Compliance: Having Everyone Join In – From the Board Room to the Shop Floor

Today in history should be known as “End of Military Leaders Day” as not only is this the 199^th anniversary of Napoleon’s exile to Elba (although he did make somewhat of a comeback) it is also the 62^nd anniversary of Truman’s sacking of Douglas MacArthur (although MacArthur did get to address Congress). Whatever you think of these two men as human beings, you cannot under-rate them as great leaders of armies. They both were able to get men to achieve far beyond what they believed were their capabilities. I thought about great generals and other leaders when reading a recent article in the New York Times (NYT), Corner Office section where reporter Adam Bryant interviewed Dr. David Rock, in an article entitled “A Boss’s Challenge: Have Everyone Join the ‘In’ Group”. In this piece, Bryant highlighted some of the mechanisms which Rock, who is the director of the NeuroLeadership Institute (NLI), believes that it is important for managers to make employees feel like they are on the same team.

Generally speaking Rock believes that the brain categorizes everything into one of two categories: threat or reward. He thinks people are driven unconsciously to stay away from threat and are driven unconsciously to go toward reward. This decision about threat or reward happens five times every second. But this can all be very subtle as employees are making this decision about everything good or bad all the time. He has based this theory on research in the last 10 years or so which he believes demonstrates that things that create the strongest threats and rewards are social. Social threats and rewards activate what’s called the brain’s primary threat-and-reward center, which is actually the pain-and-pleasure center. This was a big surprise, to see that someone feeling left out of an activity, for example, would activate the same regions as if they had put their hand on a hot plate.

He breaks these concepts down with the acronym SCARF; which stands for status, certainty, autonomy, relatedness and fairness. I found that these concepts had some useful analogies for the compliance practitioner in not only how to engage employees, but also to have them buy into and become a part of a company’s compliance regime.

Status

Rock believes that status is your perception of where you are in the pecking order around you, and it’s a feeling of being better or worse than others. People feel uncomfortable until we work out our status with people. We are more comfortable and we’re more effective when there is a clear status arrangement between people. When we feel a higher status, we get a slight reward. When we feel lower status, we get a strong threat. The challenge is that if somebody continuously fights for high status, all the other people around them might be getting a strong threat response.

For the compliance practitioner, I think that the key here is to get out of the office and into the field. The more employees see you, the more they will move away from seeing compliance in an ivory tower and more towards compliance being part of the overall business process. This can also mean embedding compliance department members in high risk projects or high risk geographic areas. The more compliance is seen, the more comfortable employees will feel in bringing matters to you.

Certainty

Certainty is critical. Rock believes that the feeling of uncertainty feels like pain, when you can’t predict when the lights will come back on and you’re holding multiple possible futures in your head. That turns out to be cognitively exhausting. And the more we can predict the future, the more rewarded we feel. The less we can predict the future, the more threatened we feel. As soon as any ambiguity arises in even a very simple activity, we get a threat response. So we are driven to create certainty.

For the compliance practitioner, I think this is where the ‘we all wear the same color shirt’ concept is important. When compliance looks into something or looks at how processes are being followed in business units, it should not be perceived as a threat to employees but how to work better and more efficiently in the context of compliance.

Autonomy

For Rock, autonomy is a sense of control. While it is similar to certainty he believes that there are differences. Certainty is prediction. Autonomy is control. And it’s a very important thing for us to feel a sense of control, so much so that a small stress where you have no control generally is in fact a very big stress. When autonomy goes down, it’s a strong threat. So when the boss walks in the room, they’ve got the final say, so suddenly your autonomy goes down.

For the compliance practitioner, I think that setting clear expectations can help employees in this area. The more that they understand what is required of them the more that they understand their obligations. This includes any compliance component of evaluations or bonuses. The more you can explain, teach and educate, the more employees will recognize what is required of them.

Relatedness

Rock next spoke about ‘relatedness’ which he believes is the decision about each person we interact with, for example other employees, which impacts basic processing. This decision boils down to “Are you in my ‘in’ group or in my ‘out’ group?” If an employee decides that they are part of your “in” group, they will process what you say using the same brain networks as thinking your own thoughts. Conversely, if they decide they are in your “out” group, you use a totally different brain network. So the very level of unconscious perception has a huge impact based on the decision of: “Is this person similar to me? Are they on my team? Do we have shared goals, or are they in my out group?” This is also the same of teamwork and collaboration. It feels good to be with “in” group members. But we basically treat everyone as foe until proven otherwise, with the exception of really attractive people or if you’ve had a moderate amount to drink.

