FCPA Compliance and Ethics Blog

July 24, 2014

Code of Conduct, Compliance Policies and Procedures-Part III

Policies and ProceduresToday, I continue with Part III of my four-part series on the best practices surrounding your Code of Conduct and anti-corruption policies and procedures. In this post, I take a look at drafting policies and procedures. I conclude with some thoughts by well-known policy pundit Michael Rasmussen on management of policies going forward.

One of the key components of any best practices compliance regime under any anti-bribery and anti-corruption program is policies and procedures. Policies and procedures tie together a company, its business environment, the risks it faces and the compliance requirements. Policies procedures are a specific requirement for any anti-corruption/anti-bribery compliance regime. In the FCPA Guidance it stated, “Whether a company has policies and procedures that outline responsibilities for compliance within the company, detail proper internal controls, auditing practices, and documentation policies, and set forth disciplinary procedures will also be considered by DOJ and SEC.” Under the UK Bribery Act, policies are discussed in the Six Principles of an Adequate Procedures compliance program under Principle V – Communication, where it states “The business seeks to ensure that its bribery prevention policies and procedures are embedded and understood throughout the company through internal and external communication, including training, that is proportionate to the risks it faces.”

As further stated in the FCPA Guidance, “Among the risks that a company may need to address include the nature and extent of transactions with foreign governments, including payments to foreign officials; use of third parties; gifts, travel, and entertainment expenses; charitable and political donations; and facilitating and expediting payments.” Policies help form the basis of expectation and conduct in your company and Procedures are the documents that implement these standards of conduct.

Borrowing from an article in the Houston Business Journal (HBJ) by John Allen, entitled “Company policies are source and structure of stability”, I found some interesting and important insights into the role of policies in any anti-corruption compliance program. Allen says that the role of policies is “to protect companies, their employees and consumers, and despite an occasional opposite outcome, that is typically what they do. A company’s policies provide a basic set of guidelines for their employees to follow. They can include general dos and don’ts or more specific safety procedures, work process flows, communication guidelines or dress codes. By establishing what is and isn’t acceptable workplace behavior, a company helps mitigate the risks posed by employees who, if left unchecked, might behave badly or make foolhardy decisions.”

Allen notes that policies “are not a surefire guarantee that things won’t go wrong, they are the first line of defense if things do.” The effective implementation and enforcement of policies demonstrate to regulators and the government that a “company is operating professionally and proactively for the benefit of its stakeholders, its employees and the community it serves.” If it is a company subject to the FCPA, by definition it is an international company so that can be quite a wide community.

Allen believes that there are five key elements to any “well-constructed policy”. They are:

  • identify to whom the policy applies;
  • establish the objective of the policy;
  • explain why the policy is necessary;
  • outline examples of acceptable and unacceptable behavior under the policy; and
  • warn of the consequences if an employee fails to comply with the policy.

Allen notes that for polices to be effective there must be communication. He believes that training is only one type of communication. I think that this is a key element for compliance practitioners because if you have a 30,000+ worldwide work force, simply the logistics of training can appear daunting. Small groups, where detailed questions about policies can be raised and discussed, can be a powerful teaching tool. Allen even suggests posting FAQ’s in common areas as another technique. And please do not forget that one of the reasons Morgan Stanley received a declination to prosecute by the DOJ was that it sent out bi-monthly compliance reminder emails to its employee Garth Peterson for the seven years he was employed by the company.

Interesting, Allen emphasizes, “having policies written out and signed by employees provides what some consider the most vital layer of communication. A signed acknowledgement can serve as evidentiary support if a future issue arises.” I also like it when others recognize my ‘Document, Document and Document’ mantra for FCPA compliance.

While I think that most compliance practitioners understand this need for policies and procedures, one of the things that is not usually emphasized at a company is effective policy management. Michael Rasmussen writing in Compliance Week in an article entitled “Improving Policies Through Metrics” discussed the need for effective policy management. He believes that it requires that a company must periodically review their policies to ensure that they are relevant and aligned with both current laws and corporate objectives. This is because today’s business environment is dynamic and involves both internal and external factors, so, consequently, as a company evolves and changes its policies need to be updated to reflect these changes.

Rasmussen believes that at a minimum, policies must be reviewed annually. He recommends that each policy should go through a yearly review process to determine if it is still appropriate. There should be a “system of accountability and workflow that facilitates” any policy review process. The end product should be a decision to “retire the process, keep the policy as it is, or revise the policy.” Rasmussen lists five items that a policy owner should evaluate as a part of the policy review process.

  • Violations. Here Rasmussen believes that information from reporting systems such as hotlines or other anonymous lines as well as internal or external investigations must be reviewed. Not only would such information indicate if a company policy was violated but the follow-up investigation would help to determine how the policy might have failed, whether it was through “lack of awareness, unauthorized exceptions [or] outright violations.”
  • Understanding. Here Rasmussen writes that there should be an analysis of “training and awareness programs, policy attestations” and attendant metrics to determine an appropriate level of policy understanding. He believes that questions to a helpdesk or compliance department could help to discover any ambiguities in a policy that might need to be corrected.
  • Exceptions. If you have a policy it should be followed. If an exception to a policy was granted the reason for the exception should have been documented. If there are too many exceptions granted for a policy, it might indicate that “the policy is inappropriate and unenforceable” and therefore should be revised.
  • Compliance. A policy should govern and authorize internal controls. These internal controls should be reviewed in conjunction with the policy review to determine overall policy effectiveness. This is because “At the end of the day the policy needs to be complied with.”
  • Environment. All the factors around a policy are in flux. This includes a company’s risk profile, its business strategy, laws and regulations. Since a business’ climate is dynamic, a policy should be reviewed in the context of a company’s overall situation and revised accordingly.

If there is a change in a policy it is important that not only the correct change be made but that any change is documented. An audit trail is a key component for a company to internally understand when a change is made and the reason for that change but also to demonstrate to a regulator effective policy management and to present “a defensible history of policy interactions on communications, training, acknowledgements, assessments and related details needed to show the was enforced and operational.” This audit trail should include “key data points such as the owner, who read it, who was trained, acceptance acknowledgements and dates for specific policy versions”. In addition to an audit trail, policy revisions should be archived for referral back at a later time. So, once again, the key message is document, document and document.

Just as best practices in the FCPA compliance arena evolve, so do business practices, markets and risks. If you throw in the complexities from an inter-connected global business milieu, the task becomes even tougher. Business policies are one of the keystones of a company’s communications to its employees on what it expects and what is required of its employees. To keep policies up-to-date and properly take advantage of this valuable tool, policies need to be evaluated and updated as appropriate. If your company fails to do so this takes away from the value of having policies in the first place. I hope that you will use the techniques which Rasmussen has described to help you effectively manage your policies going forward.

The FCPA Guidance ends its section on policies with the following, “Regardless of the specific policies and procedures implemented, these standards should apply to personnel at all levels of the company.” Allen puts a bit differently in that “it is important that policies are applied fairly and consistently across the organization.” He notes that the issue can be that “If policies are applied inconsistently, there is a greater chance that an employee dismissed for breaching a policy could successfully claim he or she was unfairly terminated.” This last point cannot be over-emphasized. If an employee is going to be terminated for fudging their expense accounts in Brazil, you had best make sure that same conduct lands your top producer in the US with the same quality of discipline.

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, 2014

July 23, 2014

Code of Conduct, Compliance Policies and Procedures-Part II

Policies and ProceduresThis week, I am reviewing the importance of a Code of Conduct and anti-corruption compliance policies and procedures in your compliance program and how you should go about drafting or updating Code of Conduct and anti-corruption compliance policies and procedures. Yesterday, I reviewed the underlying legal and statutory basis for the documents as a foundation of your overall anti-corruption regime. Today, I want to look at how to go about drafting your Code of Conduct. In subsequent posts, I will consider both anti-corruption compliance policies and procedures and how to assess, review and revise them and your Code of Conduct on a timely basis.

