Compliance Networks as Knowledge Networks

As compliance programs mature, they become less top down driven and more inculcated into the DNA of a company. The more doing business ethically and in compliance becomes part of the way your company does business, the better off you will be down the road. One of the methods that you can use is to set up a compliance network within your organization. I recently read an article in the Fall issue of the MIT Sloan Management Review, entitled “Designing Effective Knowledge Networks”, by Katrina Pugh and Laurence Prusak, in which they discussed knowledge network design as a mechanism to facilitate desired behaviors and outcomes. I found their ideas very useful in the compliance context.

Generally speaking, knowledge networks are a “collection of individuals and teams who come together across organizational, spatial and disciplinary boundaries to invent and share a body of knowledge. The focus of such networks is usually on developing, distributing and applying knowledge.” This is what a compliance regime should strive for within a company’s organizational structure. The authors believe that with the design of an effective knowledge network, a company can not only affect dynamics but also drive behaviors. In designing such a knowledge network, the authors postulate that there are “8 dimensions of a knowledge network” which encompass strategic, structural and tactical issues which must be considered. They are as follows:

1. What is your Leaders’ shared theory of change?
2. What are the objectives/outcomes/purposes of the knowledge network?
3. What is the role of expertise and experimental learning in the knowledge network?
4. What is your inclusion and participation in the knowledge network?
5. What is the operating model of your knowledge network?
6. How do you convene structures and infrastructures for your knowledge network?
7. What is your facilitation and social norm development?
8. What are your measurements, how do you elicit feedback and provide incentives?

Leaders’ Shared Theory of Change

This dimension is “as much about being explicit about how to have an impact as about how to be a leadership team. We found that good leaders were role models, inspiring members to act, and they did not delegate work such as being online and responding to discussions.” You should be able to describe the mechanism through which compliance will have an impact on both the organization generally and employees individually. This dimension encompasses such issues as how will employees learn and adapt their compliance knowledge into action.

Objectives/Outcomes/Purposes

Here the authors suggest a formal charter to define the “purpose and target outcomes.” In the compliance arena, this may be the Code of Business Conduct or other foundational document for your compliance program. Components can also be drawn from you policy and procedures. But the key under this dimension is that there is community purpose, norms, values and outcomes which are documented for moving forward.

Role of Expert and Learner

For the compliance knowledge network, this dimension signifies communication both downward and up the command chain of the company. So not only should an organization be open to innovation on issues but upper management should also encourage participation and must listen. There are different ways in which compliance can be achieved and these lines of communication need to be fostered. But, equally importantly, this dimension speaks to internal company reporting and whistle-blowing.

Inclusion and Participation

A compliance network positions the network among other operations within the company’s organizational models. A compliance network should seek out cognitive, geographical and professional diversity, or an amalgamation of separate social networks within your organization. You may also need to balance technical or operational expertise with convening or networking skills. You could create profiles for the types of people you want within your compliance network to allow you to easily and early on identify candidates for the network.

Operating Model

Your compliance leadership should decide what roles, responsibilities and decision processes are needed for your compliance network. All stakeholders should be described in the operating model, and there should be clarity about how resources are allocated. This should be true for core team members as well as small project teams or working groups that assemble for just a few months to complete a task.

Convening Infrastructures

This dimension concerns the structures which are used to build cohesion, connectivity, collaboration and engagement. Core network teams may develop a matrix for the channels or vehicles that are used to identify both the purpose and the team members who will be involved. Even with the social media that is available in today’s business world, the authors believe “recent research that found that teams’ performance correlated directly to the frequency and variety of real-time interactions.” The degree of face-to-face and voice-to-voice interaction depends on the compliance objectives involved. Rapid idea development and innovation require live discussions (online or in meetings), while intellectual capital management requires document management and broadcast communication. However it may be that if you have a wide compliance knowledge network, in many countries, a text based approach may be more appropriate, particularly if English is a second language to many of your team members.

