Four Keys to Compliance Leadership

One of the most divisive moments in American history occurred on this date in 1868. On this day the US Senate voted against impeaching President Andrew Johnson thereby acquitting him of having committed “high crimes and misdemeanors” as required under the US Constitution. After all the arguments had been presented for and against him, Johnson waited for his fate, which hung on one swing vote, as there is a Constitutional requirement that requires a vote of 2/3rds of the Senate for impeachment. The vote was one short, at 35-19. Johnson was acquitted and finished out his term. If Johnson had been impeached, it surely would have led to a very different political development in the US, where not liking the sitting President could have become a constitutional basis for impeachment.

The Radical Republicans who ran the Congress immediately after the conclusion of the Civil War certainly did not think much of President Johnson’s leadership style. So what about you as a compliance officer? Certainly part of your leadership is implementing and enhancing policies and procedures? In many ways it is the human element, which President Johnson sorely lacked, that you may well need to devote most of your time focusing on. I recently read an excellent article it the Corner Office section of the New York Times (NYT), entitled “We’re Family Yes, but We’re Still Accountable”, in which Adam Bryant reported on his interview with Brooke Denihan Barrett, the co-Chief Executive Officer (co-CEO) of the Denihan Hospitality Group (Denihan), a 50-year old family business which focuses on the hospitality business.

Training

One of the things that Barrett has learned is how to train people. She explained that “I thought the way you got things done was by telling people what to do. That’s where I learned what not to do. I spent a good portion of my time telling people what they did wrong instead of really encouraging them about what they did right.” She came to realize that was perhaps not the best way to manage people and “learned to cut people some slack.” She said that she found “that you get a lot more with the carrot routine than the stick routine. I also realized that you really needed to explain the “why” of things. You need to give people a little bit of space to come around, and say, “Yeah, that makes sense,” before you really engage them in what needed to be done.”

I found that her final point may be critical for compliance training. By explaining the why of compliance, employees can better understand what the company is trying to accomplish. So if your goal is to do business in an ethical manner, then explain this and how the company’s compliance program will help to accomplish this goal through its policies and procedures.

Accountability

One of the things that Barrett emphasized was the erroneous perception that because her company was a family business there was no accountability. She made clear that “You have to set certain standards that you want people to live up to. And if people need help, then we want to help them along the way.” However, accountability is a two-way street. Just as the employee must be held accountable, so must the company in terms of providing support to allow employees who want to do the right thing and to do their job well. Barrett said, “Sometimes organizations can fall down if they don’t also ask: How do you give people the tools they need to be successful? How do you get that person to understand what change needs to happen, and how do you help them along the way? Because people can’t always figure it out on their own, and nor should you expect them to.”

Listening

Many of the CEOs that Bryant interviews for his Corner Office section speak about the need for listening skills. Barrett was no exception. But as CEO she found that employees were sometimes reluctant to speak openly and candidly with her. So she began to meet with employees in small groups of 10 to 12 people. At Denihan they call them ‘Roundtables’. Barrett said that she will say to them ““Tell me something I don’t know.” And I’ll get comments like: “Oh, but you know everything. You’re the C.E.O.” It’s just a reminder of the perceptions that people have of the head of the company. But every time I ask that question, I learn something new.” Imagine as a compliance officer if you were to ask that question in a roundtable, what do you think you might hear back from your company’s employees?

Barrett also spoke about how to have a ‘difficult conversation’. She said that if there is a mistake made she views it as an opportunity for learning and professional growth. At Denihan, they call them ‘lessons learned conversations’ and they may occur with a group where a problem has arisen. Barrett related, “we might bring people together in a room who were involved in a project and ask: What were the things that worked? What were the things that didn’t? What could we have done differently? And we’ve had some very spirited and cathartic conversations. You have to be able to let people put something on the table without actually pointing the finger. It allows things to come out in more of a non-accusatory manner.”

Hiring and Promotion

These are two key areas in compliance that are finally beginning to receive the attention that they deserve. Barrett’s thoughts on how she views these in the context of her interviewing are instructive. She acknowledged that by the “time somebody meets me, you can assume that the skills are there. So what I interview for is fit. And I’m always very curious to know, what is it about our company that appeals to that person?” She asks specifically about culture, requesting the candidate define it and how do you think that culture is special. She also asks candidates to talk about a failure and what lessons that they learned from the experience and how they dealt with the experience. I would suggest that both of those lines of inquiries should be used when evaluating a candidate for hire or promotion.