What is the value of having a Code of Conduct? I have heard many business folks ask that question over the years. In its early days, a Code of Conduct tended to be lawyer-written and lawyer-driven to “wave in a defense situation” by claiming that “see we have one”. But is such a legalistic code effective? Is a Code of Conduct more than simply, your company’s law? What is it that makes a Code of Conduct effective? What should be the goal in the creation of your company’s Code of Conduct?

Carol Switzer, President of the Open Compliance and Ethics Group (OCEG), explored some of these questions in an article in Compliance Week, entitled “The Code of Conduct Conundrum”. As a part of her article, Switzer interviewed Jimmy Lin, Vice President (VP) of Product Management and Corporate Development at The Network, and Kendall Tieck, VP of Internal Audit at Workday, for their thoughts on what makes an effective Code of Conduct.

Tieck views a Code of Conduct as not simply a static piece of paper or document “but as a set of expected behaviors that are integral to the fabric of the business and an organization’s value system. A Code of Conduct is not a compliance activity, but how an entity demonstrates integrity and acquires trust from markets, shareholders, customers, partners, and governments. To achieve these outcomes, a careful plan, aligned with a policy lifecycle management framework, should articulate how the Code is integrated in the core of the company’s activities and culture.”

Switzer believes that one of the key components of a best practices Code of Conduct is to integrate the connection between a business’ objectives, its risk and compliance management. There are numerous factors, which can move a company towards having such an effective integration. Switzer wrote that some of these include, “external stakeholder expectations and pressures, internal culture and context, objectives for the code, process of development and implementation, content of the code, consequences for non-conforming conduct, strength of sub-codes (e.g. policies), and employee character.”

Switzer ends her piece by relating that there is a huge benefit to a company for a well thought out Code of Conduct, as a tool to drive both corporate values and sinew the expectations of conduct into the fabric of the company. By designing a Code of Conduct, which can be measured for effectiveness, you can continuously keep the goals moving.

A GRC Illustrated series, provided with Switzer’s article, entitled “The Next Generation Code of Conduct”, lays out six steps for the compliance practitioner to think through and implement during a Code of Conduct upgrade or rewrite. These six steps are (1) design; (2) deliver; (3) interact; (4) measure; (5) maintain; and (6) improve.

Design

Under this step, a company needs to define the behavior that it desires to inspire and allow employees to collaborate at all levels. Lin, said that a key aspect was relevancy, “But times change—business environments change, cultures change, risk appetites change. We all need to keep in mind that the Code, the ultimate policy, should not be a stale document on the shelf. It needs to inspire, engage, and change with the organization.” Tieck said that your Code of Conduct should be “considered a part of the entity’s overall policy landscape. Leveraging an effective policy lifecycle management framework will promote integration and alignment across the policy governance landscape.”

Deliver

Switzer also identified the delivery of a Code of Conduct as a key element of its effectiveness. She said, “modern communication methods that allow the user to engage, interact, and research further behind the Code into related policies, procedures, and helplines for additional guidance can be better monitored and measured. Code content that is integrated with efforts to monitor changes in the external and internal environment can be updated as needed rather than on a static schedule.” This should also include relevant third parties such as suppliers and sales agents. “And failure to comply with the Code can be better identified and tracked, indicating possible need for clarification, additional training, or better screening of employees.”

Interact

Lin pointed out that a Code of Conduct is both a corporate governance document and a marketing document. As such you will need to create a marketing campaign to get the message of your Code of Conduct out to not only your employee base but also relevant third parties. If you have a large number of non-English speaking personnel or employees without access to online training, these factors need to be considered when determining the delivery method.

Measure

Initially, you should prioritize both qualitative results with positive feedback by including such metrics as speed of completion, reminders, which must be sent to facilitate completion of Code of Conduct training, and the percent of employees and third parties who attest to the review of your Code of Conduct. You should also measure the effectiveness of your communication campaign. Tieck suggests drilling down further because each component of your Code of Conduct sets “an expected behavior. Selecting a few critical behaviors to measure and monitor may be adequate for most organizations. These selected measures might represent an aggregate measure of the overall conformance to the code. Large organizations may be able to mine HR data to capture statistics associated with the identified behaviors. For instance, termination reason codes may be one source.”

Maintain

All commentators note that it is important to keep your Code of Conduct design and content fresh. One of the ways to do so is by employee feedback, which can assist you in identifying if your Code of Conduct is not only effective, but also truly reflective of your company’s culture. Lin points out that to gain these insights you need to incorporate both formal and informal techniques for gauging the relevant employee and third party populations. He states, “Questionnaires, surveys, forms and hotlines can be good anonymous sources, but engaging employees in conversation is just as, if not more, important. Make sure executives and managers alike spend time in small-group and one-on-one conversations. Have these conversations throughout the year and across your employee base to get the “real” story. This helps engage the employees and ensure they know you value their input.”

Improve

OCEG advocates that your Code of Conduct should be evaluated for revision at least every two years. This should be done to keep abreast of the changes in laws and regulations and your own business operations and risk tolerances. Switzer said, “Code content that is integrated with efforts to monitor changes in the external and internal environment can be updated as needed rather than on a static schedule.”

Switzer ends her piece by relating that there is a huge benefit to a company for a well thought out Code of Conduct, as a tool to drive both corporate values and sinew the expectations of conduct into the fabric of the company. By designing a Code of Conduct, which can be measured for effectiveness, you can continuously keep the goals moving.

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, 2014

July 21, 2014

World Cup Finale – Compliance Lessons to be learned from Success and Failure

World Cup 2014Over the past few weeks, I have written several articles on the lessons a compliance practitioner can draw from this year’s World Cup and the international group which runs the event, the Fédération Internationale de Football Association or more commonly know as FIFA. Over on my podcast site, the FCPA Compliance and Ethics Report, Mike Brown, the Managing Director of Infortal and myself have just concluded a 7 part World Cup Report, where we discussed issues surrounded FIFA and this year’s World Cup in the context of anti-corruption programs. Whatever else FIFA may be, it is certainly is a compliance practitioner’s dream for lessons learned on bribery and corruption.

The 2014 championship is over and Germany came through this year’s tournament as the clear victors. Over the past couple of weeks, I was lucky enough to see the current Queen/Adam Lambert Tour. They ended both concerts with We Are the Champions and I could not but help think of the German soccer team and indeed the entire German country, winning its first World Cup title since unification. And, of course, any discussion of Germany, its title and this year’s World Cup will have to include is absolute destruction of the Brazilian team and the hearts of the host country with its 7-1 uber-win in the Semi-Finals. How long will that game be remembered? My guess is as long as soccer is played.

While Argentina did have its shots at Germany in the finals, in order to win they were required to play a near perfect game, which, unfortunately for the team and the country, it failed to do in the finals. Does this mean that Messi is not the greatest player in the game today? I really do not know but I still love watching him play and that is good enough for me.

From all of this, the lessons for the compliance practitioner can be many but I wanted to focus on two leadership lessons: What can you learn from failure? and What can your learn from success? Losing first. In an article in this week’s issue of Sports Illustrated, entitled “And Then There was Ein”, Grant Wahl wrote about how Germany turned its national soccer program around from one of its most devastating performances in Euro 2000 where it finished last in its group and did not win a single match in the tournament. From that nadir, “the national federation teamed up with German clubs to overhaul the country’s youth development.” Players from this development program were instrumental in leading the 2014 German team to the 2014 World Cup win. In other words, the German soccer federation learned from its past mistakes and grew a team that became champions.

Contrast this lesson with Wahl’s take on Brazil. He quoted Alex Bellos who said the following, “What does it mean to be the five-time champion if you let in four goals in six minutes?… The world’s biggest footballing country hosting a World Cup, in front of their own fans, and were made to look like they couldn’t play football. And against a team that was playing with artistry and sophistication and happiness, all the thing that Brazil is supposed to play with. You couldn’t have devised a more devastating epitaph for the Beautiful Game.” Bellos went on to say, “Brazil’s week from hell revealed a nation satisfied with resting on past soccer achievements and unwilling to seek new ideas abroad.”