 Facilitation and Social Norm Development

 The authors advocate that certain compliance network members be designated as “facilitators and change agents” whose role would include leading “members in meetings, discussions, games, events and other interactions to draw out their hidden insights or to provoke a common curiosity.” Added to this concept, the authors believe that “Social norms — such as inclusion, openness, transparency, accountability, curiosity and quality — are integrated explicitly into the facilitation processes. For example, respect for diversity could be conveyed in the tone and language of meeting agendas, discussions, blogs and quick polls.” This means not only prodding and pulling questions and answers from team participants but sometimes translating concepts for the group’s benefit.

Measurement, Feedback and Incentives

Some of the things that you need to consider under this dimension are what are the outcomes you are trying to achieve and how will you know when you meet them; in other words, what metrics will you employ? You will need to consider evidence of failure or success in the compliance network participation as well as mechanisms to incentivize employees to be involved. The authors recognize that performance metrics for compliance network performance can be “elusive” but they believe that by having a map with ongoing checkpoints, which delineates the pathway between inputs and outcomes, can be a key technique to aid in measurement. The authors note that “Incentives include the extrinsic (community celebrations or letters or appreciation directed to managers or network members) as well as the intrinsic (learning something new or solving a problem quickly). High-performing network leaders manage to minimize bureaucratic review and tie performance to incentives quickly so that members feel pride, connection and even healthy competition.”

One of the goals of any compliance program is to become part of the fabric of a corporation. Ironically, some of the most innovative compliance initiatives are made by companies with a sole Chief Compliance Officer and a miniscule compliance budget who is forced to ‘do more with less’. Creating a compliance knowledge network can be one manner in which to leverage your employee talent base across your organization. However you go about it and whatever your reasons might be, in creating a compliance knowledge network, you will drive compliance into the DNA of your company.

 Episode 33 of the FCPA Compliance and Ethics Report is up. In this episode I visit with Bruce Carton, Founder and Editor of Securities Docket.com on his top SEC issues from 2013. You can check out the interview by clicking here. It is also available for download on iTunes.

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.

The Business of Successful Transformation

Ed. Note-today we have a guest post from out colleague Tim Aikens, which originally appeared on Tim’s website, Azarel.com. 

This month I have chosen a couple of topics that most of us come across at some time in our career.  The toxic culture – being in an organisation that clearly has little or no moral compass.  Secondly how do you tell your boss he or she is wrong? Nobody is perfect, but the boss will often think they have a divine right to be . . Right!

Read on . . . . .

Toxic Corporate Culture – What is it and does it really matter?

A couple of months ago an article in the BBC internet news caught my attention: – ‘Australia London 2012 Olympic swim team ‘toxic’. The first paragraph read ‘Australia’s Olympic swimmers existed within a “toxic” team culture that led to bullying and misuse of prescription drugs, a report has found.’  The inference was that this culture had contributed to the poor performance of the team at the Olympics.

In a world where competition is increasing and becoming more global, a corporation will need to use every tool available to gain competitive advantage.  This would include having a ‘good culture’.  But all too often the drive for success leads to the opposite.  I googled toxic culture and was amazed to find a plethora of learned papers and news articles about the topic.  The issue would seem to be big and important.  But what is a ‘toxic culture’ and does it really matter?  I believe there is such a thing and long term it can destroy an organisation.

Firstly it is important to summarise what we mean by a ‘toxic corporate culture’.

A few extreme examples in recent history of toxic cultures are Enron, Tyco and WorldCom.  Others might include News International and Lehman Brothers. Some have imploded in a spectacular manner, others are still very successful. The single most common feature in all of them is the desire for financial success at almost any cost. Put more simply – greed – especially at the higher levels in the organisation.  There are other signs that appear to be common – bullying, lack of transparency, a closed circle of influence at the top, words (in the sense of written values or behaviours) not matching actions, placing unreasonable demands on staff (from hours to how they are expected to treat others), a win lose style (i.e. my gain is your loss – lots of internal competition).  There are many others, but from a review of the literature these are the main signs.  You might see one or more in your organisation; none are perfect, but when you begin to see a theme, it’s time to change something or move on.

