FCPA Compliance and Ethics Blog

May 19, 2015

A CCO Job Function: Managing Talent

Garo YepremianGaro Yepremian died this past week. For anyone who grew up watching National Football League (NFL) games in the late 1960s or 1970s; this was a name quite familiar to you even if you had trouble pronouncing it. Yepremian was a left-footed field goal kicker who went from the heights of glory such as once kicking six field goals in one game and ending the NFL’s longest game; the Miami Dolphins-Kansas City Chiefs 1971 playoff game which he won with a field goal in the second sudden death overtime. Unfortunately it is not these achievements that he is best known for. That rather ignominious distinction was when he had a field goal blocked in the 1973 Super Bowl against the Washington football team; then picked it up and tried to pass it only to have it slip from his hands into the arms of Mike Bass who ran it in for a touchdown. The score changed a one-sided game from 14-0 Dolphins to 14-7 and put their undefeated season on the line for the remainder of the game. Fortunately for posterity and Yepremian, the Dolphins held on to complete the NFL’s only undefeated season.

I thought about Yepremian, his gaffe and the fact he grew up in Cyprus playing soccer when I read a recent article in the Financial Times (FT), entitled “Game of talents: management lessons from top football coaches”, where Mike Forde and Simon Kuper wrote about how “football [soccer for you Yanks reading this blog] coaches grapple with egos, tantrums and rivalry. Business could learn a lot from them.” This is because talent management is a key component of any successful organization and none more so than on a soccer team where “Football managers are, above all, talent managers.” The article had some interesting insights for the Chief Compliance Officer (CCO) or compliance practitioner which I believe could be helpful when dealing with large egos found in any business organization.

  1. Big talent usually comes with a big ego. Accept it. I grew up professionally in the private practices world of a law firm where big egos not only existed but also thrived and were perhaps even cultivated. This is not always true in the corporate world. The authors believe that “managing difficult people is the best test of a good manager.”
  2. Look for big egos that have ‘gotten over themselves’. At some point we all grow up. In the business world, just as in sports, “some players underperform early in their careers because they are immature.” Maturity can lead to players “accept their limits and become coachable.”
  3. Single out and praise those who make sacrifices for the organization. Reward those who might be willing to make a personal sacrifice. If you do, you behavior as a leader will be noticed and others in the business may well do the same.
  4. The manager shouldn’t aspire to dominate the talent. In soccer “Talent wins matches…Successful managers accept this. They don’t try to emphasise their leadership by dominating talent.” As a CCO, you should not only work to help the business folks succeed but let them take the glory if a big deal is closed.
  5. Ask talent for advice – but only for advice. While it seems self-evident, it always bears repeating if you take someone’s advice to craft a solution, that person will then be personally invested in the success of that solution. The authors quoted David Brailsford, general manager of the Team Sky cycling team, for the following, “We all perform better if we have a degree of ownership of what we do.”
  6. The manager’s job isn’t to motivate. “Great talent motivates itself.” The converse of this means that if you have top-notch sales talent, part of your job as a CCO or compliance practitioner is “not to demotivate them”. But more than simply not ‘demotivating’ your job should be to encourage “long-term commitment: sustained motivation over time.”
  7. Talent needs to trust each other more than it needs to trust the manager. This directly relates to the culture you set. If the only way for employees to succeed is to steal and cheat from their co-workers, you will have a toxic environment. Think of this in the context of your Foreign Corrupt Practices Act (FCPA) investigation protocol; if your goal is to skin some employee to save the company, you will not have much credibility left with your other employees.
  8. Improve the talent. Unfortunately, most managers spend most of their time managing incompetent employees. The authors believe this is a wasted opportunity as most top talent “have a gift for learning and a desire to improve. That desire often drives their career choices.” For a CCO this means you need to provide such opportunities to those on your compliance team. But think about taking this concept out into the workforce. What if you could offer a top sales person or executive a chance to not only learn something but also advance their career by a rotation through the compliance department or a signature project they could lead?
  9. 99% per cent of recruitment is about who you don’t sign. Here the message is to use your background due diligence to make sure that that ‘someone’ is the right person in the right situation because “Introducing a weak or undisciplined player [employee] can damage the standards and culture.”
  10. Accept that talent will eventually leave. “Few talented people are looking for a job for life.” Indeed in the compliance arena, since there are no trade secrets around anti-corruption compliance, the skills a compliance practitioner uses can be easily translated into another company. I often think about Jay Martin, the CCO of BakerHughes Inc. (BHI) in Houston. He is now on his third generation of compliance practitioners who work under him. While they are at BHI they have the chance to work under and for one of the top in-house compliance practitioners around and for a company that has a robust compliance program. They work very hard while they are at BHI but they get great experience, a great resume entry and a great reference from one of the top compliance practitioners around. If you are a CCO you might consider the BHI model.
  11. Gauge the moment when talent reaches its peak. In the sports world, the only person who wins every time (eventually) is Father Time. While that may not be as true in the corporate world, burnout is true. I went through it in my 40s as a trial lawyer and many others do as well. If you are a CCO and see reduced enthusiasm or commitment in an employee this may be the reason. Would you consider a sabbatical for the employee? How about a plumb overseas role to rekindle the passion? As a leader, you need to recognize this issue and use your leadership skills to address the situation.