Barrett’s interview provided some interesting insights on leadership. Moreover, her experience in professional growth has shown there are different styles and techniques that you can successfully use in your company’s compliance program. Train people on the reasons why your company is doing compliance so that they will understand how to do it. Make them accountable but also provide them with the compliance tools and support to do business the right way. If there is a problem or issue, use it as a lesson learned so that employees can profit from the experience. Lastly, make a discussion of culture a cornerstone in your hiring interview or promotion interview process.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

In the Limelight-the Theater, Lady Gaga and Compliance

What is your favorite Canadian group? For my money it is the band Rush. My favorite Rush song is probably “Limelight”. How many times have you heard about ‘being in the limelight’? The phrase comes from the British theater where lights in the theater used quicklime. Although long since replaced, lighting in the British theater is still called ‘limes’.

I thought about Rush and their hit song when I recently read a couple of articles on leadership in the theater. I found that some of the insights in these articles could be applied in a compliance program for a multi-national company. In an article in the New York Times (NYT) Corner Office Section, entitled “First, Make Sure Your Idea Works On a Small Stage”, reporter Adam Bryant interviewed Francesca Zambello who is both the general and artistic director of the Glimmerglass Festival and the artistic director of the Washington National Opera.

Think Small

Zambello had a very interesting point that I do not consider often. She said that one of the most memorable lessons that she ever learned from a mentor was to make sure that your creative idea will work on the small stage. By this she did not mean that you cannot have a big idea or large concept. Instead “The most important thing he ever taught me was that if you don’t make sure the show is right in a small room, it will never be right in a big space, on a big stage.”

I found this comment particularly insightful in the context of the Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance. The FCPA Guidance makes clear that a company should design a compliance program which is appropriate for its size, markets and risks. There is no one standard and the FCPA Guidance states: “DOJ and SEC have no formulaic requirements regarding compliance programs. Rather, they employ a common-sense and pragmatic approach to evaluating compliance programs, making inquiries related to three basic questions: • Is the company’s compliance program well designed? • Is it being applied in good faith? • Does it work?”

I have seen many instances where a company will try and implement a compliance regime which is appropriate for a company many times its size. It becomes a top down exercise but as noted in the Zambello interview, it does not work well in the smaller setting because it is not assessing and managing the risks appropriate to a small company. Here a bottom up approach can be much more effective. Certainly this could be accomplished through a formal risk assessment but it may also come through talking and meeting with your internal business units or partners. Such informal assessments can provide valuable information which may work on a ‘smaller stage’ than a compliance program designed for a multi-billion, multi-national company.

Learn How to Fail

Another insight I garnered from the Zambello interview for the compliance practitioner was what she termed “You have to learn how to fail.” She believes that in any position you are in, that you are going to fail. But the real key is that “if you don’t fail, you are probably not that good.” Lastly, if you fail you have to learn to pick yourself up, “The more you get knocked down, the more you learn to pick yourself up.”

In the context of the FCPA Guidance, “DOJ and SEC understand that “no compliance program can ever prevent all criminal activity by a corporation’s employees,” and they do not hold companies to a standard of perfection. An assessment of a company’s compliance program, including its design and good faith implementation and enforcement, is an important part of the government’s assessment of whether a violation occurred, and if so, what action should be taken.” Clearly how a company handles any Foreign Corrupt Practices Act (FCPA) violation is an important key to any DOJ or SEC analysis regarding enforcement.

However, the other point for the compliance practitioner is that not everything should always go right under your compliance regime. Not every third party business representative you look at should pass muster under your process for approval. If everyone does, your process may not be robust enough. Not all of your employees do everything right all the time. If you have never disciplined an employee for a violation of your company’s Code of Conduct or compliance program, you should look to determine if this area needs to be explored as not every expense report is always correct. Lastly, if there has never been a substantial tip to your anonymous reporting line, this is an area which should also be explored. You may need to conduct more, or better, training so that employees understand that they can report incidents in confidence, without fear of retribution.

Be Courteous

Another interesting topic that Zambello discussed was the following, “I think that good manners matter a lot…Some of those are old fashioned things, but manners don’t cost anything.” Think about it – when was the last time you had a discussion of manners or even courtesy? This point is not something which is discussed much in the compliance arena but I think that courtesy is something that compliance practitioners need to be aware of when involved in a multi-national compliance program. Be sensitive to cultural norms in other countries and be respectful of them. As my very southern grandmother used to say, you are never wrong being courteous. Lastly, do not forget the cost for being courteous, nothing. But the benefits can be quite great.