Many organisations will exhibit some of these traits somewhere and some may be tolerated – the perpetually angry boss, a ‘long hours culture’, or one where rules are regularly ignored or abused.

Does it really matter? So what if life is hard at the workface?  Some staff members may be happy to be workaholics; others may enjoy the competitive aspects of a zero sum game when it comes to sales. As long as the company remains profitable and stock price keeps going up why worry?  At this point the question becomes partly ethical and partly business.  A leader might say I have to treat my staff this way in order to get results, others (both staff and workforce) might know no other way.

My view on the ethical side is yes, it really does matter.  How can we tolerate this kind of behaviour yet admonish other nations for corruption and slave labour.  It is perfectly possible to run a business well without even small amounts of toxicity.  A quick review of the Sunday Times Best Companies to work for will show that not only are they good places to work, but that they are also successful.  At an individual level, who believes that they will be more productive long term in a toxic environment?   A couple of years ago I read a great book entitled ‘The No Asshole Rule’.  The author is passionate about civilised workplaces and believes that they can be achieved and boost performance.  An organisation full of ‘assholes’ has to be toxic. The book is a wonderful antidote to this even if a little tongue in cheek at times.

From the business perspective the answer ought to be clear.  There is no long term future for a ‘toxic’ organisation as Enron and others have demonstrated.  Yet there are many businesses that have a reputation (deserved or otherwise) that are still doing business with little or no pressure to change (yet).  Most of them manage to keep the toxicity under control, whether it is the way they treat staff or the products they sell.  In many cases they are tolerated because the public likes what they make or do, or because the product is cheaper.

What to do?  You work for a company that expects long hours and pays poorly.  If you quit another job may be hard to come by.  You are a partner in a big firm that makes a lot of money, but there are some questionable practices.  Leaving means a big drop in salary.  For the hard pressed employee it is often a matter of comfort.  Can you stick it out and continue to work in an organisation that behaves so poorly?  For others it is a matter of conscience.  Is the way this organisation operates right, ethically and morally correct?  There are lots of books and articles that tell you how to deal with a toxic culture.  None of them will work if the leaders do not change and make a decision to operate their organisation in a morally, ethically and socially responsible manner!

What do you do when your boss is wrong?

Who would you rather tell that they had made a mistake and were wrong over something – Lord Alan Sugar or Sir Richard Branson?  They are very different characters and how you might approach them over an error might be very different. Some people are simply more approachable than others.  But move away from the character and ask the bigger question, how do you tell your boss when they are wrong?  There are two issues at stake in this situation.  Firstly, your relationship with your boss and your career – the consequences of handling the situation wrongly.  Secondly there is the business.  What are the implications for the business if the error is not taken on board and corrected?  When the boss is wrong – and you know it, it can be quite an emotive time.  Decisions can be made more through the heart than the head.  The direct approach may not always be the right one.  Here are a few things to think about before raising the ‘error’.

The situation.  If your boss is talking about how many times a football team has won the league and you know he is wrong, what is the impact on the business.  In a social setting he or she might be quite happy to be corrected or not (see next comment).  If the error has no impact on you or the business consider letting it slide.  What value do you add to a relationship by telling your boss he is wrong!

The other side of ‘situation’ is the environment.  If you are in a meeting, telling your boss he is wrong may not be a good idea.  In some societies (e.g. China) this loss of face is a big issue.  If the boss is wrong and it needs correction consider an indirect approach (see comment 3) that allows him to save face and you are not seen as the ‘bad guy’ who made his boss look bad.

