FCPA Compliance and Ethics Blog

May 6, 2014

From the Bad Boy Pistons to GRC: The Building Blocks of Compliance

Detroit PistonsI recently watched the ESPN documentary series 30-for-30 on the Bad Boy Detroit Pistons from the late 1980s and early 1990s. It was a great review of a different era of the National Basketball Association (NBA) and the perfect way to get ready for the current playoffs, even if the Rockets did choke their way out of Round 1 as usual. But more than great entertainment, the show focused on the building blocks of a pro basketball team. The Pistons were created player by player who were pieces of the overall team structure. The team then had to become battle hardened by losing some tough playoff games, first in the Eastern Conference to Boson and then in the NBA Championship to the Lakers, before they eventually succeeded in becoming two time NBA champs. In other words, it was a lengthy process, which started in 1982 when the Pistons drafted Isaiah Thomas and it took almost 10 years for them to win the title.

I thought about this process orientation when I read a GRC Illustrated series article in the March issue of Compliance Week, , entitled “The Principled Performance Vision”, by Carole Switzer, co-founder and President of the Open Compliance and Ethics Group (OCEG) and Scott L. Mitchell, the co-founder and Chair of OCEG. In their article, and accompanying GRC Illustrated presentation entitled “Pathway to Principled Performance”, they discuss the need for companies to have a mechanism to address ever-changing business and legal risks in the context of the high performance required by internal and external stakeholders. They articulate “a point of view and approach to business that helps organizations reliably achieve objectives while addressing uncertainty and acting with integrity.”

The biggest problems that they identify are issues of loss of cohesion and insular nature of a management and reporting system between business units within an organization. For instance they point to a wide variety of disciplines within a company, such as “as governance, finance, production, and sales to adjunct areas like performance management, risk management, internal control, compliance, and audit” which must use the same data but often never share the results with each other. The authors posit that a more holistic approach is required and this “can only be achieved by integrating and orchestrating information and functions that, in many organizations, are fragmented and siloed. Then, these integrated capabilities must be supported with strong communication, effective technology, and development of the desired ethical culture.”

Coupled with the article and illustrated framework is a roundtable discussion led by Switzer of several leading compliance practitioners and thought leaders. The participants included Brian Barnier, Principal at ValueBridge Advisors; Paul Liebman, Chief Compliance Officer (CCO) at the University of Texas; Tony Miller, Chief Operating Officer (COO) and Partner at The Vistria Group and Michael Rasmussen, Principal and Chief GRC Pundit at GRC 20/20 Research LLC. Switzer asked them the basic question of how does one get started in such an initiative for a company? Barnier believes that, in large part it is about messaging by “treating it as a business initative to drive profitable revenue and risk-adjusted return” as opposed to “yet another compliance task to achieve while cutting cost.” Liebman focused on the ‘why’ he changed when he noted, “true change depends upon three things: a profound sense of discomfort in the current condition, a vision that things could be better, and a plan to get there. I think the first step is therefore to assess and explain the current level of discomfort—i.e., what is wrong and why.” Moreover, he believes that it is important to “have a vision of the direction you want to go and plan accordingly.” Finally, he said that “Focus on structure and process so that you are constantly moving forward. Slow, incremental but sustainable change in the right direction is far more important than quick, substantial but unsustainable change. Slow, incremental and sustainable change happens by taking advantage of pre-existing organizational processes and mental models that are already working well. Don’t force new or redundant processes but, rather, seek to understand how others are thinking and acting and explain how your vision is really just a logical extension of what they are already trying to accomplish.”

Miller took a somewhat different approach when he said that “Principled performance needs to be part of the culture, reflected in the strategy, and embedded in an organization’s operating systems and processes.” To accomplish this he listed three steps, “(1) the chief executive officer and the senior executive team explicitly acknowledging that this is an important problem that must be addressed; (2) establishing clear metrics and goals for improvement; and (3) assigning point accountability at the executive team level for developing and “owning” the process that will enable the organization to meet the principled performance goals.”

Switzer asked the participants if they could point to situations where there has been a failure to interconnect the various functions of GovernanceRiskCompliance (GRC) which has led to catastrophic consequences. Miller pointed to the siloed nature of the financial services industry when he said, “That’s why we’ve seen significant breaches in the financial services industry with excessive risk taking by traders, the mortgage services industry in lax and exploitive underwriting practices, and the education services industry with overly aggressive student recruitment practices.” Liebman pointed to that well known risk area under the Foreign Corrupt Practices Act (FCPA) by noting, “Third-party relationships are an example where disparate processes and strategic goals can lead to significant non-compliance, waste, and surprise. For example, companies often create a business strategy at a high level and then ask others to implement the strategy with little or no oversight or structure… Accordingly, when a problem surfaces creating a bad reality, such as bribery in the supply chain, and expectations were set too high, the result is significant unhappiness for stakeholders.” Barnier focused on the management of risk without coordination due to the insular nature of management and reporting systems when he observed, “Much of this results from typical silo behavior—especially when reinforced by a control culture with its usual compartments that diminishes individual engagement and end-to-end views. Principled performance, with its focus on outcomes, brings together a range of decisions and activities to improve the likelihood of achieving those objectives.”

While some might find it interesting that the notorious “Bad Boys” of the NBA can teach the compliance practitioner a thing or two, it is clear that their General Manager (GM) Jack McCloskey had a plan in mind when putting the pieces of the team together. That team then had to be molded together and tested. This real world example would seem to be what Rasmussen said when he summed up his views by stating, “A mature GRC program will have an integrated strategy, process, information, and technology architecture that brings efficiency, effectiveness, and agility to GRC across the business and aligned with the business.”

If you have a team left in the NBA playoffs, good luck. Otherwise I hope that you will back me in supporting the Spurs yet again.

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

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