FCPA Compliance and Ethics Blog

January 6, 2014

A Lot of Pain in KC and Leadership in Compliance

This past weekend saw some great football. However, if you are a Kansas City Chiefs fan, you are probably not feeling too positive about the game on Saturday as the Chiefs blew the second largest lead in a National Football League (NFL) playoff game, 28 points, in losing to the Indianapolis Colts. The Chiefs long suffering fans have not seen a playoff win in 20 years. However, I did see the Chiefs last playoff win, in 1994, when they upset the now defunct Houston Oilers in Houston. That devastating loss was only exceeded by the loss the previous year in Buffalo, where the Oilers set the record for losing the largest lead in a playoff game, that being 35 points. For you Chief fans out there, while the pain never goes away at least you have the possibility of winning a playoff game at some point in the future.

While sports fans can relive the triumphs and tragedies of their team’s ad naseum corporate leaders cannot not afford to do so. One key resource I have found, for not only the ideas of what a leader needs to do but the practical aspect of how leadership works in an organization, is through the New York Times (NYT) Sunday column Corner Office by Adam Bryant. In this week’s paper, Bryant wrote about his new book, scheduled to be released on Tuesday, entitled “Quick and Nimble: Lessons From Leading C.E.O.’s on How to Create a Culture of Innovation”. In the article Bryant highlighted “six key drivers that every organization needs to foster an effective culture that will encourage everyone to do their best work”. I think these six concepts are excellent areas for a compliance practitioner to consider in moving forward a compliance regime.

A Simple Plan

Bryant wrote about Tracy Streckenbach, the Chief Executive Officer (CEO) of Hillview Consulting LLC. She believes that you should have defined and measurable goals. From there, “you make sure each and every department knows them, and how their work will support the overall goals.” Streckenbach called them ‘Key Result Areas (KRAs)” and advocated that they be used up and down, “from senior managers to file clerks”, within the organization with complete transparency. By doing so, employees understand how they are helping the company to move forward.

Rules of the Road

Mark Templeton, CEO of Citrix Systems Inc, believes that “guidelines for behavior can help employees concentrate on the work at hand, rather than on navigating the stressful politics that arise when all sorts of bad behaviors are tolerated.” The company has a culture based on three core values, “respect, integrity and humility.” Templeton believes that people want, as employees, to be a part of an organization that believes in something positive. He said that Citrix has “clarity around where we’re going, and then they get to fill in how we’re going to get there — with the right kind of management, of course, and leadership, and the right kind of processes and metrics.”

A Little Respect

Here Bryant looked to Richard R. Buery Jr., CEO of The Children’s Aid Society, who sustained such a bad experience with a former supervisor that the experience provided extra motivation to be in a leadership position so that he could influence culture. That value is respect. Another CEO, John Duffy of 3Cinteractive, said that by making respect a core value of the company, “it frees up colleagues to challenge one another.” This allows employees to talk to and challenge one another more easily so that you can have “the ability to arrive at the right decision so much quicker and so much easier.”

It’s About the Team

Bryant notes that respect should be only one part of the equation, as he sees it. There must also be performance and accountability. He wrote, “Call it trustworthiness, or dependability. What it means is that you recognize your role on the team. When everyone does that, the team can focus on executing the strategy, instead of worrying whether colleagues will do what they’re supposed to do. (And such concerns, multiplied across an entire organization, can add up to a lot of wasted energy and lost momentum.)” This can be particularly true in a small organization, which, due its size, can be more nimble but, as quoted by Steve Stoute, CEO of Translation LLC, “the threat is that when one person catches a cold, everybody catches a cold.”

Adult Conversations

One of the problems in any organization is that subordinates are afraid to bring less than sterling news to superiors and so the frank discussions about resolving problems which needs to occur, does not occur. Bryant termed these “adult conversations”. He quoted Seth Besmertnik, CEO of Conductor Inc., who related that “A lot of my growth as a manager has been around conquering my own insecurity and gaining confidence.” Besmertnik went on to state that “When you’re confident, you can give people feedback. You can be candid. You feel secure enough to say what’s really on your mind, to bring someone in the room and say: ‘You did this. It really made me feel XYZ.’ Having good conversations is really 80 percent of being an effective manager.”