The boss.  I have worked for just about every kind of boss there is.  Their personal nature and style are key to the approach you take:

• Big ego.  Be very careful.  Do not say anything in a public setting unless really forced to. E.g. his error could impact a major business decision about to be made.  If possible, correction should be offline and in private.
• Consensus Manager.  You are probably OK to deal with this upfront, but be careful about the words you use.
• Sensitive Manager.  These people are often quite happy to be told they are wrong in private, but fall apart and can react out of character if confronted in a more public setting.  The language has to be very carefully chosen.
• The grandstander.  Usually someone who wants to make a big impact.  If you announce the error he would look bad, if you don’t he could make a fool of himself, as well as lead to a poor decision. They often have big egos as well so treat them in the same way.

Recognising the type is an important first step, and of course it always pays to understand your boss in any job.

The approach.  How do approach the situation and what do you say.  From the comments above it is obvious that there is no one right answer.  However there are some guidelines that will help:

Think first!  The old saying, ‘engage brain before opening your mouth’ is universally true.  Think about three things. Should I actually say something, what should I say and how do I say it?  Examine your motives.

Style. You can go for the open and honest approach, but as noted above that may not always be best (for you or the person in error).  There are other ways:

–  the evidence approach e.g. ‘I understand your viewpoint, but have you considered . . .’. You are not actually saying the boss is wrong, but introducing new evidence and giving him or her the chance to change their mind.  However, with this approach make sure you really have good evidence supported by numbers.

–  use dialogue.  Rather than say ‘you are wrong’ start some dialogue and get into a debate if circumstances allow.

–  be positive and supportive.  You are there to support your boss not see them fail.  Make sure you say something positive and supportive as you open a debate.

–  get the boss to explain.  Rather than state what you might thing is obvious, get the boss to expand on their viewpoint.  This gives you and others opportunities to move into debate.

Words.  Be very careful about the words you use.  Avoid clichés like ‘with respect’ (which usually means with no respect), or ‘as you know’, or ‘I hear what you say’.  These and many others will be interpreted for what they are – a precursor to saying or implying you are wrong!  Try and use ‘yes AND’, not ‘yes BUT’.

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Tim Aikens is the founder of Azarel, a consultancy which helps companies manage transformation and change. He can be reached at tim@azarel.com

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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. 

What else is needed to make change successful?

Ed. Note-I saw this article by a long-time friend and colleague, Tim Aikens. I was going to write a blog about it but Tim said it so well that I asked him if I could repost his article in its entirety which he graciously allowed me to do. Tim helps companies through the management of change. His website is http://www.azarel.org/index.html. 

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What else is needed to make change successful?

I have recently been involved with two clients who are about to embark upon major change in their businesses.  They are very different and each has a very unique style or culture.  As they prepare to set off on their journey I have wondered what else is needed to succeed beyond the ‘usual suspects’?

John Kotter and others have all put forward their ideas, mostly honed after years of practice and delivery.  They are all very useful and I have many of their books on my shelf.  But I am always drawn back to the question above.  After going through some of my own success stories and taking out the usual suspects, I have identified a few things that I believe really matter.

Openness, honesty and transparency.  It’s one thing to create a compelling case for change; to then be fully open and honest about it to everyone concerned is another matter entirely.  I have always been impressed by senior managers who lead from the front and don’t hold back.  I remember one Engineering Director sitting down with his team and saying ‘not everyone around this table will have a job here when we are finished’.  It was direct, open and honest. His team respected him for it.  On another project the manager of the business unit spoke openly to everyone, showing them the chart of financial decline and ultimately failure if there was no change.  One member of the workforce asked me why no one had had the courage to do this before. He now fully understood the need and was fully engaged.

Being transparent means being available and open to debate.  I have run transformation programmes where the project room was always open to anyone at any time; the General Manager held regular town hall meetings and did not shy away from either difficult questions or making difficult statements.