From Lady Gaga to Compliance

For a different type of theater and how it relates to your compliance program, I recently came across an article in the Financial Times (FT), entitled “In need management tips? Try Lady Gagahttp://www.ft.com/intl/cms/s/2/da6559ce-a289-11e2-9b70-00144feabdc0.html#axzz2Qcpc6zzT”, by reporter Miles Johnson. (While some might suggest that Lady Gaga is a musician, I certainly think she is all about theater so it ties in with the above, really.) Johnson’s article reviews the work of Salvador Lopéz, a marketing and research professor at Spain’s ESADE business school. Lopéz believes that the world of business can learn quite a bit from the Lady Gaga’s of the world and I found that a couple of them apply to the compliance arena.

The first is that Lady Gaga generates emotions in her fans. Lopéz likened this to Steve Jobs who created “an entire style at Apple and made people feel things through his products.” Here I think that this applies to compliance because most employees want to do the right thing and will feel better about themselves if they conduct business in an ethical manner. The key for the compliance professional is not only to provide the processes and procedures for them to do so but to also acknowledge those employees who follow a company’s ethical business values. This can occur through financial incentives such as part of an employee’s discretionary bonus awards; promotion of employees who conduct business in accord with a company’s ethical practices or even something as simple as a companywide acknowledgement. The point is to make people feel that something positive for doing compliance the right way.

The second point that Lopéz gleans from performance artists like Lady Gaga is that they are much better in the use of technology than most companies. There are now a plethora of technological tools available to assist the compliance practitioner. I firmly believe that the DOJ and SEC have communicated that transaction monitoring will become a standard best practice quite soon, but certainly within the next 18 months. There are companies, such as Oversight Systems to name but one, which have technological tools to help move to this standard. But that is only one of many tools available to assist in your compliance program. So take a clue from Lady Gaga and ‘keep it fresh’.

These two articles demonstrate that the compliance practitioner can draw from a wide variety of sources and disciplines for inspiration to incorporate into a FCPA or UK Bribery Act compliance program. Further, the tools are out there to help you. I hope that this article has given you some ideas while drumming your fingers along to Rush or Lady Gaga for that matter.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

How To Demonstrate Ethics and Compliance – Earn It, Re-Earn It and Re-Evaluate It

What should your company do if it finds itself in a situation where some of its senior leadership has engaged in conduct which violates its own ethical standards or external legal standard such as the Foreign Corrupt Practices Act (FCPA)? Assume your company is now in McNulty Maxim No. 3 of “What did you do about it?” as you have investigated the conduct and disciplined the senior management in question. However, you want to go further and try to take steps that will detect and prevent the conduct in the future.

A current example of this is going on in the US military. In reaction to recent scandals involving lapses of personal character, the US military has instituted a series of changes to help military commanders to focus on ethical standards. In an article in the New York Times (NYT), entitled “Conduct at Issue as Military Officers Face a New Review”, Thom Shanker discussed a range of responses that the military will pursue. He reported that “The new effort is being led by Gen. Martin E. Dempsey, the chairman of the Joint Chiefs of Staff, as part of a broad overhaul of training and development programs for generals and admirals. It will include new courses to train the security detail, executive staffs and even the spouses of senior officers.” The article quoted General Dempsey as saying, “Conversely, you can have someone who is intensely competent, who is steeped in the skills of the profession, but doesn’t live a life of character. And that doesn’t do me any good.”

The military has initiated three broad responses. The first is a “regularly scheduled professional reviews would be transformed from top-down assessments to the kind of “360-degree performance evaluation” often seen in corporate settings.” A 360-degree review is one which comes from members of an employee’s immediate work circle. Most often, 360-degree feedback will include direct feedback from an employee’s subordinates, peers, and supervisor(s), as well as a self-evaluation. It can also include, in some cases, feedback from external sources, such as customers and suppliers or other interested stakeholders. The results from a 360-degree evaluation are often used by the person receiving the feedback to plan and map specific paths in their development.

While acknowledging the challenges from that comes from a subordinate review in a top-down hierarchical structure, such as the military, General Dempsey stated that “we’ve developed some bad habits” and that “It’s those bad habits we are seeking to overcome.” The article quoted Richard H. Kohn, a professor emeritus at the University of North Carolina, Chapel Hill, who specializes in military culture who said “he thought the 360-degree evaluation would have a positive effect on the leadership styles of many officers. He also stated that “It will reduce what the military calls ‘toxic leadership,’ elevating those who are highly competent but also fair and less brusque and peremptory.”