Just as lessons can be learned from failure they can also be learned from success. In this week’s Corner Office section in the New York Times (NYT), Adam Bryant profiled Kat Cole, the President of Cinnabon, in an article entitled “Questioning Success More Than Failure”. While thinking about Germany’s success in the World Cup I was intrigued when Bryant quoted Cole for the following, “I’ve learned to question success a lot more than failure. I’ll ask more questions when sales are up than I do when they’re down. I ask more questions when things seem to be moving smoothly, because I’m thinking: “There’s got to be something I don’t know. There’s always something.” This approach means that people don’t feel beat up for failing, but they should feel very concerned if they don’t understand why they’re successful. I made mistakes over the years that taught me to ask those questions.”

Both of these perspectives can be very useful for the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance practitioner. Just as it is axiom that your compliance program should not be static but dynamic and evolving, what are you learning from your compliance failures and compliance successes? Most lawyers and compliance practitioners can review root cause/analyses to help determine how a compliance failure might have arisen. But how many are looking at your compliance successes. By this I do not mean celebrating your compliance successes but performing the same type of root cause/analyses to determine how a fact pattern arose but was prevented from becoming a full-blown FCPA violation. If something came in through the hotline, did you interview the whistleblower about what caused them to have confidence to report in that manner? Did you look at the training delivered to the whistleblowing employee? How about their supervisor? Did you interview that supervisor to see how he or she got the message out to not only use the hotline but stress the message of no retaliation?

In her interview Cole put it another way when she said, “I learned to make sure I take the full authority of my role. When I haven’t, I knew it immediately. And so I keep a keen eye out for whether my young leaders are forgoing an opportunity to lead. Their intentions might be right but the action and outcome are wrong. I remind people that they were hired for their point of view: “I want 100 percent of your brain 100 percent of the time, and there is a respectful way to communicate and disagree. Please do not hold back, because I want 100 percent of my investment in you.””

For the compliance practitioner, I found Cole’s insights useful in other areas. Although given in the context of ambitious employees who might want to succeed at Cinnabon, I found them to be useful in compliance as well. “First, I talk about being incredibly coachable, because we all give each other feedback. If you want to move up, you’ve got to get as many inputs as possible to continue to develop. Second, take your development into your own hands and be curious about the entire company. If there’s something you want to learn, go learn it. The structure here is like a start-up. Then I talk about productive achievers and destructive achievers, and that I only promote and support productive achievers. And that’s about mentoring and helping others while you are delivering results.

Germany is the new king of the soccer world. Long live the King, at least until the next World Cup. The lessons that Germany took to heart in the wake of its disaster in Euro 2000 directly led to it hoisting the trophy this year. Conversely, Brazil rested on its considerable laurels and now must live with the ignominy of a 7-1 shellacking, probably for the rest of the country’s collective memory. For a compliance program to be effective it must evolve. As Wahl’s Sports Illustrated article makes clear, lessons can be learned and evolution made from failure. However, as Bryant’s Corner Office article interview of Cole makes clear as well, lessons can be learned from successes as well.

Perhaps that is the final lesson from the 2014 World Cup…

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, 2014

July 8, 2014

How A Failure to Set Tone-at-the-Top Led to a Fractured Vertebra

World Cup 2014What does ‘Tone-at-the-Top’ mean to any anti-bribery or anti-corruption program? Conversely, what if management says to do the right thing but only judges employees on their sales; what is the message that only ‘Talking The Talk’ sends; if a company fails to ‘Walk-the-Walk’ of doing business in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA)? Finally, how long does it take for the dissonance of telling people do to the right thing without training, communicating and then following up with them? Unfortunately these questions were answered in a very real and very ugly way in last week’s World Cup quarterfinal match between Brazil and Colombia.

For those of you who did not watch the match, Brazil lost its top player, Neymar, to a fractured vertebra, after Colombian player Juan Camilo Zúñiga kneed him in the back. As reported in the New York Times (NYT), in an article entitled “Brazil Takes a Painful Step Forward”, Andrew Keh wrote “With about five minutes left to play, the Colombian defender Juan Camilo Zúñiga went airborne on a loose ball and ended up driving his knee into the lower back of Neymar, who immediately crumpled to the turf in pain. Neymar’s teammates could be seen signaling to the bench for a substitution as a stretcher was brought onto to the field. He was taken to a nearby hospital, where a crowd of fans soon formed.” After the match was completed, “the team doctor Rodrigo Lasmar said that Neymar had sustained a fractured vertebra in his lower back. Lasmar said the injury would not require surgery, but would take three to four weeks to heal. It was a huge blow to the team, the country and the tournament. Neymar, 22, who plays for Barcelona, has had his face plastered on billboards and shown in television commercials since well before the tournament. For such a young player, he was shouldering a huge amount of responsibility.”

But this hard foul did not come out of nowhere nor did it appear that the Colombian team had targeted Brazil’s star player. This hard foul was a direct result of the failure of referee to set the proper tone against hard fouls throughout the match. Keh wrote, “There were 54 fouls called in the game, the highest total of any match in the tournament. Scolari [the Brazilian coach] acknowledged that both teams probably played with too much physicality, but he said the referee, Velasco Carballo, did not do enough to control the tenor of the game.” The Colombian coach was also critical of the referee and was quoted as saying, “We lost fluidity to the game because of that friction and intensity.”

Sam Borden, in another NYT article entitled “For Bellicose Brazil, Payback Carries Heavy Price: Loss of Neymar”, seemed to believe that it was Brazil and its tactics which may have reaped what they had sown with hard fouls against Colombian players. Nevertheless, “Soccer referees will often show yellow cards to players for “persistent infringement” of the rules, a phrase tha t generally means committing three or four serious fouls. Fernandinho [Brazilian midfielder] was called for four fouls in just the first half of the game, three of them significant hacks at Rodríguez. But Velasco Carballo gave him no penalty.”

After halftime, the referee still did not take control of the game. Borden wrote, “It was in the 57th minute, though, when the match began to boil over. The Colombians had continued to mostly sit back and take the punishment, but they were clearly infuriated when Silva crushed Ramos from behind as he went toward a ball. Velasco Carballo, again, declined to whistle a foul. The Colombians’ ire was raised even more 10 minutes later when the referee showed a yellow card to Rodríguez — who was apoplectic at the decision — for an innocuous trip that was, as Rodríguez vociferously pointed out with multiple hand gestures, a first offense compared with Fernandinho’s harrying.”

Borden leveled his most direct criticism at Carballo when he wrote the following “Velasco Carballo’s role in the ugliness cannot be minimized. A Spaniard, he is known as a high-level official, but it seemed clear that he was determined to avoid using cards to control the players. That decision backfired, particularly as it related to Fernandinho; instead of giving the players a comfort level to play more freely early on, his lenience served as an elastic band on the game, encouraging the players, especially the Brazilians, to try to see just how much contact they could get away with on Rodríguez without being punished. It was a poor miscalculation from Velasco Carballo, and one he compounded by neglecting to adjust as the game progressed. His culpability is impossible to ignore.”

Rarely do you see such a course of action or perhaps more aptly put, failure to engage in a course of action, as leading to such a catastrophic result. In any competitive match, for almost any sport, it is up to the referee to keep things from getting out of control. If they start to get to physical and play outside the rules, then it is the job of the referee to enforce penalties against the offending party or parties. Of the 54 fouls called against Brazil in its match with Colombia, 31 were against the host nation. It was only a matter of time before things got out of hand. If players are told by a referee’s action that there will be no sanctions for hard fouls that cross over the line, they will certainly get that message.

For the compliance practitioner, I do not think the lesson learned could be any clearer. Companies which continue to reward, through promotion and compensation, high producing sales people, while turning a blind eye towards their sales techniques which may be in violation of company policy or even the FCPA; will communicate that playing by the rules is not in your interest if you want to get ahead in this company. Correspondingly, if a company’s first action when an anonymous whistleblower raises an allegation is to try and find out the identity of the whistleblower, that also sends a strong message that the company will get you, one way or another.

