The Louisiana Purchase and Compliance Focus Group – Changing the Game

In 1803, the fate of the United States changed in ways that could have never been contemplated, when the French Minister Talleyrand offered to sell France’s entire Louisiana Territory in North America to stunned American negotiators, Robert Livingston and James Monroe, who were simply trying to purchase the city of New Orleans from the French Emperor Napoleon. Quickly recognizing that this was an offer of potentially immense significance for the US, Livingston and Monroe began to negotiate on France’s proposed cost for the entire territory. Several weeks later, on April 30, 1803, the American emissaries signed a treaty with France for a purchase of the vast territory for $11,250,000. With the sale of the Louisiana Territory, Napoleon abandoned his dreams of a North American empire, but he also achieved a goal that he thought more important. “The sale [of Louisiana] assures forever the power of the United States,” Napoleon later wrote, “and I have given England a rival who, sooner or later, will humble her pride.”

There are many great resources out there for the compliance practitioner. One of them I have really come to appreciate and look forward to receiving is the Red Flag Group’s bi-monthly Compliance Insider magazine, available both in print and online versions. In the most recent version there were several articles that I found very useful for the compliance practitioner but the one I want to focus on today is the compliance focus group. This provides a forum, which allows employees to raise compliance issues and concerns in “an informal environment, in small groups or in one-on-one sessions. They can be done as stand alone or as break-out sessions from larger meetings, conferences or similar events where multiple parties get together.” The article provided 10 things which you should consider before you hold your compliance focus groups.

1. Select Your Countries and Regions Carefully. You need to reflect on selecting those areas, which have “compliance issues, have been the subject of investigations or are higher risk.” Contrast that selection with one or more regions that have achieved compliance performance so that you can clearly articulate the difference. Most importantly, pick the regions that need the most support and “have the most business at risk if there is a compliance issue. You will also know from your own business those areas, business units or regions where there is more “noise” around compliance.”

2. Plan Your Locations, Times and Attendees. Think about your logistics, both higher level such as travel times and lower details such as seating. As you will usually desire to have three to four sessions per day, up to 90 minutes, you will need to make sure people have enough time to get there and register. But also think about seating, as you want to make things as informal as possible. This means a conference table or a large U shape arrangement and not classroom or lecture room seating.

3. Have Separate Management Sessions. It is important that you make attendees feel that they can give open and honest thoughts about the company and its compliance regime. This means you cannot have senior management in sessions for middle management and lower management and employees.

4. Draft an Agenda and a Short Presentation. The author believes that many times participants will need a stimulus of some sort to get things going. He advises “A good idea is to build a brief agenda before the meeting, even if it is fairly flexible – many senior employees will demand an agenda before accepting a meeting.” Also prepare a brief PowerPoint presentation for the session designed to explain the purpose and outcomes of the session, keep it to five or six slides which will act as placeholders for discussion topics.

5. Think About Some Probing Questions In Advance. Here are some of the suggested questions that you should consider asking to the group:

• Do people understand what compliance is? What does it mean to you in your daily business dealings?
• What do people think of the policies and procedures across the company?
• Is the training simple and easy to understand?
• What is the company culture around compliance? Do people really take it seriously or is there a “tick-the-box” mentality?
• Are there issues with reporting? How do people report? What is the culture regarding reporting issues?
• Does management “walk the walk” with compliance or just “talk the talk”?
• How does your company compare to its peers in the area of compliance?
• What is the competitive environment like, both externally and internally?
• Where are the areas that compliance could improve?

6. Select a Facilitator. Compliance issues can be sensitive and people can be uncomfortable talking about them. For the focus group to succeed and be of value, everyone should be made to feel comfortable; and feel that they are not being audited or reviewed or they will not be confident to speak up. The author believes that here a good facilitator can be assist in keeping “the discussion going, ensure that everyone participates, make people feel at ease and, most importantly, ensure that the discussion is lively. The facilitator might also need to be trained on some of the risk areas of the business and have a solid understanding of the business and the existing compliance program.”

7. Prepare Your Opening Disclaimer. Some participants may want to know how their comments will be used, quoted directly or generalized. This would be the time to address such concerns and invoke confidentiality of names and other identifiers.

8. Prepare Some Takeaways. The leader should be prepared to summarize what the next steps will be going forward, including when a report might be issued to management and what might included in the report.

9. Prepare a Report For All Participants. A key component of any compliance focus group is a post event report, which consolidates all sessions. This should be generated as soon as possible after the end of the last session. The report should include specific actions that will be taken based upon the input received from the focus groups. There will certainly be expectations from participants that if they have reported any circumstances which warranted responses they will want to know what the compliance team is doing about a response. Participants will also want to see whether the feedback they gave is consistent with that given in the other sessions.

10.Write a Report for Management. This report should focus on the larger issues raised in the compliance focus groups and, as the author notes, “looking at the trends, steps forward and lessons learned.”

While your compliance focus group may not be quite the game changer that the Louisiana purchase was for the US, it will certainly provide you solid information on your compliance program that you can use to move it forward; as the article notes, “From the people who use the programme everyday—your employees and partners—you can find out what the programme means, how it adds value (or doesn’t add value) and how it is seen by the management team around the world. And while you are at it, you may want to check out the Red Flag Group’s Compliance Insider magazine, it is a great resource.