The authors note, “Talent management has been a business obsession at least since 1997, when the consultancy McKinsey identified a “war for talent.”” As a CCO you should certainly consider these issues in managing your compliance function. However I believe the concepts laid out by Forde and Kuper work for the broader corporate world as well. If you are going to use you influence throughout the organization, you should consider incorporating these techniques into your skill set.

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

June 9, 2014

GSK Faces a Bad Day at Black Rock

Bad Day at Black RockOne of my favorite movies is Bad Day at Black Rock. It is one of the few movies to combine elements of film noir into something approaching a traditional Western. It also attacks directly the prejudice and hate against Japanese-Americans in the immediate aftermath of Pearl Harbor. I thought about that eponymous title when I read a recent article in the Financial Times (FT), entitled “GSK salesmen want ‘bribes’ reimbursed”, by reporters Patti Waldmeir and Andrew Ward.

You know it is going to be a bad day when your employees line up to testify against your company in an ongoing investigation for bribery and corruption. But those rainy day sighs can go up to the Bad Day at Black Rock level when these same employees publicly announce that the company they work for owes them for the creation of fraudulent invoices used by a business unit to fund bribery and corruption which violates not only the US Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act but also domestic Chinese anti-corruption laws. This happened to the UK pharmaceutical giant GlaxoSmithKline PLC (GSK) last month when it was announced that certain current employees in its China operation were petitioning the company to reimburse them for bribes they were ordered to pay by their superiors.

In their article, Waldmeir and Ward wrote “the UK pharmaceutical company at the centre of a Chinese corruption scandal, is facing protests from junior employees who say the company is refusing to reimburse them for bribes they were ordered to pay by their superiors.” While my initial thought was that these Chinese employees had quite a bit of ‘cheek’ in raising this claim, the more I read into the story, the more I think it may portend serious problems for GSK in any attempt to defend the company going forward. Waldmeir and Ward reported “some Chinese sales staff are complaining that GSK has denied bonuses, threatened dismissal or refused to reimburse them for bribes they say were sanctioned by their superiors to boost the company’s drug sales. In some cases, managers instructed them to purchase fake receipts that were used to cover up bribes paid in cash or gifts to doctors and hospitals, according to salesmen interviewed by the Financial Times.”

The article went on to highlight just how some of these fake invoices, used to gain funds from the corporate headquarters to facilitate bribery and corruption, were generated. “In some instances, managers disguised their involvement by using their personal email address to instruct staff to pay bribes and by ordering junior staff to claim on their personal expense accounts – even if the bribe was actually paid out by the manager – according to these people.” Last March, a group of current GSK employees sent a letter to the company that said, in part, ““All the expenses were approved by the company,” the group wrote in a letter to management. “The expenses were paid with our own money, and although the receipts were not compliant, it was our managers who told us to buy the fake receipts,” said one former GSK salesman.”

The article quoted that GSK said, “We have zero tolerance for unethical or illegal behaviour and anyone who conducts such behaviour has no place in our company. We believe the vast majority of our employees uphold our values and we welcome employees speaking up if they have concerns.” Talk about a ‘Speak Up’ culture at your company. Probably not exactly what the company had in mind when it invited employees to raise their concerns.

However, as damning as this is, and it would certainly appear to be quite damning, was the following revelation, which was also reported by Waldmeir and Ward, regarding witness prep during GSK’s internal investigation. They wrote, “Some staff were warned not to implicate their supervisors, according to a former salesman: “Our manager approached each person before they were questioned and asked them not to mention his name. He even prepared a story for them to tell the investigator.””

Dissecting all of the above, it would appear that GSK has several real problems on several fronts from this article. The first is that there appears to have been clear China business unit management participation in the bribery and corruption scheme. While it is still not clear whether the corporate home office was involved in the scheme, simply knew of it or choose to bury its collective head in the sand as to what was going on in China, if your in-country business unit management is involved, it is not too many steps to the corporate home office. Conversely, the question might be that if this fraud against the corporate home office was so open and obvious, why did the corporate office not detect it going forward?

