FCPA Compliance and Ethics Blog

January 12, 2015

Get Your Tootsie-Frootsie Ice Cream; Hiring as Part of Your Compliance Program

Tootise-Frootsie Ice CreamOne of my great loves is the Marx Brothers. I fell in love with their rapid-fire wiseacre remarks as a teenager and have been enthralled with them since then. I have seen all of their movies, most of their television appearances and even read some of their radio scripts. I was reminded of the their unique brand of comedy and contribution to the great good when I read an article in the Financial Times (FT) by Danny Leigh, entitled “Souped-up comedy”. Leigh wrote the article around the British Film Institute’s (BFI) 2015 season, which includes a year-long retrospective of Marx Brothers movies. To honor both the BFI and my beloved Marx Brothers, this week, I am featuring series of Marx Brothers themed blog posts.

Today, I want to look at what many believe is one of their funniest skits, which comes from the MGM-released movie A Day at the Races, the “Tootsie-Frootsie” Ice Cream/Code Book scene. Tony (Chico) poses as an ice-cream vendor outside the racetrack – he is actually a con artist selling racing tips on horses. He knows that in the next race, he can win with 10-1 odds with a bet on Sun-Up, but he needs the cash. So he sets up the scam as gullible victim Dr. Hackenbush (Groucho) arrives at the racetrack to bet two dollars on Sun-Up. Hackenbush is advised by Tony to bet on Rosie, a 40-1 shot. At the betting window, Hackenbush bets two dollars on Rosie, but the bookie tells him the race is already over – Sun-Up was the winner. Hackenbush realizes he has been taken. He thinks for a moment, then dumps the books back in the cart and takes the scammer’s place waiting for a victim, crying: ”Get your Tootsie-Frootsie. Nice ice cream. Nice Tootsie-Frootsie ice cream.”

I thought about the Tootsie-Frootsie ice cream scene in the context of hiring and Foreign Corrupt Practices Act (FCPA) compliance. One of the theories of conventional wisdom about anti-corruption compliance is that you will never be able to reach 5% of your workforce with compliance training because they are predisposed to lie, cheat and steal anyway. Whether they are simply sociopaths, scumbags or just bad people; it really does not matter. No amount of training is going to convince them to follow the rules, such as the FCPA, UK Bribery Act or even foreign domestic laws against bribery and corruption, consider the Chinese domestic laws that GlaxoSmithKline PLC (GSK) was convicted under, they were of no import to such people. They do not think such laws apply to them and they will lie, cheat and steal no matter what industry they are in and what training you provide to them. But knowing such people exist and they may be able to lie, con or otherwise dissimilate their way into your organization does not protect your company from FCPA liability when they inevitably violate the law by engaging in bribery and corruption. It is still the responsibility of your company to prevent and detect such conduct and then remediate if it occurs. Simply put, if you hire Chico, you are going to get a Tootsie-Frootsie ice cream.

I thought about these concepts when reading an article in the Corner Office column of the New York Times (NYT), entitled “Three Keys to Hiring: Skill, Will and Fit”, by Adam Bryant where he reported on an interview with Marla Malcolm Beck, the Chief Executive Officer (CEO) of Bluemercury. She had several lessons that I thought would be helpful for Chief Compliance Officer (CCO) or compliance practitioner in general and in particular when trying to have your company avoid bringing in the five per-center mentioned above.

Be Passionate

Beck related an early leadership lesson that she learned during college, she ran unopposed to be President of a student organization. Since she was unopposed, she ran no campaign but did not receive a majority of votes and therefore was not elected to the position. So she tried to learn from her mistakes, “In the second election, someone ran against me, but I had interviewed a lot of people about why I didn’t get the position the first time, and they said I wasn’t human enough, I wasn’t passionate enough. So I talked more about the mission and my dreams for the organization, and I think people respected me for getting up there again, and I got most of the votes.” For the compliance practitioner or CCO, I think the message here is both communication and passion. If you do not believe in the anti-corruption compliance regime that you are pushing, it will be nearly impossible for the rest of your far-flung corporate work force to believe in it. Talk about compliance and the positive aspects of your program for your company. If you sit in your office, situated as Dr. No in the Land of NO, you and your program will get NOwhere fast.

Problem Solving

Another valuable lesson that Beck related was one she learned early on in her entrepreneurial career and it related to problem solving. She said, “Early on, I kept a lot of the hard problems to myself. Not only did that put more pressure on me, but also people can start working on the wrong things, and you have no way to course-correct if you don’t give them the “why.” I don’t think I was brave enough early on, and I’m more brave now about not keeping things to myself — things that are working, things that are not working, and just being more fluid with communication. I still catch myself now when I’m asking people to do things, and I have to go back to why it’s important and why we need to do this as a company.”

As a CCO or compliance practitioner, you will never have enough time to answer every question, nor should you. If you can provide your employee base the tools to make the right call, I think you will find most of the time they will. In a compliance leadership role, you should have two overriding goals: (1) burn compliance into the DNA of your company deeply enough that the business folks will come up with the right response almost all the time, and (2) be there when they cannot do so. Beck’s query of “why it’s important and why we need to do this as a company.”

The Hiring Process

I found Beck’s remarks on hiring the most interesting. I have long argued that Human Resources (HR) is a key component in any best practices anti-corruption compliance program. This is particularly true in hiring and promotion of employees to senior management. Avoiding the hiring or promotion of the sociopaths, or even the Chico’s of the world, is a key tool that HR brings to the table. Beck’s approach is to take a short interview technique in which she attempts to assess, Skill, Will and Fit. She said, “I’ll ask, “What’s the biggest impact you had at your past organization?” It’s important that someone takes ownership of a project that they did, and you can tell based on how they talk about it whether they did it or whether it was just something that was going on at the organization. Will is about hunger, so I’ll ask, “What do you want to do in five or 10 years?” That tells you a lot about their aspirations and creativity. If you’re hungry to get somewhere, that means you want to learn. And if you want to learn, you can do any job. In terms of fit, I’m looking for people who have some sort of experience with a smaller company. At big companies, your job is really one little piece of the pie. I need someone who can make things happen and is comfortable with ambiguity.”

Through such a structured series of questions, a properly trained HR professional can begin to assess whether an employee might have a propensity to engage in bribery and corruption. By adding information about your company’s values towards doing business ethically and in compliance, you can introduce this topic at either the interview evaluating process or in the promotion process. While true sociopaths will most certainly lie to you, perhaps even convincingly, by introducing the topic at such a pre-employment stage, they may be encouraged to take their skills elsewhere. Or you can just get your Tootsie-Frootsie ice cream.

For a clip of the Get Your Tootsie-Frootsie Ice Cream scene on YouTube, click here.