The second response was increased training on values. “General Dempsey said the demands of combat deployments in the past decade had prevented officers from attending the academic programs that historically had been integrated into an officer’s career every few years, and he pledged to rebalance that.” I found this quote very fascinating as it showed the extent that the military uses outside resources, I.E. civilian academic programs to supplement training on military values. Due to the increased deployments since 9/11, these traditional academic rotations have been less ongoing. Dr. Kohn found that these new training programs are a good enhancement to military training as “most officers need to be reminded of the rules and regulations on a routine basis.” But this training will go past simply the senior officers as “new programs will be instituted to ensure that a commander’s staff, and a spouse, are fully aware of military regulations.”

The third component will be more internal audits. The articled noted that “Under General Dempsey’s plan teams of inspectors will observe and review the procedures of commanders and their staffs. The inspections will not be punitive, but will provide a “periodic opportunity for general officers and flag officers to understand whether, from an institutional perspective, we think they are inside or outside the white lines.”” I found this component to be similar to the ‘Mock Audit’ concept that is used in the power industry that I recently wrote about in the post “In Praise of the Mock Audit”. A ‘Mock Audit’ is a mechanism by which a compliance team can go into a facility and not only try to determine what might need remediation but, equally importantly, help the employees in that facility to move towards greater compliance.

For the FCPA compliance practitioner, this response by the US military has some very interesting parallels to what the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) say should be in your FCPA compliance program. The DOJ/SEC FCPA Guidance demonstrates that a company should strengthen and supplement its compliance program on causes underlying the compliance issues which arose. The Guidance states, “An effective compliance program promotes “an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” Such a program protects a company’s reputation, ensures investor value and confidence, reduces uncertainty in business transactions, and secures a company’s assets. A well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations. [emphasis supplied] Further, in its section on Declinations, one of the six common elements which companies that received declinations engaged in was to make their compliance program more robust around the FCPA violation which arose. Clearly the DOJ and SEC believe that a company with a strong compliance system and culture will not only be in better position to comply with the FCPA but will be a better company.

General Dempsey clearly believes that the military has high ethical values. Shanker wrote that “He said the issue of understanding the military as a profession, and not just an occupation, had fascinated him since his days as a junior officer; he would be subject to the same rules, regulations and assessments he now is championing.” Shanker ended his article with the following quote from General Dempsey, “In my 39 years in the military, I have learned that you are not a profession just because you say you are,” he said. “You have to earn it and re-earn it and re-evaluate it from time to time.”

To me that sounds something like the following-you are not an ethical company because you say you are but because you do compliance by putting in the policies and procedures to do so.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

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

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

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

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

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

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

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

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

Ethical Leadership

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

Treatment of Whistleblower

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

Discipline

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

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

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Amnesty for Armstrong? Lessons for the Compliance Practitioner

The Lance Armstrong saga continues to provide many lessons for the compliance practitioner. A recent article on ESPN.com, entitled “Lance calls for amnesty program”, reported that Armstrong has come out in favor of those who openly speak about the doping culture of cycling, of course most notably him. The article stated “Now that doping has become such a big problem, Armstrong said a truth and reconciliation program is the “only way” to rid cycling of performance-enhancing drugs, and the sport’s governing body should have no role in the process.” In an interview given to Cyclingnews, it was reported that Armstrong said that the “best way forward is a truth and reconciliation process offering amnesty to riders and officials who detail doping in the sport.”

When asked which anti-doping agency should give this amnesty and which one should take such testimony Armstrong answered that “the program should be run by the World Anti-Doping Agency and not the U.S. Anti-Doping Agency (USADA), the body that produced a scathing report detailing systematic doping by Armstrong and his teams. The USADA report led to Armstrong being stripped of his seven Tour titles and banned from elite sport for life.” Not too surprising that Armstrong does not want to get anywhere near USADA given the report they released on him last summer. Armstrong stated that complete amnesty must be given “otherwise no one will show up.” Any chance that ‘no one’ he refers to would be himself?

While Armstrong’s idea of a ‘Truth and Reconciliation’ program may seem, well shall we say, a tad self-serving, the use of a suspended or lessened sentence has been successfully used to elicit testimony in the cycling world.According to the New York Times, USADA had “the ability to offer other cyclists reduced suspensions if they provided information about Armstrong’s doping. Similar to how prosecutors try to persuade lower-level drug dealers to share information about their superiors, the anti-doping agency sat down one by one with cyclists from Armstrong’s teams. Ultimately, 11 agreed to cooperate.” So I guess people will show up if you offer them some type of amnesty, just not the top banana.