For Brazil, the loss of its star player can certainly not help its chances going forward. For the rest of us, we will lose the sight of seeing one of the world’s greatest footballers on its greatest stage. And let’s not forget Neymar, who is the one with the fractured back.

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The FCPA Compliance and Ethics Report, Episode 73-World Cup Report Part V, is now up. In this episode Mike Brown and I continue our discussion of the World Cup, FIFA, compliance and ethics, including a review of the topic of this blog. To view the episode, 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, 2014

July 2, 2014

Gettysburg Day 2 – A Failure of Culture in Leadership and How to Overcome It

James LongstreetToday is the 151st anniversary of Day 2 of the Battle of Gettysburg. Last year I focused on Union General Dan Sickles and how is disobeying of his commanding officer’s order, destroyed his brigade and ended his military career. Today, I want to focus on the Confederate side and how the non-use of information doomed the Confederate attack on Day 2 when it failed to dislodge the Union Army from the heights south of the town of Gettysburg.

If you have ever been to the battlefield, you were most probably struck by the rockiness of the heights to the south of town. While much of the area around the town had been cleared for farming there were some very rocky and stark ridges that ran south of Gettysburg. The Confederate plan had been to size this high ground using a road that split the rocky crags as a launching point. However, Confederate General James Longstreet’s failed to follow this order when he ordered his men to make a long, circuitous route that could not be seen by Union Army Signal Corps observers on Little Round Top. It was 4 pm by the time his two divisions reached their jumping off points, and then he and his generals were astonished to find the Union Army’s III Corps planted directly in front of them. Confederate General John Hood argued with Longstreet that this new situation demanded a change in tactics; he wanted to swing around, below and behind, Round Top and hit the Union Army in the rear. Longstreet, however, refused to consider any modifications to Lee’s order as the Confederate Army had suffered a significant defeat by not dislodging their enemy. A Confederate staff officer remarked that Lee was “not in good humor over the miscarriage of his plans and his orders.”

Longstreet’s refusal to take account of the changed conditions in implementing his orders had disastrous consequences for the Confederates on Day 2. Other than the slaughter of their troops in places like the Wheatfield, the Peach Orchard, Devil’s Den, Big Round Top and Little Round Top; they did not accomplish any military objectives. In the compliance world the failure to take changed or different circumstances into account can have negative consequences as well. I thought about some of these concepts when reading a recent article in the May issue of the Harvard Business Review (HBR), entitled “Navigating the Cultural Minefield”, by Erin Meyer, where she wrote about learning how to work more effectively with people from other countries. As all Chief Compliance Officers (CCOs) or compliance practitioners who work in a company subject to the Foreign Corrupt Practices Act (FCPA) work with employees outside the United States I found her insights useful when thinking about how to deal with employees from other cultures.

Myer has developed a tool she calls the Culture Map. It consists of eight scales representing the management behaviors where cultural gaps are most common. By comparing the position of one nationality relative to another on each scale, the user can decode how culture influences day-to-day collaboration. Her eight scales are “based on decades of academic research into culture from multiple perspectives. To this foundation I have added my own work, which has been validated by extensive interviews with thousands of executives who have confirmed or corrected my findings.” They are:

Communicating. Meyer compares cultures along the Communicating scale by measuring the degree to which they are high- or low-context, a metric developed by the American anthropologist Edward Hall. She believes that in “low-context cultures, good communication is precise, simple, explicit, and clear. Messages are understood at face value. Repetition is appreciated for purposes of clarification, as is putting messages in writing.” This contrasted with high-context cultures, where “communication is sophisticated, nuanced, and layered. Messages are often implied but not plainly stated. Less is put in writing, more is left open to interpretation, and understanding may depend on reading between the lines.”

Evaluating. Here Meyer “measures a preference for frank versus diplomatic negative feedback. Evaluating is often confused with Communicating, but many countries have different positions on the two scales.” She notes that the French “are high-context (implicit) communicators relative to Americans, yet they are more direct in their criticism” but “Spaniards and Mexicans are at the same context level, but the Spanish are much more frank when providing negative feedback.”

Persuading. Meyer notes that the manner “in which you persuade others and the kinds of arguments you find convincing are deeply rooted in your culture’s philosophical, religious, and educational assumptions and attitudes.” So, for instance, a senior “Western executive will break down an argument into a sequence of distinct components (specific thinking), while Asian managers tend to show how the components all fit together (holistic thinking).” But she evens delineates this scale further by finding that, “people from southern European and Germanic cultures tend to find deductive arguments (what I refer to as principles-first arguments) most persuasive, whereas American and British managers are more likely to be influenced by inductive logic (what I call applications-first logic).”

Leading. This scale measures the degree of respect and deference shown to authority figures, placing countries on a spectrum from egalitarian to hierarchical.

Deciding. Meyer articulates that this scale, measures the degree to which a culture is consensus-minded. She believes that Westerners wrongly believe that the “most egalitarian cultures will also be the most democratic, while the most hierarchical ones will allow the boss to make unilateral decisions.” She found that while “Germans are more hierarchical than Americans, but more likely than their U.S. colleagues to build group agreement before making decisions.” Further. she noted that the “Japanese are both strongly hierarchical and strongly consensus-minded.”

Trusting. Meyer splits this into the old ‘from the head’ (cognitive trust) or ‘from the heart’ (affective trust) analysis. She wrote, “In task-based cultures, trust is built cognitively through work. If we collaborate well, prove ourselves reliable, and respect one another’s contributions, we come to feel mutual trust. In a relationship-based society, trust is a result of weaving a strong affective connection. If we spend time laughing and relaxing together, get to know one another on a personal level, and feel a mutual liking, then we establish trust.”

Disagreeing. While Westerners, particularly Americans, tend to believe that a little open disagreement is healthy; other “cultures actually have very different ideas about how productive confrontation is for a team or an organization. This scale measures tolerance for open disagreement and inclination to see it as either helpful or harmful to collegial relationships.”

Scheduling. This one is my personal bane as there are some cultures that take the position that people treat scheduling, deadlines and meeting times as a mere “suggestion.” Her “scale assesses how much value is placed on operating in a structured, linear fashion versus being flexible and reactive.”

From this scale, Meyer has developed four rules to help bridge the cultural gap.

  1. Do Not Underestimate the Challenge. Most management styles have been developed over a lifetime of work. For most CCOs this includes a stint in a corporate legal department. But as Meyer notes, “Succeeding would depend on taking an entirely different approach and making ongoing adjustments over the long term.” Further, you may well need to unlearn many of the techniques that have made you successful.
  2. Apply Multiple Perspectives. More than simply recognizing the cultural perception of other employees is not enough as you will need to look “through multiple lenses.” Meyer writes that you need to understand the cultural position of one country to another, subsequently “You need to understand how the Koreans perceive the Indians, how the Indians perceive the Brazilians, and so on, and manage across the map. As you learn to look through multiple lenses, you may see that on some scales the Brazilians, for example, view the Indians in a very different way than the Koreans do.”
  3. Find the Positive in Other Approaches. Here people tend to see the negative when looking at how other cultures work but Meyer suggests that you should try and understand what it is that makes a cultural work. Further, if you have a compliance team from different cultural backgrounds this can bring strength to your overall position. Lastly, you can achieve a “complex understanding of various [cultural] strengths on the team” so that you can choose the best players for going forward.
  4. Adjust and The Readjust Your Position. Meyer believes that “More and more teams are made up of diverse and globally dispersed members. So as a leader, you’ll frequently have to tweak or adapt your own style to better mesh with your working partners. It’s not enough to shift to a new position on a single scale; you’ll need to widen your comfort zone so that you can move more fluidly back and forth along all eight.”

Meyer’s article provides some very good insight for the compliance practitioner. We all will have to deal with many cultures in a multi-national corporate compliance practice. By using the techniques that Meyer has developed you can not only come to understand how better to lead but also you can use your team members from other cultures to facilitate greater communication of compliance principles, training and issues throughout the organization.