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, 2015TexasBarToday_TopTen_Badge_Large

December 18, 2014

Ty Cobb and the Compliance Performance Appraisal Review

Ty CobbToday we celebrate greatness, in the form of one of the greatest baseball players ever, with the anniversary of the birthday of Ty Cobb. Coming up to the majors as a center fielder for the Detroit Tigers in 1905, he emerged in 1907 to hit .350 and win the first of nine consecutive league batting titles. He also led the league that year with 212 hits, 49 steals and 116 RBIs. In 1909 he won the league’s Triple Crown for the most home runs (9), most runs batted in (107), and best batting average (.377). In 1911, he led the league in eight offensive categories, including batting (.420), slugging percentage (.621), hits (248), doubles (47), triples (24), runs (147), RBI (144) and steals (83), and won the first American League MVP award. He batted .410 the following season, becoming the first player in the history of baseball to bat better than .400 in two consecutive seasons.

Cobb set a record for stolen bases (96) and won his ninth straight batting title in the 1915 season. He faltered the next year, but came back to win another three straight titles from 1917 to 1919. He left the team in 1926 and signed with the Oakland Athletics, hitting .357 and becoming the first-ever player to reach 4,000 total career hits before retiring after the 1928 season. His record of nine consecutive batting titles as well as his overall number of 12 will never be succeeded.

While Cobb certainly had quite a bit of natural ability, he was also a very dedicated baseball player, forever working to improve his craft. He might not have taken well to criticism but he did work to improve all aspects of his game. One of the modern ways to improve employee performance is through an annual employee performance review. Recently I read an article in the Houston Business Journal entitled “6 Ways To Make Performance Reviews More Productive” by Janet Flewelling. I found her article provided some interesting perspectives on some of the ‘nuts and bolts’ work that you can put into your Foreign Corrupt Practices Act (FCPA) or UK Bribery Act anti-corruption program that can be relatively low-cost but can add potentially high benefits.

One of the ways to drive compliance into the DNA of an organization is through incentives such as making it a component of a year-end discretionary bonus payment. Indeed the FCPA Guidance states, “DOJ and SEC recognize that positive incentives can also drive compliant behavior. These incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance pro­gram, and rewards for ethics and compliance leadership. Some organizations, for example, have made adherence to compliance a significant metric for management’s bonuses so that compliance becomes an integral part of management’s everyday concern.”

Most Human Resources (HR) experts will opine that properly executed performance appraisals are crucial to organizational productivity as well as the development of employee skills and employee morale. Moreover, they can serve a couple of different functions for a best practices compliance program. First, and foremost, they communicate to each employee their job performance from a compliance perspective. However, one key is not to approach the performance appraisal review as an isolated event but rather a continual process. This means that instead of trying to play catch-up at the last minute, supervisors should provide feedback and assess job performance throughout the year so annual reviews are grounded in a year’s worth of experience. This includes the compliance component of each job. The second area performance appraisals impact is compensation. As noted above, the DOJ and SEC expect that your compliance program will have both discipline and incentives. But those incentives need to be based upon something. The score or other performance appraisal metrics will provide to you a standard which you can measure and use to evaluate for other purposes such as employee promotion or advancement to senior management going forward.

In her article Flewelling provides six points you should consider which I have adapted for the compliance component of an annual employee performance appraisal. 

  1. Prioritize reviews in your schedule – You should schedule the employee performance appraisal at least several days in advance, rather than when a time slot suddenly opens up. You would make sure that you allot sufficient time for unhurried give and take between the reviewer and the employee.
  2. Review the entire year’s performance – You should resist the attempt to focus the discussion on the latest compliance experience. This is called recency bias. If a compliance issue arose in the past month or so, you need to keep it in perspective for the entire review period. Moreover, by focusing a review on a recent problem you may obscure prior accomplishments and make an employee feel demoralized. Take care not to go too much in the opposite direction as recency bias can work both ways, and one should not let a favorable recent compliance event overshadow the full review period.
  3. Do not hesitate to critique – Be generous with praise where it is warranted, but do not hesitate to discuss improvements needed in the compliance arena. Many supervisors are reluctant to confront and indeed desire to avoid confrontation. However remaining silent about an employee’s compliance shortcomings is a disservice to both the company and the employee.
  4. Do not dominate the conversation – Remember that you must give the employee time for self-appraisal and to ask questions or to comment about the feedback received from the compliance perspective. If there are specific questions or concerns raised by the employee you need to be prepared to address them as appropriate.
  5. Understand the employee’s role – You need to understand and appreciate that if the recent economy has resulted in many employees assuming the responsibilities of more than one position. If relevant to the employee, acknowledge that fact and take it into account in the review. This is certainly true from the compliance perspective as many non-Compliance Department employees have cross-functional responsibilities. If they claim not to have the time to handle their compliance responsibilities you will need to address this with the employee and perhaps structurally as well.
  6. Anticipate reprisal – Although it is rare, you can face the situation where an employee who is very dissatisfied with a review may refuse to sign it. The employee may be offered the opportunity to add a statement to the review. Also point out that the employee signature is an acknowledgement of receiving the review and does not signify agreement. If the employee still refuses to sign, have a second supervisor come in to witness the refusal. This may be particularly important from the compliance perspective.

Flewelling ends her piece by noting, “A proper annual review requires considerable effort from employee supervisors. It should be a full-year process involving regular guidance and feedback and perhaps several mini-reviews along the way. But rather than viewing it as onerous, supervisors should keep in mind that it is a tool for making their departments work more efficiently and yields better results for everyone involved.” I would add this is doubled from the compliance perspective. Nonetheless the potential upside can be significant from your overall compliance program perspective.

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

December 15, 2014

Hiring and Promotion in Compliance – Wait for Great

7K0A0597The role of Human Resources (HR) in anti-corruption programs, based upon the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act, is often underestimated. I come from a HR background and practiced labor law early in my career so I have an understanding of the skills HR can bring to any business system which deals with legal issues; which is not only required of all businesses but certainly is true of FCPA or UK Bribery Act compliance. If your company has a culture where compliance is perceived to be in competition or worse yet antithetical to HR, the company certainly is not hitting on all cylinders and maybe moving towards dysfunction.

One of the Ten Hallmarks of an Effective Compliance program relates to the key role HR plays in incentives and discipline. However, another key area that is not given as much attention is in hiring and promotion. The FCPA Guidance states, “[M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well. For at the end of the day, the most effective way to communicate that “doing the right thing” is a priority is to reward it. Conversely, if employees are led to believe that, when it comes to compensation and career advancement, all that counts is short-term profitability, and that cu tting ethical corners is an ac­ceptable way of getting there, they’ll perform to that measure. To cite an example from a different walk of life: a college football coach can be told that the graduation rates of his players are what matters, but he’ll know differently if the sole focus of his contract extension talks or the decision to fire him is his win-loss record.” In other words make compliance significant for professional growth in your organization and it will help to drive the message of doing business in compliance.