The Hazards of Email

Bryant believes that “Email is a hot-button issue, and clearly a source of endless frustration”; the reason being that they can be so easily misinterpreted “with often-disastrous consequences for the culture of an organization, because they can damage whatever connective tissue exists between colleagues.” Bryant believes that what people really need to do is talk. Bryant wrote about the experiences of Nancy Aossey, CEO of International Medical Corps, who said that “People change when they talk in person about a problem, not because they chicken out, but because they have the benefit of seeing the person, seeing their reaction, and getting a sense of the person. But arguing over email is about having the last word. It plays into something very dangerous in human behavior. You want to have the last word, and nothing brings that out more than email because you can sit there and hit ‘send,’ and then it just kind of ratchets up and you don’t have the benefit of knowing the tone.”

This problem of interpretation of email only compounds in an international organization where there are multiple business unit across many different geographic and cultural areas. What may be seen as acceptable in the United States may be far from acceptable in Europe, Asia or anywhere else. So by talking in person or over the phone, you can not only not only avoid dangerous misunderstandings, but you can also develop relationships and a sense of trust with colleagues. These are essential ingredients in fostering the kind of high-performing culture that drives compliance.

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

February 11, 2013

Quadrophenia and Four Compliance Issues

This past weekend I saw the remaining members of The Who perform in their Quadrophenia Tour. While I had seen Roger Daltry perform the rock opera Tommy, I had never seen Pete Townsend in concert. To say I was blown away would be putting it mildly, especially as Quadrophenia does not even make it into my top three favorite Who albums, which are, in descending order, Who’s Next, Tommy and Live at Leeds. While Roger Daltry’s voice was not as strong as it was during his Tommy tour, not doubt due to the longer duration of this tour, it was still a great performance and it was worth it to see Pete Townsend. He can still rock. Also they ended the show with three songs from Who’s Next, which alone was worth the price of admission.

The story generally revolves around four themes based upon the four personalities of the members of the band; Daltry, Townsend, Keith Moon and John Entwhistle. However, it was also a play on (for those of you old enough to remember) quadrophonic sound. According to Pete Townsend, “”The whole conception of Quadrophenia was geared to quadraphonic, but in a creative sort of way. I mean I wanted themes to sort of emerge from corners. So you start to get the sense of the fourness being literally speaker for speaker.” So inspired by ‘fourness’ today, I will review four issues that have, or will, impact the compliance practitioner.

I.                   EU and Data Privacy

In an article in the Financial Times (FT), entitled “EU refuses to bend on tough data privacy law”, reporter James Fontanella-Khan wrote that Viviane Reding, the EU Commissioner for Justice, said that she will continue to fight any US attempts to water down its proposed data protection and privacy law, “which would force global technology companies to obey European standards across the globe.” Further, “Exempting non-EU countries from our data protection regulations is not on the table. It would mean applying a double standard.” Fontanella-Khan said that “US tech companies argue that it would be unfair for them to be subject to EU laws that are too stringent and could result in expensive administrative burdens and hefty fines for errant companies.” Can you think of any US laws that non-US companies have to comply with?

Issues for the compliance practitioner? There could be a myriad, from internal investigations, to sharing data with US regulators to ongoing monitoring and auditing. While it is currently US technology companies which are leading the fight against these new tough standards, non-tech companies could do well to assess how these changes may well impact them.

II.                Will DOJ Open FCPA Investigation Against EADS?

Perhaps not fully appreciating the irony in reporting the EADS story in the same issue as the above EU data privacy story, the FT also had an article by Carola Hoyos, entitled “FBI probe of EADS unit claims”, who reported that the Federal Bureau of Investigation (FBI) has interviewed “a witness and taken possession of documents in connection with allegations” that a British subsidiary of the European aerospace entity EADS, named GPT Special Management Systems, bribed Saudi Arabian military officials, in connection with business dealings. Hoyos reported that GPT “made ₤11.5 of unexplained payments – some via the US – to bank accounts in the Cayman Islands.”