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, 2014

 

July 1, 2014

Gettysburg Day 1 – Stepping Back to See the Whole Picture

Shoes at GettysburgLast year I did a three-day series on the Battle of Gettysburg and looked at some lessons that are applicable to a modern day compliance practitioner. As not only did I learn quite a bit about the battle, it seemed to strike a cord with many readers so this year I will continue the tradition. Today I look at Day 1 of this seminal battle of the Civil War.

One of the enduring myths about the battle is that it started over shoes. In the Encyclopedia Virginia, in an entry entitled “Shoes at Gettysburg”, it states, “One of the most persistent legends surrounding battle is that it was fought over shoes… Ten weeks after the battle, Confederate general Henry Heath a Virginian whose troops were the first to engage on July 1, filed a now-famous report in which he explained why he had sent a portion of his division into the small Pennsylvania town. “On the morning of June 30,” Heath wrote, “I ordered Brigadier General [Johnston] Pettigrew to take his brigade to Gettysburg, search the town for army supplies (shoes especially), and return the same day.” That parenthetical phrase “shoes especially” has taken on a life of its own over the years. A 1997 newsletter of the American Podiatric Medical Association is typical — it claimed, perhaps due to its interest in foot health, that footwear was the battle’s causa belli, adding, “There was a warehouse full of boots and shoes in the town.”

Historians have debated this issue ever since. There is no doubt that General Heath “stumbled into this fight” but over some shoes, as he was under orders from General Lee not to enter into a general engagement with Union troops. In the same Encyclopedia Virginia it ends with the following “The Battle of Gettysburg readily lends itself to being read as a three-act tragedy, dominated, as many have argued, by Lee’s hubris. (“The fundamental fault that disfigured his conduct of the campaign,” historian Brian Holden Reid has written, “was that Lee was overly confident and expected too much of his marvelous troops.”) That it started by accident, over something so “pedestrian” as shoes, is too perfect for writers to ignore.”

Whether the battle started over shoes or not, the Confederate Army did ‘stumble into a fight’. I thought about such randomness in the context of a Chief Compliance Officer (CCO) when I read a couple of recent articles in the Corner Officer section of the New York Times (NYT). In the first article, Adam Bryant interviewed Sabine Heller, the Chief Executive Officer (CEO) of A Small World, in an article entitled “Can You See the Whole Picture?” One of the points that Heller raised was that, at times, you need to step back to look at the bigger picture. She provided the following example, “You have to manage people based on results and set clear goals. It sounds like a simple thing, but people don’t do that often. When I was 22 and working at UGO, it didn’t matter that I had no experience and it didn’t matter what my process was as long as I hit my goal. It taught me how empowering it is to be treated like that. I am a great manager for people who are strong thinkers and motivated. I empower people. I promote people. I give them a lot of leeway. At the end of the day, I look at results, and that’s it. I feel very strongly that organizations infantilize employees. You should treat them like adults.”

In another Corner Office article, entitled “Joanne Rohde, on Knowing When to Get In, and to Get Out”, Bryant interviewed Joanne Rohde, CEO of Axial Exchange. Some of her thoughts on leadership would certainly apply to Confederate General Lee at Gettysburg. She talked about stepping back, breathing and re-assessing the situation. Bryant quoted her for the following, “I remember a day when the markets went crazy, and all of us were losing money because the volatility was going against us. The guy I worked for said, “You all need to get out of your positions.” We tried to explain to him that this was a temporary thing. He said: “No. You have to get out. A couple of days later, he said something that has really been an important life lesson: “If you get out, you can get in exactly the same way the next day, but you have a clear head.” It was such good advice, and so few people follow it. And it’s really important for both entrepreneurship and leadership — you’ve got to get in and take risks, but you also have to get out, reassess and modify. That, in my opinion, is how you get ahead. You may have a vision of where you’re headed, but it is never a straight line. You take a step and you reassess. That gives you courage.”

The key is that you step back and take another look, perhaps even put a second set of eyes on the issue. In the business world there is nothing that requires immediate assessment and a decision for a compliance practitioner. If there is, it is because there has not been any communication to the compliance function during the months and months of work by the business unit working on a deal. Any company that has that type of culture means the CCO has not developed relationships with the business unit personnel to foster adequate communication. If the China business unit head has never met the CCO, it is certainly time for the CCO to go to China, put on some training and introduce him or herself to Regional Manager (RM).

Both of the articles also had some very relevant points regarding the hiring function and compliance. Heller said that one thing she detests from a candidate is canned responses in the interview process. She wants people who “understand the larger space of the industry we’re in.” But I found her further comments considerably insightful. She said that “And I want to know if that person has been able to come up with an idea, build consensus for that idea and follow it through. I want to see if they are a leader in one way or another, because building consensus for something is very important in the world of business. You need someone who can manage laterally and who can get people on board with their ideas. So I always ask for a time in someone’s career when they have come up with an idea and were able to get people on board, and then executed the idea.”

Rohde had another approach to hiring and interviews which I found discerning. It involved preparing for an interview and how that preparation could lead to persons understanding the compliance function. She said, “The first thing I want to know is, “Why are you here?” Smart people can get lots of job interviews. So I want to know that there’s something unique about our opportunity. There are two reasons I do that. You quickly sort out people who haven’t even done their homework. I remember one person had not even looked at our website. He was mad that I didn’t hire him, but he didn’t even know what we did.

In a small company like ours — 14 employees — you have to be passionate about what we’re doing. Everybody who’s really done well at our company has had a passion for health care and, sadly, often has had a bad experience in the health care system with a family member and wants to change it. So, I’m really looking for that.”

But her next comments spoke to some of the leadership lessons from Gettysburg – Day 1. She was quoted as saying, “I also ask for examples of when you’ve chased a dream, whether you made it or not. Was there something you went for? If it worked, great, but if it didn’t work, how did you retrench? So I’m really trying to learn if the person has that ability or interest to do something that’s not there.” Imagine what might have happened if the Confederate Army had not gone looking for those shoes or General Heath had obeyed Lee’s orders and had not ‘stumbled into a fight’.

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, 2014

June 30, 2014

In Due Diligence and World Cup Bids: Follow the Money

Follow the MoneyFor those watching the 2104 World Cup, this year’s tournament has certainly been spectacular, from the US reaching the round of 16, the incredible goals scored by Robbie Van Persie and Tim Cahill, to yesterday’s heartbreak for Mexico, who led until the 88th minute, only to be tied and then loose in stoppage time to the Netherlands, this year’s event has been one for the ages. However one very large shadow hangs over the sport’s governing body, Fédération Internationale de Football Association (Fifa) and allegations of corruption in its award of the 2022 World Cup to Qatar.

There were reports as far back as 2011 that Mohamed bin Hammam, offered bribes to members of the Caribbean Football Union (CFU) at a meeting organized by the Fifa vice-president, Jack Warner. As reported by The Guardian, in a 2011 article, entitled “Fifa in crisis after claims against Jack Warner and Mohamed bin Hammam”, Owen Gibson reported, “nine of Fifa’s 24 executive committee members have been accused of corruption in recent months.” But these 2011 reports have paled in comparison to the reports detailed in the past few months regarding allegations of corruptions concerning the award of the 2022 tournament to Qatar.

Earlier this month, The Sunday Times rocked the sporting world with its article “Plot to Buy the World Cup” by Jonathan Calvert and Heidi Blake. In the article, they reported that a number of football officials took £3m in return for support of the Qatari bid. The BBC, in an article entitled “Qatar World Cup 2022: Investigator nears probe conclusion”, said “The Sunday Times claims to have obtained secret documents that implicate the former AFC president in corrupting members of football’s governing body to win the right to stage the 2022 World Cup. The newspaper alleges the documents, seen by BBC sports editor David Bond, show that Qatari Bin Hammam, 65, was lobbying on his country’s behalf at least a year before the decision to award the country hosting rights. They also allegedly show he had made payments into accounts controlled by the presidents of 30 African football associations and accounts controlled by Trinidadian Jack Warner, a former vice-president of Fifa.”