The important question for the compliance practitioner becomes, “How do we create an ‘in’ group for compliance?” If you can create shared compliance goals among people, you can create quite a strong “in” group fairly quickly. When you can find a shared goal, you turn an “out” group” into an “in” group. But this requires a company leader to create shared goals across an organization; otherwise an organization will be a series of silos.

For the compliance practitioner I think the domain where leaders can have the biggest impact is relatedness. Many people have had a boss they really wanted to work hard for because they respected them. It doesn’t have to be love, but it does have to be a sense of respect. And I think that those bosses have worked hard to have a sense of relatedness with people, which comes from having shared goals and making sure there’s a feeling of being on the same team, not a sense of “us” and “them.”

Fairness

The final one is fairness, Rock says that it is “very fundamental.” A fair exchange of anything is intrinsically rewarding. An unfair exchange of anything is intrinsically threatening – and not just threatening, but very intensely threatening. Fairness is about several things. First and foremost the compliance practitioner must treat everyone fairly, from the ‘board room to the shop floor’ so that if someone violates the compliance program they are promptly investigated and disciplined, if warranted. But it also means transparency so that employees understand what their obligations are and what rewards they will receive if they meet those obligations.

Bryant’s article has some interesting insights for not only compliance leadership but also for compliance engagement. While you may not get the blind devotion that Napoleon and MacArthur were able to engender, you may be able to obtain better buy-in and strength for your 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

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

Transparency Is The Key to Keeping Everyone Rowing Together for Compliance

One of the concepts articulated in the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) Foreign Corrupt Practices Act (FCPA) Guidance was that every company should assess its own risks for bribery and corruption and manage those risks accordingly. In the introductory section of the Ten Hallmarks of an Effective Compliance Program it states:

Compliance programs that employ a “check-the-box” approach may be inefficient and, more importantly, ineffective. Because each compliance program should be tailored to an organization’s specific needs, risks, and challenges, the information provided below should not be considered a substitute for a company’s own assessment of the corporate compliance program most appropriate for that particular business organization. In the end, if designed carefully, implemented earnestly, and enforced fairly, a company’s compliance program—no matter how large or small the organization—will allow the company generally to prevent violations, detect those that do occur, and remediate them promptly and appropriately.

Last week I focused on the above regarding the issue of having a carefully designed and reasoned approach to your compliance program. Today I will focus on the above quote for another benchmark for your compliance program transparency. In a recent article in the Corner Office section of the New York Times (NYT), entitled “Transparency Is Much More Than a Buzzword”, reporter Adam Bryant interviewed Ryan Smith, co-founder and Chief Executive Officer (CEO) of Qualtrics, a provider of online research survey platforms.

Smith said that his company is “extremely transparent, but not so that we can be cool. And it’s not about an open environment, because that’s not what makes a company transparent. It’s more around the fact that everyone needs to know where we are going and how we are going to get there.” He wants everyone to understand the company’s “objectives and make that available to everyone as we’re evolving, so people aren’t guessing and they’re not internally focused. That’s one obstacle a lot of companies fall into.”

Further, Smith believes that his company should “be transparent because we want to encourage our people to have all the information to keep them focused on what really matters — our objectives and how they’re going to contribute.” He explained that transparency helps everyone in the organization understand what the goals are and how they are working to achieve them. This transparency has an effect on everyone because they understand the environment that they are operating in within the overall company structure. But Qualtrics has taken this to a very high and detailed level. Smith described the following path for transparency, “We have another system that sends everyone an e-mail on Monday that says: “What are you going to get done this week? And what did you get done last week that you said you were going to do?” Then that rolls up into one e-mail that the entire organization gets. So if someone’s got a question, they can look at that for an explanation. We share other information, too — every time we have a meeting, we release meeting notes to the organization. When we have a board meeting, we write a letter about it afterward and send it to the organization.” By doing this Smith believes that “When everyone’s rowing together toward the same objective, it’s extremely powerful. We’re trying to execute at a very high level, and we need to make sure everyone knows where we’re going.”

The idea that transparency has importance in the compliance function is clear. If everyone understands that compliance and ethics are a value of the company, then everyone can operate in that manner. Smith made clear that at his company and all of the employees need to know where the company is going and how the company should get there. One of the keys that Smith articulates is that a company should focus on transparency so that people “aren’t guessing”. If your company simply focuses on quarterly numbers, the message is that you need to do everything you can to meet your numbers. In other words wherever compliance falls into your company scale of importance, it is not Number 1 or even Number 2.

Throughout the Ten Hallmarks of an effective compliance program is the concept of transparency through communications. Obviously it starts at the top but written policies, procedures and fair administration of your compliance program are key as well. Risk assessment, then monitoring should be used to help employees do business in a more compliant manner through remediation. If you are transparent in this process not only will employees understand better and more fully the purposes behind these practices but they will embrace the solutions going forward. As Smith noted, “We can’t control the way they think. All we can control or have an effect on is the environment around them.”

