a company which is in business to make money. As a CCO or compliance practitioner you can use creative lawyering to satisfy the needs of the business without violating the FCPA.

The best example I can give you is one of last year’s Opinion Release, 12-01, which found that, under the facts and circumstances described in the Opinion Release, a royal family member was not a government official for the purposes of the FCPA. Prior to this Opinion Release I would have said 100 times out of 100 that a royal family member was always a foreign government official under the FCPA. But some very creative lawyer took a question presented to him by a business unit and came up with a way not to violate the FCPA.

Koehn ends her piece with “Lincoln was able to learn and grow amid great calamity. His story, like no other, demonstrates that leaders do not just make the moment; they meet it and, in the process, are changed by it.” I think that the same can be true for any CCO or compliance practitioner. You need to be able to learn and grow to do your job. I hope that your tenure will not be so calamitous as Lincoln’s but his leadership lessons should be guideposts and inspirations to anyone with a difficult job that must listen to a multiplicity of voices.

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, 2013

Chesapeake Lighthouses and Lighting the Way for Compliance

In the winter 2013 issue of the Colonial Williamsburg magazine is an article by Michael Lombardi, entitled “Lighthouses Marked the Shoals of the Commerce Clause”. In this article, Lombardi wrote about four lighthouses authorized by Congress in the late 18^th and early 19^th century to light the way for sailors in Chesapeake Bay. The four lighthouses were the Cape Henry Lighthouse, the Old and New Point Comfort Lighthouses and the Smith Point Lighthouse. All four still exist today and one, the Old Point Comfort Lighthouse, is still in operation.

I thought about the story of these lighthouses and how they literally lit the way for sailors for over 200 years when I read an article in the Q2 issue of Ethisphere Magazine, entitled “Imagination Working with Integrity: How General Electric Creates a Global Culture of Ethics”, by Michael Price. Price discusses how General Electric (GE) has made “ethics and compliance a benchmark of its operations around the world, and is, in many ways the gold standard that other companies look to when it comes to modeling global compliance and ethics programs.”

I also considered these lighthouses in the context of how GE sets the tone for ethics and compliance and then communicates that commitment throughout its organization. Obviously it all starts at the top and GE is a prime example of this strength. Price noted that GE’s top brass meets annually at a conference where one of the frequent topics was ethics and compliance and the need for integrity in GE. Following this meeting of the GE senior management, they cascade down this commitment to middle management and emphasize the reputational risk to GE should there be a violation of the Foreign Corrupt Practices Act (FCPA) or other anti-corruption statute by the company. The middle managers then further cascade this message down so that it goes through the whole company at regular intervals.

Price made clear that one thing that GE will not tolerate is a manager who fails to take ethics and compliance seriously. This extends to managers who were ignorant of compliance issues in their units. He wrote that GE has “removed people from leadership positions when they didn’t know there was a problem”. GE demands that its management not only be aware of compliance in their units, but to ask “the right questions when they are faced with an uncertain situation”.

As you might expect from a company which has business in over 100 countries, GE has to work with many different cultural norms. It can be that “different cultures have different frameworks for understanding integrity and how to confront unethical conduct.” So, for instance, to overcome some cultural barriers of reporting unethical conduct GE has “five different pathways in which employees around the world can bring their concerns to management’s attention.” These pathways include the following:

• Employees can talk directly to their managers;
• Employees can go to talk to people in the compliance function;
• Employees can go to talk to someone in the legal department;
• Employees can take their concerns to HR; and
• Employees can report anonymously to an ombudsman through a variety of channels.

GE provides several types of training in each of these methods and has “Compliance Days” in “which the company discusses compliance issues and reiterates the importance about employees raising concerns about unethical practices.” The article makes clear not only how seriously GE takes compliance but that it believes its commitment to ethical practices makes it stand out as a market differentiator. I would say that ethics and compliance is even a lighthouse for corporate culture at GE, in many ways, leading the way by which GE does business and conducts itself.