What is the compliance angle to amnesty programs? Siemens used an amnesty program to help it investigate its worldwide bribery scheme. In November 2007, Siemens began an amnesty program relating to possible violations of anti-public-corruption laws in order to expedite the independent investigation and facilitate clarification. According to an article in the FCPA Blog, entitled “Siemens’ Employees Come In From The Cold”, Siemens began this amnesty program because its “internal investigation reportedly had stalled because of stonewalling by managers in various countries.”

In the first three months 66 employees came forward in connection with the amnesty program. In addition, a large number of employees received information about the program. “The amnesty program has been very successful” Peter Y. Solmssen, member of the Managing Board and General Counsel of Siemens AG said. He went on to say “We’re pleased that so many employees have made use of the program and are thereby expediting clarification.” By mid-January, 2008, Siemens’ counsel, Debevoise & Plimpton, said that “[s]ince November 28, 2007, we have obtained significant new information and developed very substantial leads from participants in Siemens’ amnesty program, as well as other sources, regarding topics relevant to our investigation.” Siemens itself said that information provided by the employees who ‘came in from the cold’ through this amnesty program gave it new leads to pursue in its internal investigation. At the end of the day, the Department of Justice (DOJ) lauded Siemens amnesty program, which it characterized as “innovative” in helping to further Siemens internal investigation.

Further, The Wall Street Journal (WSJ) reported in March 2008, in an article entitled “Siemens Amnesty Plan Assists Bribery Probe”, that the amnesty program “was offered to all employees except 300 of Siemens’s top executives and expired at the end of February [2008], prompted about 110 employees to offer information about alleged wrongdoing.” Under the amnesty program, the company did not make claims for damages or unilaterally terminate employee relationships. However, Siemens reserved the right to impose lesser disciplinary measures.

So what about Armstrong and his ‘Truth and Reconciliation’ idea? In the ESPN.com article, he intones that he is really the victim here. First of all, he feels that he is really the fall guy for the sport of cycling, because you know, everybody was doing it. He just did it better. He also said it was unfair that those who testified against him had received “minor off-seasons sanctions versus the death penalty” for himself. He was quoted as saying, “What is relevant is that everyone is treated equally and fairly. We all made the mess, let’s all fix the mess, and let’s all be punished equally.” That certainly sounds like someone who is repentant, doesn’t it?

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

How To You Move Ethical Values Down Through Your Company?

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

Company Values

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

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

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

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

Leadership

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

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

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

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

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

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Grand Central Station, Mary Jo White and the End of No-Admission Settlements in SEC Cases?

Last week we celebrated one of the world’s great urban architectural marvels, the London Underground. This week we celebrate one a little closer to home. This week is the 100^th anniversary of Grand Central Station. In an article this week in the New York Times, (NYT), entitled “Looking Out on the Grand Central, and Looking Back on Saving It”, reporter Clyde Haberman interviewed Kent L. Barwick, former Executive Director of the Municipal Art Society, who was instrumental in the fight to save the Station in the 1970s. I knew about the legal fight that the City of New York had put up after its designation of the venerable landmark had been overturned by a state judge. This landmark case went all the way to the US Supreme Court and ended with a victory for the City of New York and the establishment of the right of a municipality to protect the public environment and its history by historic designation. What I did not know about this process was that one of its most active supporters was Jacqueline Kennedy Onassis, who supported the cause with time, money and effort. It was a classic effort of several processes moving forward on several fronts at once which led to this important legal decision and one of the most compelling journeys in landmark preservation.

This article came to mind when I read another article in the NYT, entitled “Make Them Pay (and Confess)” by reporter Gretchen Morgenson, about President Obama’s nomination of Mary Jo White to head the Securities and Exchange Commission (SEC). Morgenson used the nomination of White to argue that the SEC has not been aggressive enough in its prosecution of financial wrongdoing during the first four years of the Obama Administration. She believes that the no-admission settlement is merely a “slap on the wrist” for companies who are guilty of securities violations involving fraud. I believe that this would include Foreign Corrupt Practices Act (FCPA) violations.

One of the techniques that she argues should be used more often and would have greater impact is requiring companies to admit to facts in settlement agreements. As most compliance practitioners know, the SEC has, in the past, allowed companies to settle without admitting or denying the findings which are the basis for the enforcement actions. Generally the SEC has supported this position arguing that by doing so this helps it “avoid costly, time-consuming litigation that would tax already-stretched resources.” In addition to time-consuming trials, there is always the possibility that the SEC could lose at trial. Further, by having quicker settlements, more victims would be getting restitution faster.