If Smith can use transparency to get everyone at Qualtrics “rowing together” I believe that you can use this same technique to get employees all moving forward on doing business in an ethical and compliant manner. Remember “Transparency” is the key.

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

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

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

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

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

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

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

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

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

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

© Thomas R. Fox, 2012

The Hound of the Baskervilles – Questions, Questions and More Questions for Wal-Mart

We continue our week of exploration of all things Sherlock Holmes in honor of his 125^th anniversary last week by taking a look at my favorite Holmes novel “The Hound of the Baskervilles”. It is the third of four crime novels by Sir Arthur Conan Doyle featuring the detective Sherlock Holmes. The book was originally serialized in The Strand Magazine from August 1901 to April 1902. In 2003 the book was listed on the BBC’s The Big Read poll of the UK’s best-loved novel. I have read the novel and seen almost all of the available movie and television adaptations. I love the Basil Rathbone version, in eerie black and white, but the Hammer version starring Peter Cushing is actually more faithful to the original text. The story is set largely on Dartmoor in Devon in England’s West Country and tells the story of an attempted murder inspired by the legend of a fearsome, diabolical hound. And for every stone that Holmes overturns to try and solve the mystery another question arises.

I thought about this novel in the context of the recent news comings and goings of Wal-Mart and its ongoing Foreign Corrupt Practices Act (FCPA) imbroglio. As reported by the FCPA Blog, in an article entitled “Wal-Mart’s latest FCPA disclosure (November 2012)”, the company disclosed in its Form 8-K filed with the Securities and Exchange Commission (SEC) on November 15, 2012 that its internal investigation of its foreign subsidiaries had expanded into “Brazil, China and India.” It was not clear from its 8-K filing whether this was the internal investigation initiated after the New York Times (NYT) April 22 story about allegations of corruption and bribery coming out of its Mexico subsidiary or if this was a part of the investigation began in spring 2011 as a relatively routine audit of how well its foreign subsidiaries were complying with its anti-corruption policies.

In a very interesting development, as reported by the FCPA Professor, in a blog, entitled “New Wal-Mart Details Emerge”, where he cited back to a NYT article that “Wal-Mart’s internal review began in Spring 2011 when Jeffrey Gearhart (Wal-Mart’s general counsel) learned of an FCPA enforcement action against Tyson Foods. According to the NYT article, “the audit began in Mexico, China and Brazil, the countries Wal-Mart executives considered the most likely source of problems” and Wal-Mart hired KPMG and Greenberg Traurig LLP to conduct the audit. The NYT article notes that “in July 2011” the firms “had identified significant weaknesses in all three subsidiaries.”

The NYT article went on to state that an un-named Wal-Mart official said that “It was clear that they were not executing” or following Wal-Mart’s internal protocols for performance of due diligence on third parties and FCPA compliance training. Further, the problems unearthed in this internal investigation were serious enough to merit an increase in scope “to expand the audit to all 26 of its foreign subsidiaries.” Then in the fall of 2011, Wal-Mart discovered that the NYT was investigating the company over allegations of bribery and corruption in its Mexico subsidiary and “Wal-Mart’s response in 2005 to serious and specific accusations of widespread bribery by Wal-Mart de Mexico, the company’s largest foreign subsidiary.” This new allegation led Wal-Mart to hire another law firm, Jones Day, “to investigate whether top executives had quashed the company’s investigation into the lawyer’s claims.” The company began to look into other specific accusations of wrongdoing, both in Mexico and it its other subsidiaries. This “effectively created two lines of inquiry — the first being the global compliance review begun by Greenberg Traurig and KPMG. The second was the internal inquiry into specific accusations of bribery and corruption.”

Last Friday, an article in the Chicago Tribune, entitled “Wal-Mart India unit suspends CFO, others pending probe”, reported that the company had “suspended its chief financial officer and other employees as it investigates alleged violations of U.S. anti-bribery laws”. In addition to the Chief Financial Officer (CFO), who doubled up as the firm’s acting legal counsel, those suspended included a senior manager, manager, assistant manager and retainer. “The five, whose job was to procure licenses required for stores and other real estate approvals, taxation and logistics, were told not to attend office until the FCPA-related investigations were over, said one of the persons asking not to be named.”

This investigation was being led by Greenberg Traurig. In the Tribune article, the FCPA Professor was quoted as saying, “Suspensions are common in situations like this. Companies that are under FCPA scrutiny want to demonstrate to enforcement agencies that upon learning of improper conduct, they took effective remedial measures,” said Koehler. “Part of doing that is to isolate current employees from their positions, so that any improper conduct does not continue.” Further, the Professor stated that “If any alleged improper conduct occurred, then the suspensions by Wal-Mart “will serve it well in the eyes of enforcement agencies” such as the Department of Justice and the Securities and Exchange Commission, in deciding how to resolve the broader case.”