I thought about these concepts when I read an article in the Corner Office column of the Sunday New York Times (NYT), entitled “Sally Smith of Buffalo Wild Wings, on patience in hiring” where columnist Adam Bryant interviewed Sally Smith, the Chief Executive of Buffalo Wild Wings, the restaurant chain. She had some interesting concepts not only around leadership but thoughts on the hiring and promotion functions, which are useful for any Chief Compliance Officer (CCO) or compliance practitioner striving to drive compliance into the DNA of a company.

Leadership – Get Feedback

One of the early lessons which Smith learned about leadership is to set clear expectations. Bryant wrote that Smith told him, “You have to be really clear about what you want and what your expectations are. When you’re clear and everybody understands them, you have a much better chance of success than if you say, “Just do it.” It’s a great slogan, but you’ve got to know what it is that you’re just doing.” This is a constant battle for the compliance practitioner when senior management also makes clear that you must make your numbers as well. However this dynamic tension can be met and one of the best ways is to require business-types to make their numbers but doing so in a way that is in compliance with a company’s Code of Conduct and compliance regime.

A second leadership lesson that Smith has learned is around feedback. As you might guess from a Chief Executive, Smith has found that obtaining honest critiques about her management style from those who work under her is difficult to acquire. To overcome this reluctance she set up a program where her leadership can give anonymous reviews of her performance annually to the company’s Board of Directors. Bryant said, “My leadership team does a performance review on me each year for the board. It’s anonymous. They can talk about my management style or things I need to work on. If you want to continue growing, you have to be willing to say, “What do I need to get better at?”” This type of insight is absolutely mandatory for any best practices compliance program as anonymous reporting is also one of the Ten Hallmarks of an Effective Compliance program. But more than simply an anonymous reporting line for FCPA violations, how does your company consider feedback to determine how all levels of the company is doing compliance going forward or as the FCPA Guidance states, “From the boardroom to the shop floor.”

Hiring and Promotion – Waiting for Great

Here Smith had some thoughts put in a manner not often articulated. One of her cornerstones when hiring is to search out the best person for any open position, whether through an external hire or internal promotion. Bryant stated that Smith said “We use the phrase “wait for great” in hiring. When you have an open position, don’t settle for someone who doesn’t quite have the cultural match or skill set you want. It’s better to wait for the right person.”

Smith articulated some different skills that she uses to help make such a determination. Once a potential hire or promotion gets to her level for an interview, she will assume that person is technically competent but “I assume that you’re competent, but I’ll probe a bit to make sure you know what you’re talking about. And then I’ll say, “If I asked the person in the office next to you about you, what would they say?””

Passion and curiosity are other areas that Smith believes is important to probe during the hiring or promotion process. In the area of passion, Smith will “Often ask, “What do you do in your free time?” If they’re passionate about something, I know they’re going to bring that passion to the workplace.” Smith believes curiosity is important because it helps to determine whether a prospective hire will fit into the Buffalo Wild Wings culture. Bryant wrote, “I look for curiosity too, because if you’re curious and thinking about how things work, you’ll fit well in our culture. So I’ll ask about the last book they read, or the book that had the greatest impact on them.” Smith also inquires about jobs or assignments that went well and “ones that went off the tracks. You ask enough questions around those and you can determine whether they’re going to need a huge support team.”

I found these insights by Smith very useful for a compliance practitioner and the hiring and promotion functions in a compliance program. By asking questions about compliance you can not only find out the candidates thoughts on compliance but you will also begin to communicate the importance of such precepts to them in this process. Now further imagine how powerful such a technique could be if a Chief Executive asked such questions around compliance when they were involved in the hiring or promotion process. Talk about setting a tone at the top from the start of someone’s career at that company. But the most important single item I gleaned from Bryant’s interview of Smith was the “Wait for great” phrase. If this were a part of the compliance discussion during promotion or hiring that could lead to having a workforce committed to doing business in the right way.

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

October 1, 2014

Creation of Yosemite and Putting Compliance at the Center of Strategy

YosemiteOn this day in 1890, an act of Congress created Yosemite National Park, home of such natural wonders as Half Dome and the giant sequoia trees. Environmental trailblazer John Muir (1838-1914) and his colleagues campaigned for the congressional action, which was signed into law by President Benjamin Harrison.

In 1889, John Muir discovered that the vast meadows surrounding Yosemite Valley, which lacked government protection, were being overrun and destroyed by domestic sheep grazing. Muir and Robert Underwood Johnson, a fellow environmentalist and influential magazine editor, lobbied for national park status for the large wilderness area around Yosemite Valley. With this persuasion, Congress set aside over 1,500 square miles of land for what would become Yosemite National Park, America’s third national park. In 1906, the state-controlled Yosemite Valley and Mariposa Grove came under federal jurisdiction with the rest of the park to create the Yosemite that we know today. It clearly was a triumph for Muir and Johnson but more so for the American people.

I recently read an article in the Harvard Business Review (HBR) that seemed to draw inspiration from the actions of Muir and Johnson. The article by Frank Cespedes, entitled “Putting Sales at the Center of Strategy”, discussed how to connect up management’s new sales plans with the “field realities your salespeople face.” Referencing the well-known Sam Waltonism that “There ain’t many customers at headquarters”; Cespedes believes that “If you and your team can’t make the crucial connections between strategy and sales, then no matter how much you invest in social media or worry about disruptive innovations, you may end up pressing for better execution when you actually need a better strategy or changing strategic direction when you should be focusing on the basics in the field.”

The problem is usually clear. Senior management and the C-Suite make clear their commitment to doing business ethically and in compliance with anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA). The company even has a best practices compliance. But the problem is that the installation or enhancement of a compliance regime is usually perceived as a ‘top-down’ exercise. The reality of the employee base that must execute the compliance strategy is not considered. Even when there are comments, it is derisively characterized as ‘push-back’ and not taken into account in moving the compliance effort forward. I thought Cespedes piece had some great insights for the compliance practitioner so borrowing from his four-point process, I will rework it for a compliance professional.

Communicate the Strategy

It can be difficult for an employee base to implement a strategy that they do not understand. Even with a company wide training rollout, followed by “a string of e-mails from headquarters and periodic reports back on results. There are too few communications, and most are one-way; the root causes of underperformance are often hidden from both groups.” Here Cespedes’ insight is that clarification is a leadership responsibility and in the compliance function that means the Chief Compliance Officer (CCO) or other senior compliance practitioner. Moreover, if the problem is that employees do not understand how to function within the parameters of the compliance program, then there is a training problem and that is the fault of the compliance department. I once was subjected to a PowerPoint of 268 slides, which lasted 7.5 hours, about my company’s compliance regime. To say this was worse than useless was accurate. The business guys were all generally asleep one hour into the presentation as we went through the intricacies of the books and records citations to the FCPA. The training was a failure but it was not the fault of the attendees. If your own employees do not understand your compliance program that is your fault.