I once worked for a major oilfield service company where it was clear that safety was the Number 1 priority. We started every meeting with a safety moment. Each year, there was one day where the entire company stood down and met on safety on a world-wide basis. Both of these techniques emphasized to me not only the importance of safety but that safety was my responsibility as well, even though I was a lawyer doing international transactional work. This was another lighthouse but it was one for safety.

As a recovering trial lawyer who has handled many personal injury lawsuits and then worked in the energy industry, I will always consider safety as Mission Number 1 but I would like to propose that ethics and compliance is Mission 1A in your company. Try some of the techniques that GE uses to communicate its commitment to ethics and compliance. It does not cost anything to have senior management meet with middle management and tell them about the company’s commitment to integrity. It does not cost anything to allow employees to speak with their immediate managers about concerns over unethical practices, go talk to someone in the compliance department or legal department about such concerns or report their concerns to HR. If you do not have an anonymous reporting line, it is about time you invested in one. I do recognize that many companies do not have an ethics and compliance ombudsman but the key concept there might be that by having such an impartial position, employees believe they will be treated fairly.

How about having a compliance moment before every meeting? By having such a moment before every meeting you can not only provide some teachable moments but also drive home the concept that compliance is everyone’s responsibility not just the responsibility of the compliance or legal department. How about a Compliance Day? If you cannot go that far, I would suggest that you hold a series of brown bag lunches where you talk about doing business with integrity through ethical and compliant business practices. You could hold them throughout the company.

One thing I learned as a lawyer is that you are only limited by your imagination. Try to get the message out because compliance is in many ways, the 21^st century lighthouse for doing business.

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, 2013

Leadership in the Compliance Function – Do You Encourage or Stifle?

There are many ways for a Chief Compliance Officer (CCO) to exercise leadership in not only the compliance function but also across the many disciplines in which compliance impacts in any corporation. In this Sunday’s New York Times (NYT), there were two diametrically opposite styles of leadership and management discussed in two articles. The first was found in the Corner Office Column, in an article entitled, “The Six Steps of Leadership (Plus Courage)” in which reporter Adam Bryant interviewed G.J. Hart, Chief Executive Officer (CEO) and President of California Pizza Kitchen. The second was found in the Off The Shelf Column where Fred Andrews, in an article entitled “The Military Machine as a Management Wreck”, discussed the recent book “Bleeding Talent” by author Tim Kane. I found that both of these articles provided some interesting techniques which the CCO or compliance practitioner could use in helping to set compliance as not only a key goal for any company, the articles also offered practical tips for day-to-day use in bringing the compliance perspective to the myriad of issues a compliance practitioner faces on a daily basis.

Hart related that his leadership style has evolved for the better because he has learned more patience and tolerance. He admitted that he used to “want things yesterday and would be very anxious about moving things along faster. But now I understand that tomorrow’s another day and that things will move along.” I have worked in industries where the joke was “If I want it today, I will ask for it tomorrow.” The reality, as put by Hart, is to think “about whether something really matters and how it will make a difference, versus thinking that everything matters and everything makes a difference.”

Hart said that the most important lesson he has learned is leadership qualities. He calls them “the six steps of leadership, surrounded by courage.” He believes that courage is always implicit because in any leadership role, you are stepping out, having the courage to be different “because you have to be different to be a leader.” Hart’s six steps are:

1. Be the best you can be. Hart relates that you cannot “lead anybody if you can’t lead yourself. So you have to be honest with yourself about your good qualities, your bad qualities and the things you need to work on.”
2. Dream and dream big. Hart recognizes that there is a “world of possibilities for yourself and for your organization.” You must have a dream and you must move towards it. This does not mean that you will “ever necessarily get there, but if you don’t dream, you’ll never even get started.”
3. Lead with your heart first. Hart believes that your employees need to see that you are human and that you have a “human side” by showing people that you have compassion. It is all about being real. He states “It doesn’t mean that you don’t set expectations and standards. But if you lead with your heart, people figure out whether you’re genuine, whether you’re real.”
4. Trust the people you lead. Hart recognizes that this may be the hardest trait for a leader to develop because this trait is all about letting go as a leader and allowing your employees to grow into their own style of leadership roles. Hart believes that only by allowing your employees to learn by making their own mistakes or falling down and picking themselves up and moving forward will they grow professionally. He believes that your role as a leader is to pick them back up.
5. Do the right thing, always. Hart recognizes this is easy to say but as a leader this is where the rubber meets the road. In leadership Hart emphasizes that if your choice is following a rule or doing the right thing, you should do the right thing. He believes that this is particularly true “as it relates to people, and you genuinely believe in that person, sometimes it takes courage to do the right thing and give that person a second chance. Because we’ve all made mistakes and somebody picked us up.”
6. Serve the people you lead. Hart believes that leadership is ultimately “about serving the people you lead.” It means that you should put a cause before yourself and to lead to make a difference. He ends noting that his role as a leader is to be “a catalyst for change, to create an environment where people can grow and prosper.”

