FCPA Compliance and Ethics Blog

January 22, 2015

Both Sides Now and Asking the Right Compliance Questions

Judy CollinsOne of my favorite singers has always been Judy Collins. Like most of us, I was introduced to her through her interpretation of Joni Mitchell’s song Both Sides Now which she released in 1967. Joni Mitchell did not record her own version of this song until 1969. It was not until the 1990s that I became aware that Mitchell’s inspiration for the song was that she gave up a child she bore out of wedlock in the early 1960s. She managed to put all that pain into one of the most beautiful ballads I have ever heard. I also did not know that Judy Collins was the inspiration for the Crosby, Stills, Nash & Young song Suite: Judy Blue Eyes until I read an article about her in a recent Wall Street Journal (WSJ) article in Weekend Confidential column by Alexandra Wolf, entitled “Judy Collins”.

I thought about how long I mis-understood the genesis and import of these two songs when I read a recent article in the Winter 2015 edition of the MIT Sloan Management Review, entitled “The Power of Asking Pivotal Questions” by Paul J. H. Schoemaker and Steven Krupp. The authors posit that “In a rapidly changing business landscape, executives need the ability to quickly spot both new opportunities and hidden risks. Asking the right questions can help you broaden your perspective — and make smarter decisions.” Their findings showed that to help managers make better decisions they needed to (1) examine broad market trends and less visible undercurrents; (2) seek out diverse viewpoints to allow multiple views of complex issues; and (3) actually push back if consensus comes together too quickly. They posed six questions, which I believe have some direct insights and are important for the Chief Compliance Officer (CCO) or compliance practitioner so I have adapted their findings directly for the compliance function.

Think Outside In. The authors ask, “How well do you understand the implications of broad market trends and less visible undercurrents for your business and for upcoming strategic choices?” Here I think compliance practitioners need to understand not only what your business does but equally importantly where it is going. This is also true about where compliance itself is going as the Department of Justice (DOJ) now requires that companies which enter into Deferred Prosecution Agreements (DPAs) keep abreast of both technological innovations and also industry trends in compliance. To engage in some of the authors’ suggestions, you need to go to conferences outside the compliance function and to leverage your current networks and join new ones.

Explore Future Scenarios. In this query, you will need to consider, “How thoroughly have you analyzed major external uncertainties and future scenarios that could significantly impact your business decisions?” The authors point to war-gaming as an example of scenario planning. While a CCO may feel like he or she only has time to put out fires, you need to consider what may become the ‘elephant in the room’. Consider the example of GlaxoSmithKline PLC (GSK) in China. The new Chinese government had clearly been signaling an upcoming drive against bribery and corruption. It was only a matter of time until a western company got caught up in its dragnet. Yet, even with specific knowledge of a high ranking party functionary making internal whistleblower claims, GSK not only could not uncover its own systemic corruption but was caught flat-footed when Chinese officials brought forward substantive allegations and evidence of corruption. To help with this issue, the authors suggest you ask questions about the external business environment and to “scout for the periphery” of emerging compliance or regulatory trends. You should also follow developments in your industry to anticipate where the DOJ or Securities and Exchange Commission (SEC) might be going next with enforcement.

Be a Contrarian. This question focuses on diversity of opinions by asking, “Do you regularly seek out diverse views to see multiple sides of complex issues, and do you purposely explore important problems from several angles?” This is an ongoing battle that many corporate senior managers, including compliance practitioners, face, that being to “promote diverse and creative friction.” A CCO must learn to ask if the compliance team team has sought sufficient contrarian input and been exposed to all sides of an issue before reaching a decision. While it is possible to counter the tendency of many compliance practitioners to go along to get along; offering contrarian compliance views are particularly essential when tackling major strategic decisions in an uncertain environment. The authors recommend you use such techniques as fostering constructive debate in meetings, pushing back when consensus groups form too quickly and designate specific devil’s advocates to argue the case against the prevailing views or conventional wisdom.

Look for Patterns. Taking a more analytical approach, the authors inquired as to whether “you deploy multiple lenses to connect dots from diverse sources and stakeholders, and do you delve deep to see important connections that others miss?” Connecting the dots entered the lexicon most prominently after 9/11. However it is an importance concept for the compliance practitioner as well. You need to be able to “amplify discrete data points, connect them and take decisive action” because many compliance practitioners are limited by selective perception and seek information that confirms what they wish to believe.

To overcome this information bias, the authors suggest that you utilize the following strategies. One is to “Look for competing explanations to challenge your observations” as this allows you to “engage a wide range of stakeholders, customers and strategic partners to weigh in.” A second is that when you are “stuck trying to recognize patterns or interpret complex data, step away, get some distance and then try again. Sleep on the data, since the mind continues to process information when resting.” This is because each time you take “a break, and then reengaged, he got a deeper understanding and asked better questions.” Finally, do not forget the power of pictures, visualization and charts. You can “use visual graphs or flowcharts to juxtapose the larger picture with the individual puzzle pieces. Pattern recognition is easier when all the information is clearly laid out and presented in different ways.”

Create New Options. Under this prong, the authors investigate whether “you generate and evaluate multiple options when making a strategic decision, and do you consider the risks of each, including unintended consequences?” The authors believe that few senior leaders will “engage in creative thinking.” This can also be true for the compliance practitioner. The authors posit that “When people feel pressed for time, they become less flexible and much prefer certainty to ambiguity. Ambiguity aversion is typically heightened in crisis situations and can lead to cognitive myopia, a narrow focus that can be counterproductive.” To overcome this tendency to cut corners when we are under the gun the authors suggest the following. The first technique is to not simply present “binary go/no-go decisions, reframe a situation to always examine several more options.” Particularly as a compliance practitioner, with or without legal training, you should always inquire as to what else might we do? The second suggestion is to utilize “impromptu meetings when time is limited to generate more options, including unconventional choices. The Midnight Rambler crew did this during a major crisis.” Finally, you should work to “review alternatives based on clear criteria and rank options accordingly.” From this you should work to “Clearly define decision criteria, make them explicit, weigh them and then score each option against the criteria to identify the best choice. Be disciplined when it comes to making tough trade-offs.”

 Learn From Failure. The authors want to know if you encourage experiments and “failing fast” as a source of innovation and quick learning? If there is one area that a compliance practitioner will always face, it is failure. There will always be instances where an employee violates your Code of Conduct or compliance program. It does not matter if you are the World’s Most Ethical Company or somewhere below that level in the compliance strata. But as Paul McNulty said, “What did you do about it when you found out?”, remember this is his Maxim Number 3. The authors write that “Learning from mistakes has much to do with a leader’s mind-set and the questions that he or she asks both before and after an unexpected event occurs. Strategic decision makers abandon the pursuit of perfection, allow some room for well-intentioned mistakes, and examine what went wrong and why. What matters is how well a team learns from setbacks and what mode of inquiry it allows. The best teams try to fail fast, often and cheaply in search of innovation.”

The authors suggest three steps to help facilitate McNulty’s Maxim Number 3. First is to “Shine a light on mistakes as a source of new learning.” Do not bury or hide your miss-steps. Be open about them. Second, you cannot learn from your mistakes unless you study them so if your compliance regime fails in some way, perform a root cause analysis to determine the reason. Lastly, use your miss-steps as teaching moments going forward. The authors note that you should “Publicize stories about failed projects that led to innovative solutions. Praise those who learned from their errors and try to extract learning from near misses.”


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, 2015

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