Continually improve your compliance productivity

I thought this point was insightful. Cespedes talked about incentivizing your sales force. Why not do the same concepts around compliance? You can work with your Human Resources (HR) department to come up with appropriate financial incentives. Many companies have ad hoc financial awards, which they present to employees to celebrate and honor outstanding efforts. Why not give out something like that around doing business in compliance? Does your company have, as a component of its bonus compensation plan, a part dedicated to FCPA compliance and ethics? If so, how is this component measured and then administered? There is very little in the corporate world that an employee notices more than what goes into the calculation of their bonuses. HR can, and should, facilitate this process by setting expectations early in the year and then following through when annual bonuses are released. With the assistance of HR, such a bonus can send a powerful message to employees regarding the seriousness with which compliance is taken at the company. There is nothing like putting your money where your mouth is for people to stand up and take notice.

Improve the human element in your compliance program

This is another area where HR can help the compliance program. More than ongoing assessment of employees for promotion into leadership positions, here HR can assist on the ground floor. HR can take the lead in asking questions around compliance and ethics in the interview process. Studies have suggested that certainly Gen Y & Xers appreciate such inquiries and want to work for companies that make such business ethics a part of the discussion. By having the discussion during the interview process, you can not only set expectations but you can also begin the training process on compliance.

However, this approach should not end when an employee is hired. HR can also assist your compliance efforts by tracking employees through their company career to identify those who perform high in any compliance metric. This can also facilitate the delivery on more focused compliance training to those who may need it because of changes on FCPA risk during their careers.

Make your compliance strategy relevant

Cespedes notes, “Most C-suite executives know these value-creation levers, but too few understand and operationalize the sales factors that affect them.” In the sales world this can translate into a reduction in assets to underperforming activities. This is all well and good but such actions must be coupled with an understanding of why sales might be underperforming in certain areas. In the compliance realm, I think this translates into two concepts, ongoing monitoring and risk assessment. Ongoing monitoring can allow you to move from a simple prevent mode to a more prescriptive mode; where you can uncover violations of your company’s compliance program before they become full blown FCPA violations. By using a risk assessment, you can take the temperature of where and how your company is doing business and determine if new products or service offerings increase your compliance risks.

Above all, you need to get out and tell the compliance story. Louis D’Amrosio was quoted for the following, “You have to repeat something at least 10 times for an organization to fully internalize it.” If there is a disconnect between your compliance strategy and how your employee base is implementing or even interpreting that strategy, get out of the office and go out to the field. But you need to do more that simply talk you also need to listen. By doing so, can help to align your company’s compliance strategy with both the delivery and in the field.

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

April 9, 2014

Tales From the Crypt: Rule No. 8 – Even Sailors Behaving Badly can get Promoted

Tales from the CryptEd. Note-the Two Tough Cookies are back with today’s guest post on the toleration of bad behavior…

It is no secret that “sailor’s mouth” is an acronym for someone who liberally uses foul language in even the most formal situations. There was a time in my life when I was known for dropping the “f-bomb” a bit too frequently, but age, experience and just plain civility has given me the presence of mind to be sensitive to others in a way I was not early in my career. I don’t even use that particular term in casual conversation with friends any longer without feeling a tinge of regret as soon as the word crosses my lips, acutely aware that it’s a bit “unseemly” of me, and doesn’t reflect the person I’ve grown into. I am less “familiar” with people, as I have come to realize that familiarity does indeed breed contempt, particularly in the workplace. I don’t even relax in casual get-togethers with friends, as many of my friendships are the direct result of my work relationships and, as we know from prior posts, appearances matter. When you are an Integrity and Compliance professional, people look at the whole person, not just the person who shows up to work, and personal conduct outside the workplace can result in just as damning a judgment from peers as conduct within workplace walls.

I was less than a month on the job when I was handed the work files pertaining to the hotline calls that had come into the organization before I was appointed to the compliance function. I had met with the HR professional who handled the lion’s share of the investigations, but one stood out – instead of the file name being labelled by the implicated party accused of wrong doing (as most were), this file was labelled under the name of the accuser. What I found within was nothing short of extraordinary, and, in hindsight, gave me crystal clarity to what lay ahead. What puzzles me (and many of my colleagues) to this day is how individuals such as those we describe in our Tales seem to consistently percolate to the top of their organizations, landing one plumb assignment after another, and those of us who keep our heads down, demonstrate respect and do our jobs with professionalism and dedication seem to get shunted off to the side again and again. We’re missing something important and this Tale from our Crypt spotlights one of the worst of the worst…

The time of my appointment was one of change. The CEO, unbeknownst to me, was preparing for retirement, planning on “ruling” his roost for only a few short months before turning his mantle over to one of the senior level executives who had steadily risen through the ranks and was now in charge of the largest revenue segment of the company. The Chief Human Resource Officer (CHRO) had “resigned” only a few months prior to my arrival, and I could not get a straight answer as to why. The interim executive in charge of the human resource function had only been at the organization a short time, overlapping the prior CHRO’s tenure by only a month.   He already had business cards printed with the title CHRO under his name, even though the board had not officially sanctioned his candidacy for the role and there was still an active executive search underway. By all rights, I should have been clued in then and there, but I was happy to have a job, having just left a rather unsavory position at a privately held company that made “hostile work environment” sound like a Hawaiian vacation in comparison to the draconian employment tactics they routinely used that forced me to stop and meditate every morning prior to crossing the threshold into the office.

The file that I had open before me told a story of foul language, abusive behavior, threatening gestures, lack of sensitivity for “personal” needs (such as terminal illness resulting in a death in the family), disrespect towards subordinates, and falsified work history. Was this guy for real? And to have him as “Charles in charge” of the HR function for a large, global company? I was shaking my head in disbelief. To further compound matters, the company had already hired a “coach” to work with him on his foul language…. and still, there was no apparent change of behavior.

The person who filed a complaint against this individual was so intimidated by his language, threatening gestures, and workplace violence (he once threw a pencil at her from across the room, saying people’s actions weren’t going to stick, just like the pen didn’t stick to the wall) that she asked to be demoted and lose pay in order to not work for him any longer.

Shortly after our new fearless CHRO took the reins, I caught wind that not only was the CHRO being snickered at behind his back for his outrageous behavior, word had it that he had actually falsified his work history, claiming a higher level HR executive position on his resume than was true. I had it on “good authority” from another HR professional that when both the CHRO and my “source” were colleagues at this same company, our new CHRO had established himself firmly as a “buffoon” and had risen no higher than a manager at his prior organization. Yet he managed to convince our hiring folks that he was “leadership” material…. and it was no wonder when we looked at the new hire due diligence process (coming up later)…

A really quick way to percolate talk around the coffee pot (and erode the respect your employees have for the organization) is when a company bends over backwards to accommodate an executive’s special needs, especially setting up offices and whole operations in places where the company never had a business presence, for the convenience of the executive (or one of his top subordinates). Not long after his self-appointment, our new CHRO became so enamored with a candidate of his choosing that he pushed to move an entire HR function to this candidate’s home state, disrupting the lives of several dozen individuals who were forced to either move to the new location (a full day’s drive and 5 states south of headquarters), find a new position at HQ, or be laid off.  In this instance, the CHRO’s “pet” was ensconced to oversee several HR support functions out of this new location. Given that the “pet” was new and unproven as an employee, the talk speculated whether or not there was something going on between the CHRO and this new hire. Then this new manager pushed through the hiring process a candidate she had chosen in spite of the interview panel commenting that the candidate’s “demeanor was deceptive.”