In Andrews’ article, he wrote that the US military is now an “institution which is idiotic.” Andrews writes that Kane believes that “it dictates the jobs, promotions and careers of the millions in its ranks through a centralized, top-down, one-size-fits-almost-all system that drives many talented officers to resign in frustration. They leave, he says, because they believe that the military personnel system — every aspect of it — is nearly blind to merit.” This is in spite of the fact that Kane believes that “America’s armed forces are a leadership factory. He goes on to say that “former military officers are three times as likely to become corporate C.E.O.’s as their raw numbers would suggest.”

So what is the problem? Kane believes that “the root of all evil in this ecosystem” which is the Defense Officer Personnel Management Act, enacted by Congress in 1980. Andrews writes that this Act “binds the military into a system that honors seniority over individual merit. It judges officers, hundreds at a time, in an up-or-out promotion process that relies on evaluations that have been almost laughably eroded by grade inflation. A zero-defect mentality punishes errors severely. The system discourages specialization — you can’t expect to stay a fighter jock or a cybersecurity expert — and pushes the career-minded up a tried-and-true ladder that, not surprisingly, produces lookalikes.” Kane’s revolutionary idea to overcome this inertia is to create “an internal labor market for job assignments and promotions.” This change would allow a commander to choose a subordinate rather than having the Pentagon make the decision for him or her.

I have worked in both types of organizations. I can personally attest to the greater creativity and flexibility which led to greater innovation, where leaders viewed themselves as stewards such as Hart believes himself to be. I have also worked in military like organizations where the thing that got one promoted was be as similar to the next level up the rank and where innovation was definitely not viewed as a plus. The difficulty for a CCO may be that he or she works in such an organization. But even if a CCO or compliance practitioner does work in a military style organization, Hart’s six elements of leadership can be used to create a more vibrant, and ultimately successful, compliance program.

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, 2013

Banks Behaving Badly or Brother Can You Spare A Billion (or Two)?

Remember when a billion dollars was real money? Over the past couple of weeks there have been some mammoth fines paid by financial institutions for conduct, which would appear to fall under the category of “Banks Behaving Badly”. Last week HSBC agreed to pay a fine of $1.92 billion for its transgressions involving money laundering. UBS is in the final stages of negotiations to pay $1.5 billion to resolve allegations that it tried to rig interest rate benchmark (i.e. ‘Libor’) to boost trading profits. Finally, on December 10, coming in at a paltry $327 million are our old friends Standard Chartered, which admitted processing thousands of transactions for Iranian and Sudanese clients through its American subsidiaries; subsequently to avoid having Iranian transactions detected by the US Treasury Department computer filters, Standard Chartered deliberately removed names and other identifying information, according to the authorities. All in all, it’s not been a bad couple of weeks for the US Treasury, given the current stalemate over the ‘fiscal cliff’ and the need to reduce the US deficit.