This initial account has been supplemented by additional reports detailing these allegations. In another article in The Guardian, entitled “Mohamed bin Hammam accused of payments to help Qatar World Cup bid”, Agence France-Presse wrote that “Bin Hammam also paid $1.6m into bank accounts controlled by the Trinidadian Jack Warner, also a former vice-president of Fifa, $450,000 of which was before the vote for the World Cup”, citing the report in The Sunday Times. Both Qatar and bin Hammam have denied any improprieties in the award of the bid to Qatar.

But there were more reports of payments to those voting on the Qatar bid beyond Jack Warner. In a June 16th report in the online publication, República, entitled “ANFA chief admits receiving money from Hammam” it reported that Nepal Football Association (ANFA) President Ganesh Thapa had been promised $800,000 from bin Hammam and had been paid $115,000. It also reported that Thapa’s son received $100,000 from bin Hamman. Thapa was quoted as saying that the money was for a business deal, “It is right that I received $115,000 but it was in connection with the business I have partnered with Hammam.”

There have been other issues raised regarding Qatar’s bid to host the World Cup. One is its treatment of the workers who are building the stadiums for the event and the appalling conditions that the workers building the stadiums to host the event are facing. In an article in the online magazine Slate, entitled “The Qatar World Cup Is a Human Rights Catastrophe. It’s Time to Do Something About It” Jeremy Stahl reported that the Nepali embassy has said 400 citizens of its country had died during construction in Qatar and India has reported that 500 of its citizens have died. The article quoted Sharan Burrow, the general secretary of the International Trade Union Confederation (ITUC), who said in an ESPN documentary “that at current rates, 4,000 people will die to make the 2022 World Cup a reality.” The ITUC itself had reported in March that there had been 1200 deaths in the construction of the facilities for the World Cup.

Another significant issue is the heat. Qatar can reach between 40-50C during the summer months, and for those of you who don’t read Celsius temperatures that translates to between 104 to 122 degrees Fahrenheit. I have been in such temperatures and I can assure you that is hot weather. However, although Fifa awarded the 2022 World Cup tournament to Qatar back in 2011, it has only now become aware of the fact that there is hot weather in the summer months in Qatar. If you have watched any games in this year’s tournament, you have seen European players wilt in 80+ degree, which for a Texan is rather pleasant. But no matter how much conditioned air you can pump into a stadium in Qatar, the fact is that it will be 120+ outside.

Even if the stadiums are air conditioned, how are you going to walk to them in that heat? To say that Fifa was unaware that it gets hot in the summer in Qatar seems disingenuous at best. As reported by Roger Blitz, in a Financial Times (FT) article entitled “Fifa faces quandary over World Cup in Qatar”, Sepp Blatter, Fifa President, has gone on record to say that awarding the 2022 World Cup to Qatar was “a mistake”.

But as my friend Mike Brown might say that when you are performing due diligence, ‘follow the money’. This is not only important in thinking about allegations of corruption in the award of the bid to Qatar but also in the overall context of Fifa and the World Cup. It has been estimated that over one-tenth of the world’s population is watching this year’s World Cup. In the US alone, the interest is so high its game against Portugal had more viewers than Game 5 (the final game) of the recent NBA championship. This could well lead to billions for the television rights in 2022 alone. That means that advertisers and sponsors will be paying a pretty penny to be associated with World Cup 2022. Do you think some of the current sponsors, such as Adidas, Coca-Cola, Sony or Visa will want to be associated with such allegations of corruption or deaths of workers from such appalling working conditions?

There is a chorus growing to move the 2022 World Cup from Qatar to another country. Speaking with its usual grownup voice, the FT editorial board has called for a re-vote on the location of the 2022 World Cup tournament venue, in an article entitled “Blow the whistle on Fifa, please”, they said, “The case for rerunning the bid for the 2022 competition looks unassailable. Final judgment should await a pending report into the Qatar bid by Fifa’s top internal investigator. But a string of controversies – among them the health concerns over staging the competition in Qatar’s furnace-like climate – means a new venue is now needed.” But more than simply re-voting on the 2022 bid, the FT said, “Western governments and lawmakers should therefore bring their influence to bear. The US Congress could consider holding hearings to examine the relations between American multinationals and Fifa. US companies have to abide by stringent anti-corruption laws. Congress would be right to examine the implications of US companies doing business with a major international body that has such weak governance. Such public hearings might make corporate sponsors reconsider their stance.”

What are the lesson for the compliance practitioner? Sometimes you need to step back and look at the big overall picture. If a deal has come into your company that is particularly high reward, it generally means that it was high risk. You may want to do a more in-depth look at all aspects of the deal, from the business partners involved, to your internal gifts, travel and entertainment for your employees involved in securing the contract. Putting a second or even third set of eyes on something might well protect your company if something does not seem right, feel right or look right.

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, 2014

June 27, 2014

The Berlin Airlift and Different Approaches to Compliance Issues

Berlin AirliftAs the USA played Germany in the World Cup yesterday, it is perhaps appropriate that we look back at another June 26th event that involved the US as we celebrate one of the great relief efforts in post-war Europe and the Cold War, the Berlin Airlift. On June 26, 1948, US and British pilots begin delivering food and supplies by airplane to Berlin after the city is isolated by a Soviet Union blockade. Though some in President Truman’s administration called for a direct military response to this aggressive Soviet move, the President was concerned that such a response would trigger another world war. As an alternative, he coordinated a massive airlift operation under the control of General Lucius D. Clay, the American-appointed military governor of Germany. The first planes took off from England and western Germany on June 26, loaded with food, clothing, water, medicine and fuel. By July 15, an average of 2,500 tons of supplies was being flown into the city every day. The massive scale of the airlift made it a huge logistical challenge and at times a great risk, with planes landing at Tempelhof Airport every four minutes, round the clock for the next 15 months. This broke the Soviet blockade.

I thought about this alternative approach that Truman employed, a supply line rather than a military response, when I read MIT Sloan Management Review article, entitled “What Businesses Can Learn From Sports Analytics”, by Thomas H. Davenport. In his article, Davenport explored how “the use of analytics in the sports world has much to teach managers about alignment, performance improvement and business ecosystems.”

For his article, Davenport “interviewed more than 30 representatives of teams, sports analytics vendors and consultants for a report on the state of the art in sports analytics,” in which he “focused on three different areas of activity, each of which is growing rapidly. In order of decreasing prevalence, they are: team and player performance analytics, sports business analytics, and health and injury prevention analytics.” From this research, he developed five key lessons that almost any business could adopt. However I thought about his points in the context of compliance ecosystems rather than business ecosystems so I will use his article as a starting point to consider what compliance can learn from sports analytics.

  1. Align leadership at multiple levels 

Davenport believes “In sports, key decisions — which players to acquire, how much to pay them, and which strategies to adopt for better athletic and business performance — must be made and overseen at multiple levels. As a result, alignment along different management levels is crucial.” Based on his research I believe the message for Chief Compliance Officers (CCOs), compliance practitioners and analytical practitioners is to work together closely and consult frequently.

  1. Focus on the human dimension 

Davenport’s key finding about sports teams is that they realize that their players are both their most important and expensive resources and that sports teams focus on the human dimension of performance in a variety of ways. “First, they address individual-level game performance by monitoring points scored, rebounds gathered, batting averages and other increasingly sophisticated measures of both offensive and defensive performance… Second, teams are beginning to assess not just individual performance, but performance in context.” They will also assess a team’s performance “with and without a combination of players.”

However, if companies say they focus on their employees as their most valuable resource, they typically only focus their analytics on “operational or marketing issues and not on the human dimension of performance.” The key insight here is for compliance to focus on more of a team aspect by investigating a group’s compliance performance “with or without a particular person’s presence could be a valuable insight.” This could be expanded to reviewing wider sales teams in a region, country or product/service line.