Although there is no known open US Department of Justice (DOJ) investigation open into the EADS matter at this point, Hoyos noted that it was the DOJ which led the effort to investigate and eventually fine the UK company BAE, the amount of $400MM after the British government ordered the Serious Fraud Office (SFO) inquiry into allegations of BAE bribery for sales of equipment into Saudi Arabia “citing economic and diplomatic interests”. The FBI interviews occurred even though the SFO is currently investigating the matter. Hoyos also reported that EADS “maintained that its own investigations into the matter had yielded no evidence of wrongdoing.”

III.             Think Before You Hit That Send Button

In a post in his blog, the D&O Diary, entitled “Damning E-mails: Can We Talk?”, author Kevin LaCroix wrote that “revelations this past week arguably represent some type of high-water mark, as a cluster of serious allegations were accompanied by a trove of embarrassing excerpts from emails and instant messages. While the latest disclosures provide yet another reminder of the dangers associated with ill-considered use of modern electronic communications technology, they also raise questions about the use that regulators and claimants are attempting to make of the communications.” He was talking about the Commodities Futures Trading Commission’s press releases announcing RBS’s settlement this past week of charges of alleged Libor manipulation drew heavily on excerpts from the bank’s internal electronic communications. While noting that “emails do sometimes in fact evidence wrongdoing” the problem with them “is that when seemingly damning email excerpts are blasted into the media, it is very difficult to appreciate the larger context within which the excerpts fit.”

As much as he has distaste for the selective use of emails in this manner by regulators, LaCroix believes that they can provide a teachable moment. He writes that “a useful exercise to try to adopt is to pause and ask yourself, before hitting “send”, how the message would look if it were to fall into the hands of a hostile and aggressive adversary who was looking for ways to try to make you or your company look bad. Were this simple test to be more widely implemented, we would certainly see a marked reduction in, for example, running email jokes about the French maid’s outfit. My final thought is this – we all know that many electronic messages are written in haste and sometimes with insufficient care. With full awareness of this attribute of electronic communications, we should hesitate to jump to too many conclusions about the seemingly damaging inferences that could be drawn from email or instant message excerpts. But we should also learn from the inferences that regulators and claimants are trying to draw and try to take that into account in our own communications.” I could not have put it better myself.

IV.              Trust Your Gut and Raise Your Hand

There have recently been a plethora of articles about ‘big data’ and how it can help in the monitoring of a Foreign Corrupt Practices Act (FCPA) compliance program. I have been one of the folks to write and talk about it. However, in an article in the New York Times (NYT), entitled “Sure, Big Data is Great. But So Is Intuition”, reporter Steve Lohr wrote that while he thinks that big data is a powerful tool and an unstoppable tread it “might be a time for reflection, questions and qualms about this technology.” This is because, like all mathematical models, big data is “a simplification.” He quotes Thomas Davenport for the following. “A major part of managing Big Data projects, he says, is asking the right questions: How do you define the problem? What data do you need? Where does it come from? What are the assumptions behind the model that the data is fed into? How is the model different from reality?”

So the underlying basis for analyzing big data may actually be “too simple minded, rather than too smart.” All of this leads back to intuition. I would add that if the hair on the back of your neck stands up, your gut tells you something is wrong or something does not smell right, it probably isn’t right. The implications for the compliance practitioner? I would like to propose that the largest is in the area of training. What I try and tell non-compliance practitioners when I put on training is that if you see, smell or sense one of the above, just raise your hand. You do not have to know the ins and outs of the FCPA or know the answer but I do ask that you raise your hand and get the issue to a person who does have the expertise to analyze the issue.

If you have the chance to see The Who on their Quadrophenia Tour, all I can say is to drop whatever you are doing and go see it. I do not know if it will be your last chance to see Pete Townsend but when he winds up for one of those trademark windmill slams down the guitar strings, just close your eyes and listen. It is pure bliss and a quad of sensations for the ages.

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, 2013

Blog at WordPress.com.