For those of you keeping score at home, we present our updated Banks Behaving Badly Box Score of Settlements

Banks Behaving Badly – Box Score of AML Settlements

Bank	Amount	Date of Settlement
Lloyds TSB Bank	$567MM	December 2009
Credit Suisse	$536MM	December 2009
ING Bank	$619MM	June 2012
Royal Bank of Scotland	$500MM	May 2012
Barclays	$298MM	August 2012
Standard Chartered – NY state	$340MM	August 2012
Standard Chartered – Federal	$327MM	December 2012
HSBC	$1.92 BN	December 2012
Total	$4.004BN

Banks Behaving Badly – Box Score of Libor Manipulation Settlements

Bank	Amount	Date of Settlement
Barclays	$450MM	June 2012
UBS	$1.5BN (proposed)	December 2012?
Total	$1.95BN (proposed)

If you do not have a calculator handy, for the 2012 banking season alone, that is $4,004,000,000 all going to the US Treasury thanks to our friends at Banks Behaving Badly. If you want to sneak-a-peak at what it might look like if the UBS settlement comes through just add on an additional $1.5 bn so that is over $6 billion in fines, penalties and disgorged profits from one industry sector in one year. And people have the temerity to complain about the energy industry being corrupt.

So what is the cause of ‘Banks Behaving Badly’? Back in June, at the time of the Barclays Libor manipulation settlement, the Financial Times (FT) wrote on its Op-Ed page in the piece entitled “Shaming banks into better ways” that “few have shone such an unsparing light on the rotten heart of the financial system” and then went on to say “nothing less than a long-running confidence trick played on the public for personal and institutional advantage” and even pointed out the “rotten culture at Barclays”. The FT editorial clearly focused on ethics when it said “But beyond the questions about legality there is a bigger worry about the wayward behavior of the financial sector.” The FT editorial concluded by telling banks that if “banker-bashing is to stop, the banks themselves must change.” Typical British understatement at its finest wouldn’t you say?

The HSBC settlement was announced by Lanny A. Breuer, Assistant Attorney General of the Justice Department’s Criminal Division. In the Department of Justice (DOJ) Press Release it was reported that HSBC received a Deferred Prosecution Agreement (DPA) which required, among other things, that it “committed to undertake enhanced AML and other compliance obligations and structural changes within its entire global operations to prevent a repeat of the conduct that led to this prosecution.  HSBC has replaced almost all of its senior management, “clawed back” deferred compensation bonuses given to its most senior AML and compliance officers, and has agreed to partially defer bonus compensation for its most senior executives – its group general managers and group managing directors – during the period of the five-year DPA.  In addition to these measures, HSBC has made significant changes in its management structure and AML compliance functions that increase the accountability of its most senior executives for AML compliance failures.” There will also be an independent outside monitor appointed to oversee the bank’s compliance efforts and report periodically to the DOJ.

Even with all the above and the fines, penalty and profit disgorgement, the DOJ has come under withering criticism for its failure to both let HSBC off so lightly, with a DPA, where “HSBC Bank USA failed to monitor over $670 billion in wire transfers and over $9.4 billion in purchases of physical U.S. dollars from HSBC Mexico” and no individuals were indicted. CNN reported that Sen. Charles Grassley, R-Iowa, sent a stinging letter to Attorney General Eric Holder, calling it “inexcusable” for the department [DOJ] not to prosecute criminal behavior by HSBC. Senator Grassley’s letter was quoted as saying, “What I have seen from the department is an inexplicable unwillingness to prosecute and convict those responsible for aiding and abetting drug lords and terrorists.” Further, “By allowing these individuals to walk away without any real punishment, the department is declaring that crime actually does pay,” Grassley asserted.

Halah Touryalai, in an article entitled “Final Thought On HSBC Settlement: How Much Bad Behavior Will We Tolerate?” in forbes.com, put it another way. Touryalai asked “What’s a bank got to do to get into some real trouble around here?” She went on to say, “So, let’s get this straight. A major global bank failed to catch activity that put our country’s security at risk and now it is sorry… The HSBC case brings to the forefront a big question for the U.S.: How much are we willing to tolerate from financial services companies? If we’re looking at the HSBC case then a lot, apparently.” Finally, Touryalai spoke for many when she said, “The scary part about the HSBC settlement is that U.S. authorities are essentially saying they couldn’t act on criminal charges because it would harm the larger financial system. That’s got many calling HSBC (and potentially others) too-big-to-jail.”

