How to Introduce Innovation in Your Compliance Program

News Flash: Houston Astros Lead AL in Wins!

 In case you were too worn out from this weekend’s college basketball tournament bonanza, both the men’s and women’s, to stay up on Sunday night and watch ESPN; the Houston Astros won their 4000^th game and had their first American League (AL) win so that they now lead the AL in overall wins. I guess Astros owner Jim Crane, he of “I-made-a-$100-million-dollars-so-I-must-know-what-I-am-doing”, thinks he knows a thing or two about innovation. Or perhaps not?

While Brother Crane is no doubt reveling in his first win as the Astros owner, I thought about the question of how a compliance professional can use innovation to improve a company’s overall compliance program? This topic of innovation was recently explored in an article in the MIT Sloan Management Review,  Spring 2013 issue, entitled “How Innovative is Your Company’s Culture?” by Jay Rao and Joseph Weintraub. In this article, the authors tried to determine how companies could develop a more innovative culture. While the article did not focus on compliance, I found the ideas that they put forward as a useful manner for compliance practitioners to think through and implement innovation into their Foreign Corrupt Practices Act (FCPA) or UK Bribery Act compliance programs.

The authors believe that when it comes to innovation, most companies focus on resources, processes and measurement because they are tool-oriented and more easily measured. Conversely companies tend to focus less on people-oriented components of innovation success, for example values, behaviors and climates, because they are harder to measure. The authors quote one Chief Executive Officer (CEO) who had said, “The soft stuff is the hard stuff.” Yes the authors believe that it is the soft-stuff, people issues where the greatest opportunity for innovation can occur. I believe that this holds true for innovation in a company’s compliance program as well.

The authors posit that there are six building blocks to an innovative culture. These six building blocks are not static conditions but are inter-related and to an extent, interdependent on each other. The six building blocks are:

1. Values. The authors believe that it is a company’s values which drive both its priorities and its decisions. It is also reflected in where a company spends its money. If a company is innovative, it tends to emphasize creativity and encourage continuous learning. Values are more than what leaders say or what they write but drive by what they do and what they invest in.
2. Behaviors. This describes how company employees act in the cause of innovation. This is demonstrated when leaders work to energize employees and to make sure that things happen within the company. For employees it means working to overcome obstacles around innovation and making things happen when “resources and budgets are thin.”
3. Climate. The authors believe that climate is “the tenor of workplace life.” This means that innovation is encouraged and employees take it on “with enthusiasm.” People are allowed to take risks within a safe environment and the company encourages “independent thinking.”
4. Resources. Within the framework of their six building blocks, the authors believe that resources have “three main factors” people, systems and projects.” Of these three factors, people are the most important because they have the most “powerful impact on the organization’s values and climate.”
5. Processes. The authors state that processes are the route by which innovations follow as they are developed within an organization. These processes include not only the track they follow but also the criteria for capturing and sifting through new ideas for “reviewing and prioritizing projects and prototyping.
6. Successes. The authors believe that successes in a company are “captured at three levels: external, enterprise and personal.” These can help to demonstrate if an innovation is paying off. But more than simply financial success, this building block “reinforces the enterprise’s values, behaviors and processes, which in turn drive many subsequent actions and decisions”.

There are several lessons that the compliance practitioner can derive from these six building blocks to help put innovation into your company’s compliance program. I think the first is that you must create an environment where innovation is not only accepted but encouraged in your company. A simple top-down structure will not accomplish this goal. Not only do you have to go out into the field but you must listen to what people in the field are telling you. Simply because you get push-back from the business folks does not mean that their suggestions are always wrong. There might be some nugget in such push-back which allows you to do something faster, quicker or with more compliance efficiency. Even if the suggestion or push-back does not warrant inclusion into your compliance program, you should at least acknowledge employees for their suggestion.

Another technique that you might use based on these building blocks is the compliance champion. Such a person can be used not only as an initial point-of-contact for your compliance program but you can use non-compliance department compliance champions as innovation leaders in your compliance program. You could have them meet (in person or virtually) on quarterly intervals to discuss compliance program innovations that they might come up with based upon their more focused training and work as a compliance champion in your company. As the authors might say, you can develop your own internal community of compliance innovation experts that you could call upon as an internal resource. Further, in their role as your initial point-of-contact for your compliance program, these compliance champions could also act as a filter to bring you other innovative ideas from your company’s workforce.

This article by Rao and Weintraub had some very interesting ideas about how a company can ingrain innovation into its compliance program. Many companies have worked very diligently on resources, processes and measurement of their compliance program. However, as compliance programs mature and become a part of every well-run company, compliance practitioners can move towards other themes of innovation; that of values, behaviors and climates. So while I am not yet convinced that the Astros $20MM payroll really was a positive innovation, I do believe that the authors have set out some very thoughtful ideas that you can incorporate into your compliance efforts going forward.

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