But Morgenson argues that a no-admission settlement does not really qualify as a punishment. In addition to having no precedential value going forward, because there are no facts admitted, she maintains that even the financial penalties are meaningless. This is because ultimately the fines and penalties are paid by the shareholders or the company’s insurance carrier. Such situations are “not much of a deterrent.”

Morgenson points out that Preet Bharara, the United States Attorney for the Southern District of New York, who was hired by Mrs. White when she ran the office, “has made it a priority to require admissions from defendants in civil fraud cases” brought by his office. Bharara has stated that “Such admissions are a way to hold defendants accountable, as well as being an important part of the public record.” By public record, Bharara means that plaintiffs can then use those admissions in shareholder derivative actions against corporations in tag along law suits. Do you think that the plaintiffs’ bar will be salivating over that prospect?

Morgenson discussed several reasons for the reluctance of the SEC to require such admissions of fact. The first and foremost is that you have to be ready, willing and able to go to trial. Bharara handles this in the Southern District with the following comment, “We’re not in the business of bluffing. When people know you’re not bluffing, they come to the table.” However, the SEC itself may not have this same attitude. Morgenson notes that “It won’t be easy to change the mind-set at the S.E.C. from one that regularly allows defendants to avoid culpability.” Other federal agencies such as the Federal Trade Commission also allow corporations to settle civil enforcement actions while not admitting to any facts.

Morgenson acknowledges that it will not be easy for the SEC to change its philosophy. Further, defendants will probably fight this change tooth and nail because they know that the cost of any settlement will increase exponentially if they make such admissions. The aforementioned plaintiffs’ bar will be waiting to jump on any corporations which make such settlements. Morgenson quotes William F. Gavin, Secretary of the commonwealth of Massachusetts and its securities regulator, who admitted that negotiating admissions of liability is challenging due to the fact that the cost of settlements will go up. His response, “Well, that’s kind of the idea – you did something wrong, you should be liable. You’re not going to change practices or behavior if there’s no penalty associated with it.”

Federal judges have also begun to question the use of SEC no-admission settlements. There is the quite well known example of Judge Rakoff and his initial rejection of the Citigroup settlement. A couple of other federal judges also initially rejected no-admission settlements but did so on the grounds that there was not enough evidence to enforce an injunction if there was a breach of the settlement by the defendant. Their concerns were addressed and they all eventually signed off on the SEC settlements. Now, however, Judge Richard Leon has rejected a SEC settlement with IBM, for FCPA books and records violations, as Judge Leon wanted IBM to report to the SEC if it sustained a FCPA violation going forward. IBM, with the SEC standing at its side on this point, said that to do so would be “too burdensome.” Judge Leon has set a hearing date of February 4, 2013 for IBM to present evidence of how they plan to collect the data to show that it is too burdensome. If IBM cannot do so, Judge Leon may well not approve the no-admission settlement.

Morgenson clearly wants Mary Jo White to engage in more and greater enforcement of financial fraud cases. She does not speak to FCPA cases specifically so it is not clear on whether her desire would also include FCPA books and records enforcement actions brought by the SEC when there is no criminal case brought by the Department of Justice (DOJ). However, if no-admission enforcement actions are no longer the norm in SEC financial fraud or other securities actions, this will probably also bleed over into FCPA actions. Judge Leon’s challenge to IBM and to the SEC may also portend an increasingly active judiciary which may delve into the substance of any FCPA settlement agreement with the SEC.

So for you New Yorkers out there, or any of you travelling through New York, I would suggest that the next time that you go through Grand Central Station look up with some wonder and awe at one of the true architectural marvels of the city. You may not do so as I did the first time I went through it but still take a few minutes to think that it was headed for the wrecking ball back in the 1970s, scheduled to be replaced by a skyscraper. Morgenson argues that the SEC should become more aggressive in its prosecution of financial fraud and with her prosecutorial background the agency may well be headed that way.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Boeing and the Conduct of Due Diligence on Sub-Suppliers

The Foreign Corrupt Practices Act (FCPA) act has language which makes illegal a direct or indirect act which might be used to obtain or retain business from prohibited parties. This has caused companies to begin to look at their suppliers as one area which might give them FCPA exposure. I have been considering the role of suppliers in a compliance program as I followed the issue of the smoldering batteries in the Boeing 787 Dreamliner.