However, the DOJ had many data points to factor into its calculus on settlement. First, and foremost, (apparently) remains Arthur Anderson. If the DOJ had pushed for a criminal settlement, would it have debarred HSBC from doing business with the US government or its monies going through the US banking system? What would be the effect of such a remedy? What if the DOJ had pushed too far and HSBC felt it had no choice but to go to trial, would they have been Arthur Andersen’d out of business? Perhaps this is a variant of the “too big to fail” argument, called the ‘too-big-to-put-out of business’ argument.

But there is another reason for the specific terms of the HBSC settlement, which was discussed by Lanny Breuer during the news conference. He stressed the extraordinary cooperation by HSBC during the investigation in addition to the structural changes the bank put in place as noted above. If the DOJ wants to obtain the highest level of cooperation from a defendant during an investigation, turning around after such cooperation and indicting either the entity or a bunch of its employees will most probably end such a level of cooperation. My guess is that the DOJ wants to encourage as much cooperation as it can from parties under investigation. That would include greater compliance after the resolution in addition to extraordinary cooperation during the investigation. However this may not be enough to quell the critics. So the DOJ may be stuck in the position of damned if they do (indict) and damned if they don’t (indict).

But whatever your take on the DOJ’s position as to HSBC, it certainly has been a year of reckoning for “Banks Behaving Badly”.

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, 2012

The Ethical Business Compact-A New Compliance Best Practice?

Found on page 54 of the recently released Department of Justice (DOJ) Guidance on the Foreign Corrupt Practices Act (FCPA) is the following language:

“Chapter 8 of the Sentencing Guidelines, which governs the sentencing of organizations, takes into account an organization’s remediation as part of an effective compliance and ethics program.”

Chris Bauer, among others, gently chides me from time-to-time that I do not put enough emphasis on ethics in a FCPA compliance program. Probably part of the reason is that, with my legal training, I tend to think of rules, regulations and laws as the guideposts for corporate conduct. Chris, once again among others, reminds us that corporations are made up of people and that there can never be enough rules and regulations to cover every situation. So if employees have the right ethical compass they would tend to do the right things in business going forward.

Yesterday, at the Hanson Wade Pharmaceutical Anti-Corruption Compliance Conference, I heard a talk by Jay Mumford of Ethisphere on the Health Care Industry Executive and Company Conduct Compact. Jay’s talk focused largely on the ethics component of compliance and ethics and he talked about an Ethisphere initiative which helps company’s in the health care industry to add an ‘ethics’ component to compliance and ethics. Jay began his talk by pointing out the loss of trust that Americans have in various industries and corporations. When most Americans, generally, have such a lack of trust, as after the 2008 financial meltdown, they turn to more regulations. The financial meltdown and the perception that the financial industry caused it led to the passage of the Dodd-Frank legislation. Jay pointed out that the 848 page long Dodd-Frank bill now has over 8000 pages of regulations interpreting this law. He said that the law firm of Davis Polk has estimated that this is only 1/3 of the total page number of regulations to come to implement Dodd-Frank. His point was stark and clear, there is absolutely, positively no way that any corporation or person could know all the regulations.

One of the things that Ethisphere tries to bring to the compliance and ethics debate is a manner to rise above the rules-only approach. They recently initiated a new program in the Life Sciences Industry called the Company Conduct Compact “Compact”. This Compact is designed to reduce the probability of corporate misconduct and to help to set up an affirmative defense if an individual prosecution action is in the offing. The Compact itself offers companies and individuals a method to proactively commit to a set of heightened ethical principles and specific behaviors, based upon the elements found in the US Federal Sentencing Guidelines.

