FCPA Compliance and Ethics Blog

March 24, 2014

Tales from the Crypt: Rule 3-Appearances Matter and May We Have the Envelope, Please.….Part I

Filed under: Best Practices,compliance programs,Ethical Leadership,Ethics — tfoxlaw @ 12:01 am

Tales from the CryptEd. Note-this week on am on a Spring Break college tour with my daughter. The Two Tough Cookies whom are penning the Tales From the Crypt Series have graciously agreed to contribute a week’s worth of workplace Tales from their crypts so help illustrate some key compliance and ethics concepts. Today is Part I of a lesson that appearances do matter…

A few weeks ago, many of us were glued to the television, eager to hear which one of our favorite producers, movie stars, designers and composers would get to rub elbows with Oscar, and go down in history as one of the greats from last year’s entertainment vaults.  It’s always a delicate decision – reward the “up and coming” star in his or her very first notable role on the big screen, or honor the veteran, for whom the invitation to get chummy with Oscar has always eluded them.

Aspiring stars look to the veteran greats as role models, often choosing roles to play based on career choices made by stars they have come to admire and love, some by being selective, as Matthew McConaughey did while waiting for “Dallas Buyers Club” to come along, or recognizing a rare opportunity to play a great role passed by another veteran, as Sandra Bullock did to the role Angelina Jolie was supposed to play in “Gravity.” Sandra could have let her pride be bruised as “second choice” to Ms. Jolie, but instead she broke the glass ceiling for women actors by giving the performance of a lifetime and earning record box office proceeds as a result.   Matthew should be remembered not only for his performance in Dallas Buyers Club as Ron Woodroof, where he took home the Best Actor award, but also for the personal sacrifices to himself and his family while he rejected more commercial, “plum” roles, spending “hungry” years patiently waiting for Dallas Buyers Club to go into production, not to mention losing 47 pounds in 6 months to authentically play the part

These actors personify “authentic” leadership  – they do what it takes, rolling up their sleeves, becoming the characters they personify.  Okay, maybe that’s a stretch, but when successful actors immerse themselves so deeply into the roles they portray, they pull the audience in to their world, blurring the lines between entertainment and reality.  Rephrased into the leadership context, a leader’s message of virtue is a message of hope which defies injustice, breaks down institutional barriers, and strikes a balance of trust vital to organizational effectiveness and integrity.  Subordinates necessarily look to their leaders for authenticity to trust their leaders.  Authentic leadership requires personal sacrifice, and a willingness to humble oneself to the lowest denominator to “connect” on several levels.

One of the toughest duties Compliance professionals are required to perform is “managing up” – advising a senior level professional that something they have said or done has eroded some level of trust in the organization.  The following tale from our crypt demonstrates Rule # 3: Appearances Matter.  No matter how inconsequential the leader might view his action, the message sent often erodes trust and can lead to epic failure.

In addition to the Academy Awards, this time of year, specifically early February, marks the Chinese New Year, where “guanxi”  favors are liberally, and publicly, distributed to signal positive working relationships.  Though the direct translation of “guanxi” is “relationships”, the concept as it is used and applied in Chinese culture is much richer and encompassing.  Guanxi expresses an obligation of one party to another, built over time by reciprocal social exchanges and favors, establishing almost a “familial” relationship between business partners.  If one has “guanxi” with another, one will be quick to do a favor or act on another’s behalf.  Depending on the depth of the relationship, the existing guanxi may compel one party to do just about anything necessary for the other party. By establishing this type of relationship with someone, the other party is implicitly agreeing also to be available to reciprocate when the need arises. In such a way “guanxi” can be considered as a type of currency that can be saved and spent between the two parties, the Chinese version of “Quid Pro Quo” in western culture, but with much more lasting consequences.

One typical expression of guanxi given around the Chinese New Year’s celebration is the distribution of “red envelopes.”  Contrary to what the name implies, the envelop itself isn’t necessarily red, but oftentimes is a standard business envelope with a plastic address  window.  However, peeking through that window is a gift wrapping replete with Chinese characters, printed in red, extolling your virtues  and general wishes of a prosperous year ahead.  Inside the wrapping, of course, is cold, hard, untraceable, cash – ranging anywhere from a few dollars, to thousands, depending on how generous the gift giver feels towards the recipient (or, how much favor the other wishes to curry with the recipient).  A glance is all you need to know that the envelope is a “red envelope” but you have to actually unwrap the contents to determine how much currency the envelope contains.  And once you accept the envelope, guanxi has passed hands…..