Yet the real issue for the corporate office may be the information about employees being coached to hide evidence during the investigation. If such activity was limited to the ‘managers’ in the Chinese business units only, what does it say about a corporate office, which allows such witness intimidation? Think that is an investigation best practice? However, if the corporate office was involved in any way in such witness intimidation, it will bode extremely poorly in the eyes of the Chinese regulators, the UK Serious Fraud Office (SFO), which has opened an investigation into the GSK matter and probably the US Department of Justice (DOJ) as well, since GSK is still subject to the Corporate Integrity Agreement (CIA) it signed back in July of 2012; when it pled guilty and paid $3 billion to resolve fraud allegations and failure to report safety data in what the DOJ called the “largest health care fraud settlement in U.S. history” according to its press release. Think witness tampering or hiding of evidence might garner the attention of the DOJ for a company already under the equivalent of a Deferred Prosecution Agreement (DPA)?

In addition to all of the above conduct, it will be interesting to see the effect of this ongoing investigation on the stock value of GSK. In a Wall Street Journal (WSJ) article, entitled “FCPA Hits Companies Harder if they Committed Fraud”, Sam Rubenfeld reported “A study of U.S. Foreign Corrupt Practices Act enforcement issued by the Searle Civil Justice Institute, a research division of The Law & Economics Center at George Mason University School of Law found that public companies lost an average of 2.9% of market capitalization as a result of an investigation. But, the study found, the number masks an important distinction: Companies charged with bribery only suffered an initial 1.5% loss, while those charged with bribery and financial fraud saw a initial drop of 16.3% in market cap.” It will be interesting to see the effect the apparent fraudulent activities of GSK’s China employees will have on not only the overall penalty assessed against GSK but if there is any attendant drop in shareholder value.

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

May 24, 2012

JP Morgan and Risk: Mission Creep, Mission Expansion, Mission Explosion

In an article in today’s Financial Times (FT), entitled “JP Morgan shows the futility of fighting complexity”, Sallie Frawcheck posited that the JP Morgan trading loss demonstrated that regulators are fighting the wrong battle regarding risk. She believes that the main reason for the problems engulfing JP Morgan was that the size and complexity of the company’s trading positions were so great that the company is still coming to terms with just how large the loss will be and how JP Morgan can unwind itself from those trading positions.

She believes that one of the solutions would be for regulators to “turn their attention to the issue of understanding how much risk the banks are taking in total, fixing measurements of risk that have fallen short and then making certain that banks have enough capital to support that risk.” However, she also warns that if a bank’s risk assessments are “unable to keep up with the complexity of certain types of trades [such as the ones at issue] or sub-businesses, then the activities should not be allowed in a regulated banking entity. Full stop.” [emphasis mine]

Her article brought up one of the ongoing battles that I continually fought as an in-house counsel, both in my transactional attorney role and compliance professional role and that battle was Mission Creep; leading to Mission Expansion; leading to Mission Explosion. In the transaction world, this would occur when parties contract for the provision of specific services or specific goods and then the contract is used as a basis for a completely different product or service. So if my client provides engineering services, there will be terms and conditions appropriate for a services contract. These terms could spread or assign risk to one party or the counter-party through such clauses as warranty, indemnity, limitation of liability, confidentiality and insurance. However, if the relevant business units of each party then decided to use the contract for the purchase of raw products the scope of the contract has changed or Mission Creep has begun. If the client then asks for the engineering services company to lead the fabrication of the raw materials we have sped up to Mission Expansion. If this Creep and Expansion continue for any length of time, we will move to Mission Explosion.

The risks which were agreed upon for services work are far different for the purchase and delivery of goods. The risks are even more divergent if fabrication of the products are required. These changes in risks can affect the risk management clauses detailed above. A services warranty is usually quite different from a product or even Original Equipment Manufacturers (OEM) warranty. If an indemnity is fault based, are products purchased under a contract which covers engineering services only? What about your limitation of liability – is it limited to the value of a contract, what if the contract for fabrication of the entire systems crashes burns, injures or kills someone? What about Intellectual Property (IP) indemnity for goods and products vs. services delivered? The list of questions is almost endless.

In the compliance world this Mission Creep, Mission Expansion, Mission Explosion trichotomy plays out when a company moves into a new geographic area or product line. Have the compliance risks been adequately evaluated? Have they been evaluated at all? Perhaps more importantly has the relevant business unit communicated to the Compliance Department these new initiatives so that the compliance risks can be assessed?

The failure by JP Morgan to properly assess its risk or use risk intelligence correctly may have indeed had its genesis in the complexity of the trading positions the company was taking. But Frawcheck’s article pointed out that it is not simply complexity which can lead to failure in the assessment and management of risk. In JP Morgan’s case, it may be that one step on the Mission Creep continuum led to more steps of Mission Explosion, which inevitably led to Mission Explosion. But, whatever the reason, I think one of the clear lessons from the JP Morgan debacle is if your risk assessment cannot determine what your risk is or your risk intelligence cannot evaluate your risk assessment in a meaningful way, you need to slow things down until you can do so. Or as Sallie Frawcheck said: Full Stop!

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, 2012

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