The Compact is designed to be executed by both the Chief Executive Officer (CEO) and top Senior Management in a company. It is set up to align with the company’s overall compliance efforts. The commitments made in the Compact are subjected to external verification and testing. Each commitment is set out in writing for each signatory and the CEO commits his or her organization to the seven principles set out in the Compact. The seven principles are as follows:

1. Written Policy and Procedures. The organization will have a comprehensive written set of policies and procedures that establish a best in class compliance program, including a Code of Conduct, company-wide policies and procedures and specific internal controls for each department. The leader commits to proactively identifying, preventing and correcting behaviors that are not consistent with the company’s values. If the leader has a disagreement with the standards, he or she will work within the system to address them.
2. Program Oversight. The company will ensure that the compliance function has vigorous support from management and the Board of Directors, is well-resourced and financed and has appropriately elevated status within the company. The leader commits to full, consistent and active implementation of the company’s compliance regime and will give the time, attention and resources to support his or her area of responsibility within the overall compliance structure.
3. Education and Awareness. The company commits to periodically and in a practical manner educate employees on its standards and procedures, through effective training. The leader commits that all of his direct reports will complete all required compliance and ethics training in a timely manner and that if these direct reports do not do so, the leader’s compensation may be effected. The leader will also attend a number of live compliance and ethics training sessions for employees to emphasize the importance of it throughout the company.
4. Monitoring and auditing; reporting channels for concern. The company shall embrace both ongoing monitoring and auditing as techniques to help ensure that its compliance program is followed. The company shall periodically assess the effectiveness of its compliance program and maintain a dedicated reporting channel which can be used anonymously. The leader commits that at least once per quarter he or she will sit down individually with the Executive Leadership Team (ELT) and ask them what specific steps they are taking to help the company do business in a compliant manner. There shall also be a strong commitment to the creation of a culture of no retaliation for reporting of compliance violations.
5. Enforcement and discipline incentives. The company will enforce its compliance program through both incentives and discipline. There should be a portion of compensation based upon doing business ethically. The leader commits to enforcing the company’s ethical standards, through both positive and negative incentives, including him or herself, through an agreement for claw backs if a FCPA violation occurs on his or her shift. The leader believes that senior management should be held to a higher standard and embraces that obligation.
6. Response and prevention. This commitment means that after misconduct has been discovered, the organization shall take reasonable steps to respond appropriately and prevent further similar misconduct. The leader commits to learn what has happened, why it happened and how to prevent it from occurring again. He or she will not shift the blame to ‘the system’ but will work to prevent it from occurring again.
7. Risk management. Here there is a commitment to periodically assess the risk of misconduct and the signatory shall take appropriate steps to aid in the design, implementation or modification of the company’s compliance program to reduce the risk of misconduct. The leader commits to actively manage the compliance risks that an organization faces no ‘out of sight, out of mind’ mentality for thee. The risk assessment process must be embraced.

While sitting through Jay’s presentation I initially thought that no CEO would agree to such obligations, but as they are largely based on obligations which already exist, legally I do not see much downside to a CEO and senior management agreeing to such obligations. As Jay pointed out, one of the very large reasons for signing this Compact and performing its obligations is to present a viable defense if the DOJ comes knocking. But more than simply another defense, the Compact really does help a company to demonstrate to its employees, its shareholders and its business relations a commitment to doing business ethically. As I told Jay after his talk, primarily I thought this initiative was so far out in left field it had no chance of success. However, what may be today’s initiative from left field may be tomorrow’s ‘Enhanced Compliance Obligations’ and next year’s new best practices in compliance. The Ethisphere Compact certainly is something that companies can and should consider.

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, 2012

Doing More with Less in Your Compliance Program (Not the 2013 Astros)

It was reported today that the Houston Astros pitchers and catchers report for Spring Training on February 11, 2013, with position players reporting on February 15. I thought about how much I used to look forward to Spring Training in conjunction with the phrase that I think that most people are aware of ‘how to do more with less’. Could it be that my Astros will try and do more with less next year? Alas, I do not believe that will be the situation with the Astros, who have apparently decided to do ‘less with less’ by not spending any of the $80MM they receive from the local television contract on their $30MM payroll. Either new owner Jim Crane needs some serious money to service his mountain of debt or he is just keeping the money and laughing all the way home. One thing neither Jim Crane nor I am laughing about is the smack down the Houston Texas received by the New England Patriots on Monday Night Football this week. Being on the short side of two ‘friendly’ wagers for this game, keep checking out my blog, as you will soon see me gracing a Patriots jersey so stay tuned. And for Matt and Jay, I wear an XL.