Knowing how to decide.  Many people often think that consensus is a good thing.  In most situations it is, but it is important not to confuse consensus with alignment.  To me the former is about getting everyone to agree and in many cases participate in arriving at consensus.  Alignment is where you have a team thinking and behaving in the same way.  This might be achieved through consensus it may also be achieved through leadership and sometimes by a more autocratic decision making process.  The decision to change is usually taken by a small group.  Decisions on what to change and how to change can vary on a spectrum of autocratic to consensus.  The secret lies in knowing your organisation and making decisions in the right way.  I worked with one client where two members of the senior management team were less than supportive.  After talking to the General Manager the two people concerned were moved out of their jobs and the project regained the necessary momentum.  This brings me to my next point.

Honour and Respect.  In the early 90s Peter Noer wrote a book entitled ‘Healing the Wounds’.  The book is about how to deal with those who remain after a downsizing exercise.  The book has had a major impact on how I think about this issue and I have always insisted that any change project that might involve redundancy or layoffs addresses this issue carefully.  The results are remarkable.  If those remaining know that their colleagues who are leaving are really being given the honour and respect they deserve their input to the project is so much better.  I have even had members of a project team working incredibly hard with a really positive attitude despite the fact that they would be collecting their redundancy cheque at the end of the project!

Positive and creative.  I am a great believer in positive thinking.  I am also a great believer in people’s ability to be creative.  Both are essential to generating successful change.  A positive approach is, I suppose similar to John Kotter’s making an emotional case for change, but it is also more.  Being positive is about leading from the front and clearly demonstrating that not only do you believe the change is right, but you also believe it can be achieved and you believe in the team you have.

Most people can be creative.  In the work environment it is easy to let others do the creative stuff and you get by on doing what you are told, challenging little and following the book.  Whilst I am not advocating anarchy, I strongly believe that this mould has to be broken and staff encouraged to be more creative – especially in any role as a change agent.  I have run workshops on creativity, usually as a precursor to some kind of reengineering exercise.  It works! People like to see that they can be creative and they move on quickly to apply this immediately after.

Next time you are involved with major change, don’t just think of the usual things to do, but consider really soft topics above.

Are you as good as you used to be?

We all have our employment because we are good at something.  Usually this has been demonstrated by academic achievement and a subsequent track record in our chosen career.  Through that career we receive training in various things to improve performance and add additional skills.  So far so good, but are you as good as you used to be?

In some jobs this question is really important.  As a regular flier, I am glad that airline pilots are regularly tested to make sure that they are still on top of their game.  The NHS has recently introduced regulations to make sure that doctors are assessed on a formal basis.  But what about the rest of us whose work does not endanger lives – but could endanger corporate success.  The question can then be considered across the whole of an organisation from the top to the bottom.  At board level, assessment comes through share price and profit, but below that how do you know?

There are plenty of management tools in place to assess leadership and other skills, but how often are they used or should they be used?  I don’t have the answer and I suspect there is no single answer.  I do believe that a lot of testing only happens when an organisation is in trouble which is often shutting the barn door after the horse has bolted!

What about the workforce.  Most businesses rely on skilled staff to deliver, whether it is a skilled mechanic, a call centre operator or a retail assistant.  Their skills can make or break a business.  Training is good, but how does the organisation know that an individual is still exercising all the proper skills and methods they learned during training?  Most of us have come across the surly sales assistant, or the tradesman who does shoddy work.

I think there are two issues to address:

• Making sure that there is some appropriate mechanism to review and test skills on a continuing basis
• Developing a culture which accepts that being assessed is OK and not an assault on your integrity or capability

The two go together.  Airlines believe it is good business to test their pilots regularly (do they do the same for cabin staff?).  Equally the pilots readily accept these assessments as part of the job.

A first step might be to decide which critical roles should be assessed and how. At the professional level the performance management process identifies poor performers, but this often occurs too late.  On the shop floor production and quality control act as a measure of capability (how much and how good).  Other roles may need specific intervention, some of which could include self-assessment.

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Tim Aikens can be reached via email at, tim@azarel.org.

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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.