When it came to the background check on new hires, “asleep at the wheel” comes to mind. The only reason this candidate came up on my radar was when another HR colleague suspected something was amiss when the company was pursuing some government contracts, and a request for documentation was issued from a state agency that wasn’t part of the bidding process. This Mata Hari’s mistake? When we opened the file (which was sent via email, from a fabricated email address, from a web site she created and launched only a month earlier, which very much had the look and feel of an “official” state agency, and even had a live phone number answered by her “significant other” – you get my drift…), the metatags on the document indicated she was the author, and not the state agency.   When we reviewed her application, and did a root cause analysis of what went wrong, it became clear that expediency won over reason, and red flags which surfaced in the original background check were overlooked, even though several points indicated her candidacy as “unverifiable.” False names were given for references, and burn phones given for contact info. Job positions were fabricated for companies which did not exist, and couldn’t be found on either the internet, or by the PI’s we hired to actually visit the sites identified. We weren’t even really certain if the candidate’s social security number was really hers … but I digress.

We have seen it again and again – people behaving badly, getting away with it, and in some instances, being “rewarded” for their behavior by being promoted soon after a workplace incident was brought to my attention. We have yet to break the “code” of when arrogance crosses the line from being “coachable” behavior, to being “assertive” and a “closer,” thus worthy of promotion. We cannot figure out, for the life of us, why allowing fundamental compliance lapses such as due diligence in hiring can be overlooked, shrugged off as if inconsequential. We have come to the conclusion it all has to do with whether or not you’ve finally been accepted into the “inner circle” and/or whether or not the company feels too “invested” in the person to simply punt them out of the arena for being abrasive, and in some instances, downright hostile. What amazes us even further is when it is the Human Resource Function that is behaving badly….

Who are the Two Tough Cookies?

Tough Cookie 1 has spent the more than half of her 20+ legal career working in the Integrity and Compliance field, and has been the architect of award-winning and effective ethics and compliance programs at both publicly traded and privately held companies.  Tough Cookie 2 is a Certified Internal Auditor and CPA who has faced ethical and compliance challenges in a variety of industries and geographies and recently led a global internal audit team. Their series “Tales from the Crypt: Tough Choices for Tough Cookies” are drawn largely from real life experiences on the front line of working in Integrity & Compliance, and personal details have been scrubbed to protect, well, you know, just about everyone…

December 8, 2013

And The Hits Just Keep on Coming for the ‘Sons and Daughters’ Hiring Program

About the best thing that you can say for the Houston Texans is that they did not lose on Sunday. Of course they did not play on Sunday, pathetically losing Week 14’s game last Thursday. For their season’s effort, the head coach was fired the next day. At least in the National Football League (NFL) there is accountability.

On the other hand, the hits just keep on coming for JP Morgan Chase. On the front page of Sunday’s New York Times (NYT), in an article entitled “Bank Tracked Business Linked to China Hiring”, reporters Ben Protess and Jessica Silver-Greenburg reviewed yet more potentially damning evidence in the Bank’s Foreign Corrupt Practices Act (FCPA) investigation. They were able to view documents which had been recently disclosed by JP Morgan Chase to the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) in connection with the bank’s ongoing internal investigation into its ‘Sons and Daughters’ hiring program which apparently targeted the children of communist party officials and high ranking officials of state owned enterprises for employment in order to obtain business from their parents. The reporters noted, “Until now, the indications of a connection between the hires and business deals have not been so explicit.”

Emails, Spreadsheets and Whistleblowers

The reporters studied both documents and emails which seemed to indicate that the bank thought hiring of these sons and daughters would and did contribute in bringing business to the bank. The documents included spreadsheets “that list the bank’s “track record” for converting hires into business deals”. Another set of documents discussed in the article were described as “historical deal conversion” spreadsheets. The article went on to detail that in one column there was a list of the job candidates and in another column “the bank recorded its track record for winning business from the companies tied to the candidates.” There were other spreadsheets which listed the hires of well-connected children and the revenue that the bank earned from deals involving with hires linked to those companies. These other documents included spreadsheets which discussed “about 30 employees with ties to state-owned companies or Communist Party officials, including the daughter of the deputy minister of propaganda, a relative of a Chinese financial regulator and the nephew of the executive chairman at Sinotruk, which is part of a state-owned trucking enterprise.”

There were also emails cited in the article which seemed to indicate that depth and pervasiveness of the ‘sons and daughters’ hiring program. One email discussed “the “existing and potential business opportunities,” a senior JPMorgan executive in Hong Kong emphasized that the father of a job candidate was the chairman of the China Everbright Group, a state-controlled financial conglomerate. The executive also extolled the broader benefits of the hiring program, telling colleagues in another email: “You all know I have always been a big believer of the Sons and Daughters program — it almost has a linear relationship” with winning assignments to advise Chinese companies.”

In addition to these emails and documents discussed in the NYT article, the reporters also interviewed current and former bank employees. Apparently at least two whistleblowers came forward to identify the hiring scheme, “with one filing a complaint in April 2011 with the Hong Kong stock exchange and another coming forward to American authorities this year.” It has not been clear when JP Morgan Chase began its internal investigation or what was the genesis of the investigation.

The Tang Xiaoning Hiring

The article went into specifics with one of the hiring’s, that of “Tang Xiaoning, a onetime Goldman and Citigroup employee whose father is the chairman of the China Everbright Group, appeared to encapsulate the spirit of the “Sons and Daughters” program for state-owned clients. The father, approached a JPMorgan executive in Hong Kong in March 2010 about a position for his son, records and interviews show. The executive, who led JPMorgan’s China investment banking unit, welcomed the request and urged his colleagues in an email a day later to discuss “how we can leverage more on this account going forward.” But in an internal compliance form, the executive played down the significance of hiring Mr. Tang, documents show, saying there was “no expected benefit.”