The Astros upcoming season came to mind when I was reading a recent Corner Office section in the New York Times (NYT), where reporter Adam Bryant interviewed Sandra L. Kurtzig, chairwoman and Chief Executive Officer (CEO) of Kenandy, in an article entitled “Don’t Chase Everything That Shines”. One of the things that Kurtzig said which struck me was “I am conservative in hiring. I don’t over-hire. The reason is that you can get a lot more work done with fewer people. If you have a lot of people, you have to give them something to do, and you have to give them something to manage, and then you have to manage them. You can get a lot less done. So you want to have a core set of people while you’re really trying to discover your product, your direction, your market. And the more people you have, the more difficult it is to take risks because it affects a lot more people.”

Kurtzig takes this same attitude to making decisions, particularly in the area of business opportunities. She was quoted as saying, “I don’t run after “shiny objects.” That’s a mistake that a lot of people make in running a company, especially in starting one. They tend to get a lot of opportunities from people who want to partner with them. And these are just shiny objects, because there are very few partners that end up being right for your company. So I’m much more selective. If I hear something, I’m very quick to think, ‘Hey, that’s a shiny object; let’s get back to work.’ I think that’s what’s so distracting to a lot of companies — they see a big customer or some other distraction, and they spend too much time on it and they lose their way.” This thought about not running after shiny objects; I think that it may be one of the most overlooked aspects of due diligence on third parties. An evolving best practice regarding third parties must include a step that requires a business unit person to provide a business case as to why your company may need another third party to provide the services, goods or products; whether on the sales side or in the supply chain. This Business Justification should be obtained before you send out your questionnaire, assign a risk ranking or begin due diligence. There needs to be a valid business reason for going through the time and expense of looking at another third party representative and not simply because someone wants another company.

Kurtzig said that one thing she strongly believes in is transparency. She said that she is constantly asking her employees for their opinions. So, for instance, she asks “what they like about their job and what they don’t like about their job. What can we be doing better? In your previous job, how did you do it? What worked better and what worked worse than what we are doing now?” She believes that you must really listen to someone, “two-way conversations are an important ingredient for building a company. Nowadays, I hear that so many younger people who are starting companies are so used to working on the Internet that they tend to send only e-mails and communicate with their screens more than they communicate with people around them. You need to interact with people and not just your computers.”

I often write about the need to listen as a part of your compliance program. Today, Jeffery Spalding, Assistant General Counsel at Halliburton, spoke at the Hanson Wade Pharmaceutical Anti-Corruption Compliance Conference that I am attending in Philadelphia. One of the things he spoke about is the live compliance training that Halliburton puts on around the globe for its employees. In addition to the benefits of receiving live training, employees get to meet Jeff and put a face to a name. He gets to not only meet them but hear some of their concerns in person. This leads to much better chance that they will call him for compliance advice in the future. One of the key points he highlighted is that he listens and that engenders respect from the company’s employees across the globe.

I found the Kurtzig interview to provide some interesting and well placed management pointers which have application to a compliance program and are useful to compliance practitioners. Now if I could just get the Astros to use some of them.

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, 2012

Using History to Create or Rebuild a Compliance Culture

I have wondered how organizations such as Siemens, Alcatel-Lucent or any others that have faced a wide-ranging, global charge of systemic bribery and corruption might change their culture. Many others have written about the structural changes that such companies have made. For instance, the compliance monitor for Alcatel-Lucent, Laurent Cohen-Tanugi, was quoted in a recent Corporate Crime Reporter article, entitled “Alcatel-Lucent Monitor Questions Morgan Stanley FCPA Declination”, as saying “I’ve noted a very significant change in the tone at the top since the time of those events that led to this deferred prosecution agreement. These changes are due to a number of factors – such as the merger between Alcatel and Lucent. Most of the facts predated the merger. But also the new leadership that came to the company – in the persons of Ben Verwaayen and Philippe Camus. I have noted that the company has in place the policies and processes that are generally expected to fight corruption. And that is very good news.”