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

© Thomas R. Fox, 2014

Implementing Compliance Incentives In Your Company

Several readers have asked why I have not written anything about the Houston Astros this year. The answer is two-fold. The first is that I really do not care. However, the more I thought about it, the real reason is that they are not relevant. Just how not relevant are the bumbling hometown (former) loveables? Last week they achieved the noteworthy accomplishment of obtaining a Nielson rating of 0.00 for a second consecutive season. I am not aware of any other major league team, which has been on television for a game where no one was recorded as watching for the entire game, for two straight seasons. Pretty amazing when you think about it.

However, one thing that is relevant in the context of any best practices anti-bribery compliance program is incentives. The Department Of Justice (DOJ) and Securities Exchange Commission (SEC) could not have been clearer in the FCPA Guidance about their views on the need for incentives to help drive behavior that is ethical and in compliance with the Foreign Corrupt Practices Act (FCPA) when they stated “DOJ and SEC recognize that positive incentives can also drive compliant behavior.” In the Guidance, the SEC cited to the following:

[M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well. For at the end of the day, the most effective way to communicate that “doing the right thing” is a priority, is to reward it. Conversely, if employees are led to believe that, when it comes to compensation and career advancement, all that counts is short-term profitability, and that cutting ethical corners is an acceptable way of getting there, they’ll perform to that measure. To cite an example from a different walk of life: a college football coach can be told that the graduation rates of his players are what matters, but he’ll know differently if the sole focus of his contract extension talks or the decision to fire him is his winloss record.

A recent article in the Spring 2014 issue of the MIT Sloan Management Review, entitled “Combing Purpose with Profits”, by authors Julian Birkinshaw, Nicolai J. Foss and Siegwart Lindenberg, presents some interesting steps on how a company might work towards achieving the goals articulated by the DOJ and SEC. The key thesis of the authors is if you want to motivate employees you have to have purpose. In their article they presented case studies from three entities: the Tata Group, Handelsbanken and HCL Technologies. From these three cases studies they came up with six core principles, which I will adapt for the compliance function in an anti-corruption compliance program.

1. Compliance incentives don’t have to be elaborate or novel. The first point is that there are only a limited number of compliance incentives that a company can meaningfully target. Evidence suggests the successful companies are the ones that were able to translate pedestrian-sounding compliance incentive goals into consistent and committed action.
2. Compliance incentives need supporting systems if they are to stick. People take cues from those around them, but people are fickle and easily confused, and gain and hedonic goals can quickly drive out compliance incentives. This means that you will need to construct a compliance function that provides a support system to help them operationalize their pro-incentives at different levels, and thereby make them stick. The specific systems which support incentives can be created specifically to your company but the key point is that they are delivered consistently because it signals that management is sincere.
3. Support systems are needed to reinforce compliance incentives. One important form of a supporting system for compliance incentives “Is to incorporate tangible manifestations of the company’s pro-social goals into the day-to-day work of employees.” Make the rewards visible. As stated in the FCPA Guidance, “Beyond financial incentives, some companies have highlighted compliance within their organizations by recognizing compliance professionals and internal audit staff. Others have made working in the company’s compliance organization a way to advance an employee’s career.”
4. Compliance incentives need a “counterweight” to endure. Goal-framing theory shows how easy it is for compliance incentives to be driven out by gain or hedonic goals, so even with the types of supporting systems it is quite common to see executives bowing to short-term financial pressures. Thus, a key factor in creating enduring compliance incentives is a “counterweight,” by which we mean any institutional mechanism that exists to enforce a continued focus on a nonfinancial goal. This means that in any financial downturn compliance incentives are not the first thing that gets thrown out the window and if my oft-cited hypothetical foreign Regional Manager misses his number for two quarters, he does not get fired. So the key is that the counterweight has real influence; it must hold the leader to account.
5. Compliance incentive alignment works in an oblique, not linear, way. The authors believe that “In most companies, there is an implicit belief that all activities should be aligned in a linear and logical way, from a clear end point back to the starting point. The language used — from cascading goals to key performance indicators — is designed to reinforce this notion of alignment. But goal-framing theory suggests that the most successful companies are balancing multiple objectives (pro-social goals, gain goals, hedonic goals) that are not entirely compatible with one another, which makes a simple linear approach very hard to sustain.” What does this mean in practical terms for your compliance program? If you want your employees to align around compliance incentives, your company will have to “eschew narrow, linear thinking, and instead provide more scope for them to choose their own oblique pathway.” This means emphasizing compliance as part of your company’s DNA on a consistent basis — “the intention being that by encouraging individuals to do “good,” their collective effort leads, seemingly as a side-effect, to better financial results. The logic of “[compliance first], profitability second” needs to find its way deeply into the collective psyche of the company.”

6. Compliance incentive initiatives can be implemented at all levels. Who at your company is responsible for pursuing compliance incentives? If you head up a division or business unit, it is clearly your job to define what your pro-social goals are and to put in place the supporting structures and systems described here. But what if you are lower in the corporate hierarchy? It is tempting to think this is “someone else’s problem,” but actually there is no reason why you cannot follow your own version of the same process. We have seen quite a few mid-level managers make a real difference, and often quite quickly, using the principles outlined here.

The author’s have set out several steps that you can implement into your compliance program to enhance incentives to facilitate anti-corruption. There have been many who have criticized the FCPA Guidance. While I am certainly not one of them, I do not think there can be any argument that it does not present the DOJ and SEC views on a minimum best practices compliance program. So if the DOJ and SEC think incentives in your compliance program are important, I suggest to you, they are important. The article, which is the basis of this blog post, provides an excellent start for the exploration of some ways to inculcate anti-bribery and anti-corruption incentives into not only your compliance regime but also, more importantly, the DNA of your company.

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

© Thomas R. Fox, 2014