  1. Exploit video and locational data 

In Major League Soccer (MLS), players wear a GPS-based locational device that captures all movements around the field. In the NBA, six cameras in the ceiling of each arena capture all movements of the players and ball. All Major League Baseball (MLB) stadiums have cameras that track every pitch, and many teams also track every hit and fielding play with video cameras. This allows a more complete view of the raw numbers that metrics generates.

While it may not seem readily apparent, this type of approach can also benefit the compliance function. The key is that it looks at raw numbers in a different way. So transaction monitoring could be pared with relationship monitoring or other indicia. Also travel and communications could be considered to show what might be happening in locations that are not readily apparent. The key takeaway is that there is more information available by obtaining more types of data.

  1. Work within a broader ecosystem

Davenport found that “Professional sports teams are relatively small businesses, with much of their revenue going toward player salaries, leaving just nominal funds for any data and analytics projects. As a result, teams often need to work within a broader ecosystem of data, software and services providers.” Based on this he believes that a “key in these partnerships is to draw as much as possible from the partner while maintaining key internal capabilities.”

For the compliance professional, you should try to develop relations with key vendors because there are just too many different techniques, types of data and other aspects of analytics to exploit, and even the largest corporation can’t excel on its own. The GRC Pundit, Michael Rasmussen has observed that in GRC there is more than one technology. The same holds true in the compliance space. Jon Rydberg, founder of the Orchid Advisors, has called this the “Compliance Ecosystem Transformation” which he defines as “The coordinated development of compliance activities that transcend your entire supply chain, from suppliers – to manufacturers – to distributors – to retailers.”

  1. Support “analytical amateurs”

Finally, Davenport found that “Some professional athletes have begun to analyze their own performance in depth using public or team data and reports. Specifically, a number of soccer and football players have become assiduous reviewers of their video and GPS data, although the most frequent users have been professional baseball players, particularly pitchers.”

For the compliance professional, this translates that they could also benefit from becoming such ‘analytical amateurs”. Moreover, they could work with business unit personnel to could keep track of their own scores on compliance measures and use that information to improve their performance. Analytics-minded salespeople and managers could, for example, use the extensive data from compliance management management systems to assess and improve their performance.

I found Davenport’s article to be quite thought provoking. For just as President Truman was able to come up with a different approach for a situation that could have led to World War III or at the very least a completely communist dominated unified Berlin, there are different ways to look at problems and find solutions. Using the analytical approach that has become so prevalent in the sports world may lead you to new and different thinking in the compliance arena.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, 2014

June 25, 2014

Another FIFA Compliance Failure – Referees at the World Cup

Red & Yellow CardsAlthough the organization puts on arguably the greatest sporting event for professional athletes on the planet, the term ‘professionalism’ is probably not one you can associate with the Fédération Internationale de Football Association (FIFA). Unfortunately this lack of professionalism can and does impact this greatest sporting event, the quadrennial World Cup currently going on in Brazil. This is particularly true in the area of referees.

In an article in the Wall Street Journal (WSJ), entitled “The Problem with World Cup Referees”, reporter Joshua Robinson explored that precise topic. There are several problems with FIFA’s approach to referees. The first is a conscious approach, which is designed not to put the most professional referees on the pitch. FIFA does select the most experienced or even the referees who show the best performance. Rather, “While the World Cup’s 32 teams must play their way into the tournament through a grueling two-year qualifying process, FIFA, the sport’s governing body, pulls referees from more than 40 countries out of a sense of fairness to all of its member associations.” In other words, a person who has never even been to a World Cup, who referees local clubs in Tahiti, “is a pulled hamstring away from the biggest stage in the game. And it isn’t just the alternates who lack experience. Among the 24 official referees are several who have never called games involving big-name teams and players.”

Steve Jaive, an ESPN refereeing analyst and a former NBA official, was quoted in the article as saying “I find it hard to believe that they wouldn’t have the best soccer officials there.” Moreover, “some critics believe that World Cup games ought to use referees with experience ejecting superstars like Cristiano Ronaldo.
David Elleray, a retired English Premier League (EPL) referee was quoted as follows “A referee from Brazil, Argentina, Italy, England, week in, week out, they are refereeing high-profile matches.”

To compound this race towards ineptitude, FIFA stubbornly refuses to enter the 21st Century and use the technology available to it to get the calls right. As noted by Robinson, “Perhaps befitting a sport founded in England, soccer is an officiating monarchy. Each game features a single referee whose calls can’t be challenged on the field or—until this World Cup—assisted by goal-line technology. Although two linesmen run along the edge of the pitch raising flags to indicate offside and fouls, the referee is free to ignore those calls.” Anyone who remembers the 2010 World Cup and the absolutely pathetic level of competency by the referees will welcome even this modest advance.

Yet another problem that FIFA stubbornly refuses to address is the pay for referees. The last time FIFA publicly announced the compensation for referees at the World Cup was back in 2006 and then it was listed at $38,000. That is an incredibly small amount of money for such an important role. The entire FIFA referee system has come under greater concern because of match-fixing allegations. In a two part series in the New York Times (NYT); part 1 was entitled “Fixed Soccer Matches Cast Shadow Over World Cupand part 2 was entitled “Inside the Fixing: How a Gang Battered Soccer’s Frail Integrity”, reporters Declan Hill and Jeré Longman wrote about a NYT investigation of match fixing ahead of the last World Cup and provided an unusually detailed look at the ease with which professional gamblers can fix matches. The article reviewed an “internal, confidential report by FIFA, soccer’s world governing body. FIFA’s investigative report and related documents, which were obtained by The New York Times and have not been publicly released, raise serious questions about the vulnerability of the World Cup to match fixing.” The reporters noted that the FIFA “report found that the match-rigging syndicate and its referees infiltrated the upper reaches of global soccer in order to fix exhibition matches and exploit them for betting purposes. It provides extensive details of the clever and brazen ways that fixers apparently manipulated “at least five matches and possibly more” in South Africa ahead of the last World Cup. As many as 15 matches were targets, including a game between the United States and Australia, according to interviews and emails printed in the FIFA report.”

These NYT articles detailed how betting syndicates would target the national football associations that are charged with selecting and supplying the referees in international matches. The articles pointed out how the betting syndicates would find the weakest link in any security or compliance system and then exploit it. In the past World Cup it was both the South African football association that signed contracts allowing the betting syndicates to select the referees for games to actually bribery of referees themselves.

These problems were made more relevant on Monday with an article in The Telegraph, entitled “Football match-fixing: Ghana deal casts cloud over World Cup finals in Brazil”, in which reporters Claire Newell, Holly Watt and Ben Bryant detailed that the “Ghana Football Association calls in police after undercover investigation by The Telegraph and Channel Four’s Dispatches programme finds that the President of Ghana’s FA agreed for the team to play in international matches that others were prepared to rig.”

They wrote, “The president of the country’s football association then met the undercover reporter and investigator, along with Mr Forsythe and Mr Nketiah, and agreed a contract which would see the team play in the rigged matches, in return for payment. The contract stated that it would cost $170,000 (£100,000) for each match organised by the fixers involving the Ghanaian team, and would allow a bogus investment firm to appoint match officials, in breach of Fifa rules. “You [the company] will always have to come to us and say how you want it to go…the result,” said Mr Forsythe. “That’s why we will get the officials that we have greased their palms, so they will do it. If we bring in our own officials to do the match…You’re making your money. You have to give them [the referees] something… they are going to do a lot of work for you, so you have to give them something,” said Mr Nketiah, who is also the chief executive of the Ghanaian football club Berekum Chelsea and sits on the management committee of the Ghana U20 national team.”

In a meeting prior to the 2014 World Cup, when Ghana was playing warm-up matches in the US, Forsythe and Nketiah introduced the undercover team to Kwesi Nyantakyi, the president of the Ghana FA. In a meeting in “Florida, the president agreed to a contract that stated each match would cost the investment company $170,000 and that they could appoint the match officials for each game. A contract was drawn up that specified that “The Company will appoint and pay for the cost of the referees/match officials in consultation with an agreed Fifa Member association(s),” in direct breach of the rules that prohibit third parties from appointing officials, in order to protect their impartiality. During the meeting, the president suggested that the fictional investment company put on two matches after the World Cup to prove that they were able to organise games.”