Another method was used by the first Chief Executive Officer (CEO) who came into Siemens after its bribery and corruption scandal. One of the things that Peter Löscher did in his first 100 days with the company was to go on a round the world tour of the company’s facilities, including meetings with employees, customers and local governmental officials. He accomplished this final component through meetings with local leadership teams, town hall-style meetings with all employees and dinners with top leadership teams in specific locations. He basically learned that Siemens employees were “shocked and ashamed, because they were very proud to be a part of Siemens.” They wanted him to help clean up the company and they communicated that to him in these town hall meetings.

I have worked for and with a number of companies that may seem to have lost their compliance path and have become embroiled in a lengthy Foreign Corrupt Practices Act (FCPA) or UK Bribery Act investigation. They may need to try and change a culture that has slipped down a path that needs redirecting. I was, therefore, interested to read a recent article in the December issue of the Harvard Business Review (HBR) by John Seaman Jr and George David Smith, entitled “Your Company’s History As A Leadership Tool”, where the authors write about a different manner in which to change or modify culture, or what I call the “historical path.”

The authors begin by stating they believe that “For a leader who hopes to take an organization into the future, one of the most powerful tools may be a sophisticated understanding of its past.” To accomplish this, the authors advocate thinking like a historian because they believe that if you do not know where you have been, it is difficult to know where you are going. By this they mean that you should base any serious decision on facts. Next, you must be willing to treat facts “with intellectual integrity – viewing them with an open mind and a willingness to be surprised.” The authors recognize that many CEO’s are faced with great pressure regarding “quarterly earnings reports and the need to react to one crisis (real or perceived) after another,” yet they believe that the best leaders have “a long range perspective on the companies they manage.”

I believe that most employees want to engage in business ethically and that they do not want their company to be known as one which engages in illegal conduct, such as FCPA or UK Bribery Act violations. Employees want their companies to be successful because of better products, better services and better delivery of both to their customers. They want to understand, be a part of and have a sense of legacy for the company that they work for and the people that they work with as employees. To help facilitate this, the authors suggest that a company can engage in seven steps to help understand where a company has been to in order to help guide it where it may be going in the future. The authors call this the “Seven Tips for Getting History on Your Side” and they are:

1. Company Archives. Your company should begin with the archives. You should visit or begin compiling your company’s archives. The authors believe that your company’s history is “only as good as the raw material – documents, images and artifacts – that you have at your disposal.”
2. Enrich. You should expand and enlarge your company’s archives through interviews with departing executives and long-term employees and here the authors advise “especially the outlaws and the iconoclasts.” These interviews will help to ‘flesh out the written record, which often omits the rationale for decisions or fails to note what might turn out to be important ideas or events.”
3. Survey. Your company should find out what is known about your company’s values and history through surveys. The authors believe that this can assist in separating “fact from fiction, identify missing pieces which you will need to address and begin to understand how history has shaped perceptions about your company today.”
4. Dialogue.  Encourage your employees to engage in a dialogue about your company. Use social media to “capture stories about the company’s past” and about what the meaning of the past has for your company’s work and values today.
5. Post-mortems. Conduct post-mortems on major projects and initiatives – both the successful and unsuccessful. You must recognize that you can learn as much from failure as you can from success.
6. Perspective. Your company should seek to entertain a historical perspective “before every new decision, whether it involves a new strategy, a major acquisition or investment, or a new marketing campaign or communications initiative.”
7. Talk-Up. Your company should talk about its rich history. Its leaders, breakthrough innovations and decisive impacts and “what it says about the company you are today or want to become.”

The authors conclude by stating that “A company’s store of experience—its evolving culture and capabilities, its development within the broader contexts in which it has competed, and its interactions with government and other forces—shapes the choices executives have to make and influences how people think about the future. Great leaders respect and honor that basic truth.”

If your company needs to refocus its commitment to compliance, in addition to the compliance processes and procedures that you will need to install or enhance, you may be able to call upon a rich corporate history to assist you. It is there if you look for it and what you find may be similar to what Siemens CEO Peter Löscher found at Siemens, that employees were both proud of their company and ashamed that it had engaged in such bribery and corruption. But you do have to look.

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, 2012