As reported in a New York Times (NYT) article by James B. Stewart, entitled Japan’s Role in Making Batteries for Boeing, the construction of the batteries at issue was outsourced by Boeing to a Japanese company called GS Yuasa. Stewart’s article points out the need for close review of suppliers and what can happen if the quality does not meet the standards required for the project. However, I considered the article from the FCPA perspective. Stewart initially noted that “No one has claimed that GS Yuasa was chosen for the 787 for anything but merit.” But then he goes on to say that “Boeing has long been dogged by suspicion that in return for awarding major contracts to Japanese companies, which also receive subsidies from the Japanese government, the countries airlines buy Boeing aircraft almost exclusively.”

The question all of this raised for me is just how much due diligence should a company engage in for its suppliers? The first thing to note is that GS Yuasa is not a direct contractor to Boeing. The Japanese company is a subcontractor to a French company named Thales, which was contracted by Boeing to supply the electrical system. However, Stewart noted that Boeing approved the Thales/GS Yuasa contract and relationship. Does this mean that Boeing performed any kind of due diligence on GS Yuasa? The article does not specify any of these facts. However, Stewart asks the question of whether the outsourcing of this work was a for the benefit of sales of planes to Japan? He quotes Richard L. Aboulafia who said, “And then there’s Japan. All the normal ways of doing business are upended.” When asked if there might be a ‘quid pro quo’ Aboulafia said, “Yes, absolutely. But no one will talk about it, and no one can prove it.” He went on to say that in Japan “there is a unique relationship between the airlines, the suppliers and the government. The government supported the airlines, the government and the industries and they developed together. The government has enormous influence. They all work together.”

Are these questions which should be explored in due diligence? I think this situation brings up the issue of how far down in the supply chain that a company needs to go in performing due diligence. Many contracts with suppliers require that if there is a sub-supplier that sub needs to go through due diligence. However, in the case of GS Yuasa, Boeing had the right to select the supplier and if you have that right you probably need to perform due diligence on the supplier.

The key question that Stewart raises in his article is whether Boeing is using the hiring of GS Yuasa as leverage to gain sales to the Japanese government. GS Yuasa admitted that the battery component of its company is a money loser, even with the Boeing contract. This obviously raises the question of why the company is in such a business. The company also admitted that it had received subsidies to the tune of $3.5 billion from the Japanese Ministry of Economy, Trade and Industry to “begin mass production of lithium-ion batteries…”.

However, does Boeing has strong supplier relationships with other Japanese companies? In addition to the sales to Japan Air, Boeing works closely with Japan’s Defense Ministry and Boeing was quoted in the article as saying that it had “a long history of working together to meet Japan’s defense needs.” In addition to the hiring of GS Yuasa, Boeing said that its Japanese partners had “designed and developed 35 percent of the 787 airframe structure, including the main box wing, which is the first time Boeing has ever entrusted such a critical design component to another company.”

Stewart penultimately notes that “any questions about GS Yuasa may be premature.” In addition to the investigation of GS Yuasa, both the French company Thales and Securaplane, an American subsidiary of the UK engineering company Meggitt which makes the battery chargers, are also being looked at in connection with the fires aboard the Boeing planes. Stewart does believe the “whatever the outcome, experts said that with so many lives at stake, the design and manufacturing of new aircraft should be based solely on legitimate issues of cost and quality, and the selection process for suppliers should be transparent and untainted by other commercial or political concerns.

To end his article, Stewart quotes Aboulafia who states that “The greatest enemy of good aircraft is people who interfere with the freedom to shop for the highest quality.” I think that the same could be said in conjunction with the FCPA and the Supply Chain.  If a company allows inferior quality into its supply chain through the bribery or corruption that the FCPA is designed to stop it could well allow an inferior product to be constructed. While such actions may not have the catastrophic and very public impact that the apparent battery failures on the 787 have sustained the damage can be severe.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Marks of Excellence – the Lakers 33 Game Winning Streak and FCPA Compliance Tools

Sorry Bill Simmons, but today we celebrate one of the great modern day records of any American sports franchise. On this day 41 years ago, the Milwaukee Bucks beat the Los Angeles Lakers to end the Lakers 33 game winning streak. This is the longest winning streak of any professional American sports team. 1971-72 was the greatest season in Laker history with the team winning the then record of 69 games for the season, topped off with a National Basketball Association (NBA) championship, after a 4-1 romp over the New York Knicks in the finals. By any measure, the Lakers achieved true greatness in that season.