An interesting perspective was presented by Sonia Jaspal in her blog RiskBoard, in a post entitled “Bharti Walmart India – Internal FCPA Investigation”. Jaspal posed some interesting and difficult questions relating to the difficulty of doing business in India without paying bribes. She stated, “The Retail Association of India lists 51 different approvals from 32 different agencies. Seeing the corruption index of India and the way government departments’ function, I would be very surprised if an organization manages to obtain all the relevant licenses without any grease payments. Hence, the question is how will the organizations manage to function without paying bribes?” She went on to ask “What happens in such a case to the license? Will the license be revoked, cancelled, or returned? If not, what is stopping the organizations from first taking the licenses by paying bribes and then doing a clean-up exercise to show their commitment to ethics?”

These are all serious and difficult questions for Wal-Mart, its Indian subsidiary and many others to answer. But as Holmes, through his dogged pursuit, was able to finally overcome the mystery of the Hound of the Baskervilles, perhaps someday these questions posed herein may become close to being resolved.

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

© Thomas R. Fox, 2012

To The Moon and Back: Company Values from the Ground Up

On May 25, 1961 President John F. Kennedy told a special joint session of Congress: “I believe this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to Earth.” Forty three years ago, today, on July 24 that dream was accomplished when Apollo 11 which had landed Neil Armstrong and Buzz Aldrin on the moon on July 21, returned home safely. Even with the insanity of America in the late 60s, it was an event that we rejoiced in because it seemed to encompass our best values as a nation. New York Times (NYT) columnist Thomas Friedman, in an article on Sunday, July 22 entitled “The Launching Pad”, said that “Cape Canaveral was the launching pad for our one national moon shot. It was a hugely inspiring project that drove scientific research, innovation, education and manufacturing”. In short, the space program was a bold statement of our national values.

I thought about Friedman’s article and more sadly, Sally Ride, the first female astronaut in space, in relation to a recent article in the Corner Office section of the NYT, entitled “It’s Not About Me. It’s About Our Company Values”, where Adam Bryant reported on an interview with Cathy Choi, President of Bulbrite. Ms. Choi came to her current position in a usual manner; however this different route gave her some interesting ideas about her management style. I found her journey in the business world to be an interesting arc in the context of a compliance practitioner seeking to move the compliance program forward in his or her company.

Choi’s educational background is in mathematics and theater. After receiving her undergraduate degree she got an MBA from New York University and went to work for a “big accounting firm”. From there she went to work as a Personal Assistant to a Hollywood movie producer. The company she now runs, Bulbrite, a lighting maker and supply company, was founded by her father who gave her the opportunity to come in and run the company.

Take a Deep Breath

Choi wondered not only if she could ever walk in her father’s shoes but whether the company’s employees would accept her. The hardest thing was “walking into a set culture and trying to adapt to that culture, while still making an impression.” To help accomplish the transition, her father taught her to “take a deep breath” when she had an idea to change the company. By taking that deep breath, it provided an opportunity for thought and reflection. If the idea was good before she took the deep breath, it would still be good after it was more thoroughly considered.

It’s About the Company

One of the more interesting insights that Choi had regarding her transition to leadership from her father was to “build an intentional culture.” By this she made a “concerted effort to make the company the leader, not me or my dad.” She began by asking the employees what their personal values were and why they held them. She catalogued these values on a white board and began to note patterns; such values as integrity, team spirit and commitment to each other stood out. She developed these values into an acronym “BE BRITE” and the company uses this as its touchstone for alignment in company decisions such as hiring.

Start From the Ground Up

Choi said the next step was to come up with a group of accepted behaviors which supported the company’s value systems. Her role was to listen and be a facilitator. Choi did not take a leadership team offsite and come up with these values or behaviors, they all came from the employees, or as Choi put it “from the ground up.” She felt that by doing this it gave the company’s value structure, “a life of its own.” In other words, she made the values about the company and the company the values leader.

For the compliance practitioner sometimes the biggest challenge is not only to get senior management but the troops in the trenches to embrace compliance. That is why I found the message of Cathy Choi so useful. She came into an environment that was totally foreign to her coupled with the fact of being the owner’s daughter. Yet she was able to turn these potential negatives into positives by taking some very basic steps, such as taking a deep breath, engaging others and listening to what they had to say and building a value system from the ground up rather than imposing one from the top down. Her story is a powerful lesson of one way to get those troops in the trenches to buy into what the compliance department is selling.

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

© Thomas R. Fox, 2012