Mark was the president of Asian operations, and the talk back at corporate was that he had gone “native,” after having been stationed in Shanghai for two years, and not traveling home to visit his family still living in the States in over a year, opting instead to participate in executive management meetings by conference call.  So it came as no surprise when the hotline call came in the second week of February, alleging Mark had accepted a “red envelope” at a business meeting the prior week during Chinese New Year, and to further complicate things, was also alleged to have accepted the “favors” of a prostitute offered to him from a business partner in a region of China notorious for labor gangs and workplace violence.  Other executives at the Asian operations were also identified in the call as “witnesses” to Mark’s receipt of the red envelope, as well as the attentions of several prostitutes at the dinner meeting.

The investigation was a delicate one – if the allegations were true, we had a corrupt executive in our midst, and not just financially, but morally corrupt as well.  The line you walk when facing allegations of moral corruption, as a compliance executive, can be a fine one.  Many companies are loathe to discipline a high performer for straying in his or her personal life, claiming that personal matters are just that – personal – and are not for the business community to judge.  I have been told to walk away from cases  because my employer could not see their way to interfere in matters of a personal nature, unwilling to take the higher road of integrity, but relying instead on the good faith defense of inaction of “We have no policy prohibiting that particular conduct!”

It takes a significant erosion of trust for the personal transgressions to rise to questionable leadership skills, but it happens more often than you think. So it’s no happy day when the Ethics and Compliance function is asked to investigate the personal lives of others, secretly reviewing emails and files stored on company-issued devices to find evidence to convict.  But I submit that not once in my investigative career has an allegation of moral corruption been proven wrong –  there was always a nugget of truth giving rise to the allegations, even if the smoking gun wasn’t in hand.  When the evidence given isn’t damning, the role of the Integrity officer becomes dicey – your years of experience tell you that there is something to the claims, but you cannot prove the allegations.  It doesn’t mean they aren’t true, it just means that you can’t prove it which does nothing to restore trust in the organization.  It becomes even more difficult when the hotline call is anonymous, as you cannot perform follow-up investigative techniques that are the stock-in-trade to effective whistleblowing case management. While some organizations and leading subject matter experts discount anonymous calls as “lacking veracity,” these practitioners are overlooking the very real fear of retaliation by management (as discussed in our last tale).  If you insist on digging a little deeper, trusting your gut, you get labelled a “hysteric” or some other unflattering moniker, eroding the organization’s confidence in your own ability to act with integrity.

Fortunately for us, the hotline call named another executive, Carl, who was present when Mark allegedly engaged in misconduct.  I asked Carl to meet me in my office to discuss a matter of importance.  I advised him that the nature of our conversation had to stay confidential between us, and I proceeded to lay the groundwork, using my years of interviewing skills, asking benign questions at first to establish a level of trust and rapport between us.  Unbridled by the rules of evidence, I had no fear of using leading questions to get answers to my questions, and dove into the meat of the matter – may we have the (red) Envelope, please…

To my surprise, Carl said “yeah, I got one of those envelopes too.  All of us at dinner got one.  It wasn’t much, maybe $10 dollars or so in value.  I have it right in my office, should I go get it?” “Yes, please” was my response, after confirming who else was present at the dinner…

While Carl went to his office to retrieve the evidence, I started to formulate my thoughts on approaching the more delicate matter – the alleged prostitution charge.  Here, the line was more blurred. Clearly, a red envelope portended danger to the company – currently under scrutiny by federal regulators for foreign corrupt practices charges. Another lapse in integrity would not be suffered lightly, even if the act were “merely” commercial bribery.  But engaging in otherwise questionable personal conduct crossed that line of sensitivity that we all must cross at one point or another in our career as integrity officers.  Oftentimes, we’re viewed as the “conscience” of the company, our constant communications serving as a reminder as to how things should appear to the casual observer.  Our ethical decision-making toolkits include “would you want your mother to know what you did?” or “would you be comfortable with your actions being published on the front page of your local news?”  While I personally feel that decision-making tools such as these oftentimes simplify the matter to such a basic level as to be borderline insulting at times, it can be very effective when used with executives to remind them that appearances do matter.

To Be Continued Tomorrow….

Who are the Two Tough Cookies? 

Tough Cookie 1 has spent the more than half of her 20+ legal career working in the Integrity and Compliance field, and has been the architect of award-winning and effective ethics and compliance programs at both publicly traded and privately held companies.  Tough Cookie 2 is a Certified Internal Auditor and CPA who has faced ethical and compliance challenges in a variety of industries and geographies and recently led a global internal audit team. Our series “Tales from the Crypt: Tough Choices for Tough Cookies” are drawn largely from real life experiences on the front line of working in Integrity & Compliance, and personal details have been scrubbed to protect, well, you know, just about everyone… 

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