One of the more interesting areas of Foreign Corrupt Practices Act (FCPA) compliance work is its evolving nature (although some might say more frustrating). However, as compliance work and compliance programs mature the tools, products and services available to help companies better manage the business of compliance continues to evolve as well. Several articles recently caught my attention and, in particular, one product caught my eye. Two of the articles appeared in the Financial Times (FT) and spoke to the advance in the sophisticated nature of compliance tools available. The final article was in the New York Times (NYT) and focused on a systemic failure by the US Air Force in the implementation of a computer upgrade that spoke to the difficulties a compliance practitioner can face in implementing a new compliance regime or engaging in a system upgrade.

The first FT article was by Jennifer Thompson, entitled “Rogues revealed by bad language”. In this article Thompson reported on research by Ernst & Young on information they received from the US Federal Bureau of Investigation (FBI). Thompson reported that “Phrases such “as “nobody will find out”, “cover up” and “off the books” are among those most likely to litter the in-boxes of corporate rogues, according to fraud investigators deploying increasingly popular linguistic software.” Moreover, “Expressions such as “special fees” and “friendly payments” abound for those embroiled in bribery cases, while rogue employees feeling the heat are likeliest to write that they “want no part of this” as well as the somewhat misguided “don’t leave a trail”.”

The technology angle is that there is software available which performs linguistic analysis that “initially protects employee anonymity, can flag uncharacteristic changes in tone and language in electronic conversations and can be tailored for particular types of employees, such as traders.” Further, Thompson noted that the “use of technology is set to grow as compliance departments police sprawling organisations to avert potentially costly mistakes.”

The second FT article was by Richard Waters, entitled “Counter-terrorism tools used to spot fraud”. In this article Waters detailed how “JPMorgan Chase has turned to technology used for countering terrorism to spot fraud risk among its own employees and to tackle problems such as deciding how much to charge when selling property behind troubled mortgages. The technology involves crunching vast amounts of data to identify hard-to-detect patterns in markets or individual behaviour that could reveal risks or openings to make money.” While the article focused on the use of the software to spot fraudsters, I believe that such techniques could well be brought in to help in the fight against corruption and bribery.

Another area where technology has come into play to help compliance programs is in due diligence. Most compliance practitioners are aware of the various levels of due diligence, that being Levels I, II and III. One difficult question has been how does a company perform in-country native language source business information investigations, without paying someone to put ‘boots on the ground’ and then have to pay for a translation, sort of due diligence Level I (a). I was recently introduced to a software tool by Arachnys Information Services Ltd (Arachnys) and I can tell you that it does some really cool stuff and can certainly help to fill a gap. Arachnys software can run your designated search terms in local media, such as newspapers or other sources, and not simply through a Google search database. It can then translate the local source for you and deliver the results to your computer. This software allows a compliance practitioner to perform in-country computer based due diligence at a level that I had not previously seen available. And as I said, it is really cool.

The final article was by Randall Stross, entitled “Billion-Dollar Flop: Air Force Stumbles on Software Plan”. In this article Stross discussed the failure by the Air Force to install and implement ‘off-the-shelf software’ which was originally budgeted at $628MM. In November of last year, the Air Force “canceled a six-year-old modernization effort that had eaten up more than $1 billion. When the Air Force realized that it would cost another $1 billion just to achieve one-quarter of the capabilities originally planned –  and that even then the system would not be fully ready before 2020 – it decided to decamp.” While there were numerous reasons given for the failure, the main reason attributed was that there was not “a single accountable leader” who “has the authority and willingness to exercise the authority to enforce all necessary changes to the business required for successful fielding of the software.”

The failure of the Air Force’s attempt to modernize its software speaks to one of the issues present when implementing or scaling up a compliance regime. First, do not start with the ‘Big Bang’ approach and try to do everything at once. There is usually more success by scaling implementation or enhancement down into manageable chunks. Next is the point raised above, that being that there must be a leader who not only has the authority but the willingness to exercise the authority to make the changes. Additionally, coupled with this type of leader, is the need for local buy-in which is important, as is empowering small groups to make the necessary decisions.

So today we celebrate the greatness of the Lakers and their phenomenal season of ‘71-72. In the compliance world, best practices are evolving but so are the tools which you can implement into your compliance program. The mining of data has many uses. Some companies such as Catelas Inc. can look at the relationships of persons and parties involved. Other software, such as that available through VisualRisk IQ, can mine the data and come up with financial or data points for further investigation. On the due diligence front, Arachnys software can help fill in holes for your in-country native source business information searches. Lastly, do not fall into the trap of the US Air Force; manage not only the expectations but the entire compliance process.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

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

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

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

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

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

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

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

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

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013