What are the lessons for the compliance practitioner? I think two jump out from the examples from the world of FIFA. The first is to assess your risk. Clearly the style FIFA is using to manage the quality of its referee corp is less than acceptable. FIFA must provide clear evidence that the best quality of refereeing is on the field, together with the best players in the world. Further, technology should be employed to make sure it is the athletes who decide the outcome of a game, not some blown call. FIFA should ensure that ‘getting it right’ is what officiating is and not idiotic calls that any third-grader could see were incorrect.

But the second problem seems to me to be even greater. The system itself either lends itself to corruption or makes itself more susceptible to corruption. If a company has a sales structure that does not allow for proper oversight or even transparency, then the sales structure should be changed to allow such oversight. The money generated by the sport of soccer worldwide makes clear that professionalism must be brought to the referee ranks. If FIFA pays some paltry sum for men who hold the game literally in their hands, it needs to ensure that they can resist a bribe to fix matches.

As to the 2014 World Cup it has been spectacular, largely in spite of FIFA and not because of it. And, of course,

I believe

I believe that

I believe that we will win.

Go USA

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, 2014

June 23, 2014

An Event That Changed the World and Fostering Compliance Leadership – Part I

Archduke Ferdinand AssassinationThis coming Saturday, June 28th, is the 100th anniversary of most probably the single most momentous event of the 20th century; the assassination of Archduke Ferdinand and his wife Sophie in Sarajevo, then located in the Austro-Hungarian Empire. I view it as the singular event of the prior century because it led directly to the following events: the First World War, the Second World War, the Russian Revolution, the fall of the Hapsburg, Romanov and Prussian monarchies, the Cold War and a host of other events. One can point to 1963 in Dallas and 9/11 as direct descendants of the actions of the Sarajevo assassins.

One of the best articles I have ever read on the assassination was in the March 22nd edition of the Financial Times (FT) in a piece by Simon Kuper, entitled ‘The crossroads of history”. Kuper returned to modern day Sarajevo “to try and understand his act in its local context – the context both of 1914 and 2104.” I think that Kuper did come to some understanding through his reporting, which I found to be first rate. The attack on the Archduke itself came about through a plethora of mis-steps, foolish decisions and idiotic mistakes that rival any modern day industrial catastrophe. Kuper quoted the author Rebecca West for the following, “Nobody worked to ensure the murder on either side as the people who were murdered.” As this assassination started Europe down a road that led to well over 20 million deaths, it is an appropriate start to many more posts I will have during the centenary of 1914.

Just as Gavrilo Princip changed the course of history, I recently read an article in the May edition of the Harvard Business Review (HBR) which I think could significantly modify how you, as a Chief Compliance Officer (CCO) or compliance practitioner, will think about getting employees to “apply their talent and energy to move organizations forward” in compliance and ethics. The article is entitled “Blue Ocean Leadership”. In this two-part series I will explain the authors view of the problem that “According to Gallup’s 2013 State of the American Workplace report, 50% of employees merely put their time in, while the remaining 20% act out their discontent in counterproductive ways, negatively influencing their coworkers, missing days on the job, and driving customers away through poor service. Gallup estimates that the 20% group alone costs the U.S. economy around half a trillion dollars each year.” The authors believe that “poor leadership is a key cause” of this problem. The authors posit that leadership is a “service that people in an organization “buy” or “don’t buy” and when employees come to value you as a leader, they “in effect buy your leadership.”

Today I will focus on how ‘Blue Ocean Leadership’ differs from conventional leadership and tomorrow I will review strategies of how to execute this type of leadership and explore its implications for the CCO or compliance practitioner.

Key Differences from Conventional Leadership Approaches

The authors point to three key differences between ‘Blue Ocean Leadership’ and traditional leadership approaches.

The first key difference is that ‘Blue Ocean Leadership’ “focuses on what acts and activities leaders need to undertake to boost their teams’ motivation and business results, not on who leaders need to be. This difference in emphasis is important. It is markedly easier to change people’s acts and activities than their values, qualities, and behavioral traits. Of course, altering a leader’s activities is not a complete solution, and having the right values, qualities, and behavioral traits matters. But activities are something that any individual can change, given the right feedback and guidance.”

The second under ‘Blue Ocean Leadership’ is to “connect closely to market realities”. This is accomplished by having “the people who face market realities are asked for their direct input on how their leaders hold them back and what those leaders could do to help them best serve customers and other key stakeholders. And when people are engaged in defining the leadership practices that will enable them to thrive, and those practices are connected to the market realities against which they need to perform, they’re highly motivated to create the best possible profile for leaders and to make the new solutions work.” This allows not only employee buy-in both also quicker and more efficient engagement of the implementation of a leaders program.

The third key difference is that ‘Blue Ocean Leadership’ distributes leadership across all levels of management. The authors quoted one senior executive who said, “The truth is that we, the top management, are not in the field to fully appreciate the middle and frontline actions. We need effective leaders at every level to maximize corporate performance.” However ‘Blue Ocean Leadership’ is more robustly “designed to be applied across the three distinct management levels: top, middle, and frontline. It calls for profiles for leaders that are tailored to the very different tasks, degrees of power, and environments you find at each level. Extending leadership capabilities deep into the front line unleashes the latent talent and drive of a critical mass of employees, and creating strong distributed leadership significantly enhances performance across the organization.”

The Four Steps of Blue Ocean Leadership

Most importantly the authors believe that you have to see your leadership for what it is and not what you wish it to be. If you do not have a “common understanding of where leadership stands and is falling short, a forceful case for change cannot be made.” The authors created a template that they called “Leadership Canvases” which are visual representations to show what leaders actually do, rather than what they think they do. The authors’ research showed that 20% to 40% of all actions taken by managers are of little value to the organization. This led to the “biggest “aha” for the subteams was that senior managers appeared to have scarcely any time to do the real job of top management—thinking, probing, identifying opportunities on the horizon, and gearing up the organization to capitalize on them.”

Based upon this initial finding, the authors began to explore alternative leadership profiles. Here you are required “to think beyond the bounds of the company and focus on effective leadership acts they’ve observed outside the organization, in particular those that could have a strong impact if adopted by internal leaders at their level. Here fresh ideas emerge about what leaders could be doing but aren’t. This is not, however, about benchmarking against corporate icons; employees’ personal experiences are more likely to produce insights. Most of us have come across people in our lives who have had a disproportionately positive influence on us. It might be a sports coach, a schoolteacher, a scoutmaster, a grandparent, or a former boss. Whoever those role models are, it’s important to get interviewees to detail which acts and activities they believe would add real value for them if undertaken by their current leaders.”

The next step begins to take what I call some real corporate courage. It requires that middle and frontline managers critique what senior management has come up with in step 2, developing alternative leadership profiles. Some of the more interesting changes were ‘Cut through the Crap’ in which “frontline leaders did not defer the vast majority of customer queries to middle management and spent less time jumping through procedural hoops. Their time was directed to training frontline personnel to deliver on company promises on the spot” and to resolve problems. Another was ‘Liberate, Coach and Empower’ where leaders “time and attention shifted from controlling to supporting employees.” Finally, there was ‘Delegate and Chart the Company’s Future’ where the front and middle line managers had more responsibility so “senior managers would be freed up to devote a significant portion of their time to thinking about the big picture—the changes in the industry and their implications for strategy and the organization. They would spend less time putting out fires.”

Blue Ocean Leadership’ challenges companies to allow its employees to “think about which acts and activities leaders should do less of because they hold people back, and which activities they should do more of because they inspire people to give their all.” Just as you begin to think through the changes wrought by one action in a small town, very long ago, which changed the 20th Century forever, you may wish to use these concepts to think about how your leadership can be made more effective.

In tomorrow’s post I will look at how the authors believe you can execute a ‘Blue Ocean Leadership’ change in your company.

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, 2014

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