Tang Xiaoning was subsequently hired on a one-year employment agreement. Thereafter his father, Tang Shuangning, who had done little if any business with the bank prior to the hiring of his son. But thereafter, “a China Everbright subsidiary hired the bank to advise on a $300 million private offering of shares, according to interviews. And in 2011, after Mr. Tang worked at JPMorgan for several months, China Everbright’s banking subsidiary hired JPMorgan as one of several financial advisers on its decision to become a public company, a deal that was delayed amid turmoil on the world’s markets.” In 2012, after two successive one-year extensions of his employment agreement, “China Everbright International, a subsidiary focused on alternative energy businesses, hired JPMorgan to advise on a $162 million sale of shares, according to Standard & Poor’s Capital IQ, a research service.” When the issue of a third one-year employment agreement it was clear what bank officials in China thought of the situation. The NYT article quoted an email which read, ““Given where we are on China Everbright, I think we may need another contract for Xiaoning,” the executive wrote.”

The article notes that the origins of the ‘Sons and Daughters’ hiring program was to comply with the FCPA. The reporters noted, “According to documents and interviews with current and former employees, JPMorgan created the “Sons and Daughters” program in 2006 with the expectation that the hires would receive heightened scrutiny. But by 2009, the “Sons and Daughters” program was putting the job candidates on the fast track to employment. The documents show that applicants from prominent Chinese families faced less stringent hiring standards — and fewer job interviews — than the average junior-level hire.” Moreover, there has apparently been no direct evidence of knowledge by the program at the corporate headquarters in New York.

Ongoing Monitoring is Critical

So for the compliance professional what are some of the lessons that can be drawn from this matter? First and foremost is that there needs to be ongoing monitoring to determine whether employees are staying within the compliance program. Even after all the important ethical messages from management have been communicated to the appropriate audiences and key standards and controls are in place, there should still be a question of whether the company’s employees are adhering to the compliance program. Two of the seven compliance elements in the Federal Sentencing Guidelines call for companies to monitor, audit, and respond quickly to allegations of misconduct. These three highlighted activities are key components enforcement officials look for when determining whether companies maintain adequate oversight of their compliance programs.

Your company should establish a regular monitoring system to spot issues and address them. Effective monitoring means applying a consistent set of protocols, checks, and controls tailored to your company’s risks to detect and remediate compliance problems on an ongoing basis. To address this, your compliance team should be checking in routinely with local Finance departments in your foreign offices to ask if they’ve noticed recent accounting irregularities. Regional directors should be required to keep tabs on potential improper activity in the countries in which they manage. Additionally, the global compliance committee should meet or communicate as often as every month to discuss issues as they arise. These ongoing efforts demonstrate that your company is serious about compliance.

This means that you may want to walk down the hall and talk to your company’s Human Resources (HR) Department to see if there is anything around hiring of the children or family members of government officials. You might also do some transaction monitoring to see if there are new clients, customers or projects which popped up suddenly as new business for the company. Or take it a step further to see if there were contracts or business retained because of any hiring.

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

June 13, 2013

Why Can’t We Be Friends? Compliance and HR

I have long been an advocate of the compliance function working with the Human Resources (HR) function in any company to help achieve greater compliance under anti-corruption laws such as the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act. I think that HR is uniquely situated to ‘connect the dots’ in many areas of compliance. My thoughts on this subject were echoed in a recent article in the June issue of Compliance Week Magazine, in an article by Jaclyn Jaeger, entitled “How Compliance and HR Can Get It Together”. Jaeger quoted Alex Weisgerber for the following, “Boards are increasingly asking their executive teams to identify and address major people risks.” He further stated that “The HR-compliance partnership can help anticipate this request and set the organization’s human capital risk management agenda proactively.”

However, Jaeger wrote that in some companies this cooperation towards the goal of greater compliance has been found to be lacking. There may be several factors which lead to a more asymmetrical approach by these functions, particularly due to “gaps in communication and collaboration between compliance and HR.” She quoted Weisberger that “The two groups simply haven’t found many opportunities to collaborate in supporting organizational performance.” While I disagree with this statement, Jaeger’s article does detail some of the steps the compliance practitioner can take to bring these two corporate functions into alignment.

Jaeger quotes Shanti Atkins, for the following, “The first challenge to overcome is the “deeply held stereotypes that legal, compliance, and HR typically have of each other.” It’s important to talk about those if we are to get past them.” But perhaps more importantly is the notation held in many legal departments and compliance functions that “the HR function is not a strategic player in the company—that its central function is to manage paperwork, schedule training sessions, and mediate mundane spats such as who hogs the best space in the parking lot.”

As mentioned above, I have long advocated that HR is uniquely situated to connect the dots and along this line of thought, Jaeger wrote that “Getting employees to function as a coherent, engaged unit has to do with people, not policies—and people issues are exactly where HR excels, or course. HR has its finger on the pulse of employee culture, Atkins says because it is the primary channel employees use to complain when there is a problem—and those problems are usually a warning sign of wider compliance-related issues.” What are some of the areas that HR can assist the compliance function with? I believe that there are five key areas. They include the following.

Training

A key role for HR in any company is training. This has traditionally been in areas such as discrimination, harassment and safety, to name just a few, and based on this traditional role of HR in training this commentator would submit that it is a natural extension of HR’s function to expand to the area of FCPA compliance and ethics. There is a training requirement set forth in the US Sentencing Guidelines. Companies are mandated to “take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subdivision (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities.”

Employee Evaluation and Succession Planning

What policy does a company take to punish those employees who may engage in unethical and non-compliant behavior in order to meet company revenue targets? Conversely, what rewards are handed out to those employees who integrate such ethical and compliant behavior into their individual work practices going forward? One of the very important functions of HR is assisting management in setting the criteria for employee bonuses and in the evaluation of employees for those bonuses. This is an equally important role in conveying the company message of adherence to a FCPA compliance and ethics policy. In addition to employee evaluation, HR can play a key role in assisting a company to identify early on in an employee’s career the propensity for compliance and ethics by focusing on leadership behaviors in addition to simply business excellence. If a company has an employee who meets, or exceeds, all his sales targets, but does so in a manner which is opposite to the company’s stated FCPA compliance and ethics values, other employees will watch and see how that employee is treated. Is that employee rewarded with a large bonus? This requirement is codified in the Sentencing Guidelines with the following language, “The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.”

Hotlines and Investigations

One of the requirements for a company under the Sentencing Guidelines is that they “… have and publicize a system, which may include mechanisms that allow for anonymity or confidentiality, whereby the organization’s employees and agents may report or seek guidance regarding potential or actual criminal conduct without fear of retaliation.” This requirement is met by having a hotline. One of the traditional roles of HR in the US is to maintain a hotline for reporting of harassment claims, whether based on EEOC violations or other types of harassment. It is a natural extension of HR’s traditional function to handle this role.

Regarding investigations, HR can bring broad benefits to any FCPA compliance and ethics program through an efficient investigation process. It is recognized that a Legal or Compliance Department may wish to take over and complete an investigation process. However, HR can bring a consistency in both the process and any discipline which is imposed. Such consistency reinforces the senior management’s message of commitment by the company to FCPA compliance and ethics. Such a function by HR can lead to an understanding of emerging risks. Lastly, it may be that employees are more willing to speak up to HR and the building of trust can be utilized to assist in overall risk mitigation.

Background Screening

A key role for HR in any company is the background screening of not only employees at the time of hire, but also of employees who may be promoted to senior leadership positions. HR is usually on the front lines of such activities, although it may be in conjunction with the Legal Department or Compliance Department. This requirement is discussed in the Federal Sentencing Guidelines for Organizations (FSGO) as follows “The organization shall use reasonable efforts not to include within the substantial authority personnel of the organization any individual whom the organization knew, or should have known through the exercise of due diligence, has engaged in illegal activities or other conduct inconsistent with an effective compliance and ethics program.”

When the Government Comes Calling

While it is true that a company’s Legal and/or Compliance Department will lead the  response to a government investigation, HR can fulfill an important support role due to the fact that HR should maintain, as part of its routine function, a hard copy of many of the records which may need to be produced in such an investigation. This would include all pre-employment screening documents, including background investigations, all post-employment documents, including any additional screening documents, compliance training and testing thereon and annual compliance certifications. HR can be critical in identifying and tracking down former employees. HR will work with Legal and/or Compliance to establish protocols for the conduct of investigations and who should be involved.

Lastly, another role for HR can be in the establishment and management of (1) an Amnesty Program or (2) a Leniency Program for both current and former employees. Such programs were implemented by Siemens during its internal bribery and corruption investigation. The Amnesty Program allowed appropriate current or former employees, who fully cooperated and provided truthful information, to be relieved from the prospect of civil damage claims or termination. The Leniency Program allowed Siemens employees who had provided untrue information in the investigation to correct this information for certain specific discipline. Whichever of these programs, or any variations, that are implemented HR can perform a valuable support role to Legal and/or Compliance.

Doing More with Less

While many practitioners do not immediately consider HR as a key component of a FCPA compliance solution, it can be one of the lynch-pins in spreading a company’s commitment to compliance throughout the employee base. HR can also be used to ‘connect the dots’ in many divergent elements in a company’s FCPA compliance and ethics program. The roles listed for HR in this series are functions that HR currently performs for almost any company with international operations. By asking HR to expand their traditional function to include the FCPA compliance and ethics function, a US company can move towards a goal of a more complete compliance program, while not significantly increasing costs. Additionally, by asking HR to include these roles, it will drive home the message of compliance to all levels and functions within a company; from senior to middle management and to those on the shop floor. Just as safety is usually message Number 1, compliance can be message Number 1A. HR focuses on behaviors, and by asking this department to include a compliance and ethics message, such behavior will become a part of a company’s DNA.

If your company does not integrate HR into several ongoing roles for FCPA compliance I believe that is high time you did so. Jaeger’s article points out several steps you can take to bring these two functions into greater collaboration. From my perspective, HR can be a valuable partner for compliance and one that you should begin to take advantage of now.

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

September 19, 2012

Staying Connected and Engaged: What HR Professionals Didn’t Necessarily Learn in an MBA Program

Filed under: Best Practices,compliance programs,Human Resources — tfoxlaw @ 1:19 am
Tags: , ,

Ed. Note-as readers of this blog know, I am a huge fan of HR as an integral part of a best practices compliance program. What many reader may not know is that I have a Master’s degree from Michigan State University from the School now named Human Resources and Labor Relations. With that background I was interested when I was contacted by Julianna Davies, who is a writer and researcher for MBA Online, a website that provides up-to-date information about MBA career opportunities and different college programs. I asked her if she could discuss the findings of the recent Kenexa study that outlines the ways in which human resource departments are out of touch with their employees and this will have a detrimental effect on companies until the problem can be corrected. The following is her guest post. 

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Managing an effective human resources department is usually a factor of two interrelated elements: professionals who understand the newest HR trends and regulations, and who know how to read and engage with the employees under their care. Too often, companies lean primarily on the first requirement, assuming that engagement and good communication will just come with time or, in some cases, will simply be intuitive.

However, as a new study from HR consulting and recruiting service Kenexa reveals, this strategy is not working. More HR professionals than ever before are out of touch with their company’s workforce, the study said. More and more HR teams are looking to bridge this growing gap, and a handful of startups have emerged devoted solely to HR improvement.

A Problem Around the Water Cooler

The Kenexa report, titled “Employee Attitudes and Engagement,” compiled results from surveys the consulting firm conducted in the first part of 2012. Researchers asked a fixed set of questions to employees, then posed those same queries to HR departments. The results, Kenexa said, were “disconcerting.”

For instance, only 34% of polled employees reported that they felt “engaged” with their jobs and companies. HR professionals anticipated much more generosity when they put that number at a nearly doubled 69 percent. Similarly, only 38 percent of employees said they would recommend their company to a friend, which was far lower than the whopping 81 percent HR executives projected. This pattern held true across the board, whether detailing benefits evaluation, feelings about pay grade fairness, or overall job satisfaction and anticipated job retention.

A Forbes magazine article summarizing the report called the findings “a damn shame,” and said that the disconnect may be emblematic of a larger problem in modern industry. “In an ideal world HR should be your team that is completely focused on maximizing talent,” the article said. “They can only maximize talent if they understand the current situation.”

Part of the problem may be related to the increasingly diverse workloads HR personnel handle. They process benefits paperwork and negotiate new hire packages; they watch market trends and handle personnel disputes. “To deliver more value, the human resources function needs to spend more time accelerating operational improvement and less time on its traditional administrative and compliance activities,” Brad Power, a veteran Human Resources consultant, wrote in a recent Harvard Business Review blog post. Revamping goals and focus can be somewhat daunting, however, which is where an emerging sector of next-generation HR consultants and start-up companies come in.

Opportunities & Solutions

Expensify, a San Francisco-based startup, is one example. It offers a computer platform for HR departments that streamlines employee expenses, receipts, and reports. The goal is to save personnel from sorting through stacks of paperwork—ideally so they can spend more time actually getting to know their employees and identifying more pressing personnel issues.

TribeHR also provides a template for financial tracking as a part of a much larger HR program “revamp package.” Enrolled companies can manage all HR functions from one common docket: tracking new hires and recruitment efforts, monitoring employee progress, and keeping track of calendars is all part of the deal.

When it comes specifically to improving company-employee communication and interaction, Rypple, also based in San Francisco, may offer a good solution. The Rypple program works something like an internal social network for companies. It gives managers, staff, and executive leaders a place to share and collaborate, as well as give feedback.

Effective HR management is as much about knowledge as it is about adaptability. Understanding the technical processes is an important piece, but the puzzle is incomplete without strong channels of communication and an accurate read of corporate culture and sentiment. With the right direction, technology, and advice, even the most out-of-touch organizations can come back on course—provided, of course, they first recognize the problem.

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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. 

March 14, 2012

The Story of Ajax: Fairness in Rewarding Employee Behaviors

How does your company deal with the question of fairness in its compliance program? I thought about that question while reading an article in the New York Times (NYT), entitled “That Eternal Question of Fairness”, by Nancy Koehn. In her article, Koehn discussed the book “The Ajax Dilemma: Justice, Fairness and Rewards” written by Paul Woodruff which considers how a company might distribute rewards to its employees “without damaging the larger community.” I have written about the Fair Process Doctrine which generally is recognized as allowing employees to accept a negative result if they think that the process through which the result was determined was fair and not arbitrary and capricious. In the Department of Justice’s (DOJ) 13 point minimum best practices compliance program, Item 10 states:

10.  Discipline. A Company should have appropriate disciplinary procedures to address, among other things, violations of the anti-corruption laws and the Company’s anti-corruption compliance code, policies, and procedures by the Company’s directors, officers, and employees. A Company should implement procedures to ensure that where misconduct is discovered, reasonable steps are taken to remedy the harm resulting from such misconduct, and to ensure that appropriate steps are taken to prevent further similar misconduct, including assessing the internal controls, ethics, and compliance program and making modifications necessary to ensure the program is effective.

However, I believe that the DOJ best practices are more active than the ‘stick’ of employee discipline to make a compliance program effective and I believe that it also requires a ‘carrot’. This requirement is codified in the US Sentencing Guidelines with the following language, “The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.”

I have advocated that the Compliance Department work with Human Resources (HR) to ensure that rewards are handed out to those employees who integrate such ethical and compliant behavior into their individual work practices going forward.  One of the very important functions of HR is assisting management in setting the criteria for employee bonuses and in the evaluation of employees for those bonuses. This is an equally important role in conveying the company message of adherence to a Foreign Corrupt Practices Act (FCPA) compliance and ethics policy.

Ajax relates to all of these fairness issues through his story from the Iliad. He was one of two Greek warriors who were in line to receive the armor from the mighty Achilles, after he was slain by the Trojan Prince Hector. Achilles’ armor was to be rewarded by the Greek King Agamemnon to “the Army’s most valuable soldier.” Ajax and Odysseus competed for the prize via a speech made before the King. The book’s author uses this speech competition and Agamemnon’s subsequent award of Achilles armor to Odysseus to explore the issues of rewards, which he says “mark the difference between winners and losers.” Paraphrasing several questions that Koehn asked about communities: Which does your company value more: Cleverness or hard work?; Strength or intelligence?; Loyalty or inventiveness?

These questions can play out in a company in a variety of ways. Does your company identify early on in an employee’s career the propensity for compliance and ethics by focusing on leadership behaviors in addition to simply business excellence? If a company has an employee who meets, or exceeds, all his sales targets, but does so in a manner which is opposite to the company’s stated business ethics values, other employees will watch and see how that employee is treated. Is that employee rewarded with a large bonus? Is that employee promoted or are the employee’s violations of the company’s compliance and ethics policies swept under the carpet? If the employee is rewarded, both monetarily and through promotions, or in any way not sanctioned for unethical or non-compliant behavior, it will be noticed and other employees will act accordingly. I think one of requirements under the Sentencing Guidelines is to ensure consistent application of company values throughout the organization, including those identified as ‘rising stars’.

In her book review, Koehn states that she believes the Ajax example still has relevance today. Most employees are like Ajax, loyally doing the important day-to-day work. If doing business in a manner antithetical to a company’s stated culture of ethics and compliance is seen to be rewarded then those loyal, hard-working employees may well stop working in a compliant manner. The end for Ajax was not good, as after the King’s award of Achilles armor to Odysseus, his anger exploded and he lost his life, his family and his reputation down to this day. From this lesson we draw the conclusion that rewards must be distributed in a way to ensure a company’s health. This, the author believes, is why the “story of Ajax is sure to resonate with many” even today.

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

March 6, 2012

The President and Lin-sanity: Lesson Learned III For Your Compliance Program

Lin-sanity still reigns and it may well now have reached its penultimate level. What evidence do I have of this cultural phenomenon? It is that both US President Barack Obama AND Sarah Palin are now on the Lin-sanity bandwagon. Palin, who played basketball in high school, is pictured at the left with the highly coveted Lin gear outside her Manhattan hotel. Not to be outdone, last week on the B.S. Report, a weekly podcast hosted by the Sports Guy Bill Simmons, held at the White House, President Barrack Obama talked about Lin-sanity and his fellow Harvard alum Jeremy Lin.

The President made an interesting comment, which I thought spoke to an ongoing issue in the compliance world. His observation was that Lin’s in-game success did not happen overnight, so question for you where were all of the ubiquitous NBA coaches all through his practices during the 15 months he has been in the NBA? The President thought that some coach, should have seen something, which indicated Lin had some talent. While we can ponder the wisdom of the 30+ coaches, between the Warriors and Rockets, who all blew that one, one of the things that the President’s comment brought up for me is the role of training in any best practices compliance program. Why you might ask? The answer is because one of focuses within an organization is to not only develop talent, but to evaluate talent in everyday work situations; similar to evaluating a basketball player in practice. So the Lin-sanity Lesson III is that one of the areas of training is to teach business unit employees to coach and evaluate compliance talent in an organization.

This is an area that Human Resources (HR) can be of great assistance to the Compliance Department. Compliance can take the lead in training on the substance of compliance. However, HR can assist in training managers to evaluate and audit employees on whether they conduct themselves within a culture of compliance and ethics. This is the traditional role of HR. While there is a training requirement for any minimum best practices compliance program, based upon the requirements in the US Sentencing Guidelines, I would submit that there is an opportunity to bring additional and more focused HR based training to bear which would enable a company to develop leaders who are thoroughly grounded in compliance and ethics.

Under the US Sentencing Guidelines, companies are mandated to “take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals referred to in subdivision (B) by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities.” This requirement would also suggest that training results should also be evaluated and once again HR can fill this role. As part of this evaluation, a candidate for promotion can be assessed in not only their interest in the area but their retention of the materials going forward. Lastly, HR can evaluate how a candidate for promotion incorporates compliance and ethics not only into his or her work but how the candidate might help to foster a culture of compliance in the company.

President Obama’s remark about Jeremy Lin and what he may have shown in practice brought up the day-to-day work that any NBA player must go through which is watched by numerous NBA coaches. This concept is the same in a business organization. The day-to-day practices equate to how employees comport themselves whilst doing the routine and daily business of their companies. It’s a good bet that if an employee acts in an ethical manner in his or her routine dealings, they will do so in a situation which requires conducting business through a culture of compliance. HR is a part of the corporate organization that can evaluate these day-to-day scenarios. HR can also train business unit employees to evaluate personnel on compliance and ethics issues. You should not miss this opportunity to watch and evaluate your employees!

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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