How To You Move Ethical Values Down Through Your Company?

What do employees want most in their company’s values? That is a question that has plagued companies for many, many years. I would argue that one of the concepts which should be in the conversation is respect for a company’s ethical values. One of the tasks in any company is to get senior and middle management to respect the stated ethics and values of a company, because if they do so, this will be communicated down through the organization. This topic was explored in a recent article, entitled “If the Supervisors Respect Values, So Will Everyone Else”, in the Corner Office section of the New York Times (NYT), when reporter Adam Bryant interviewed Victoria Ransom, the Chief Executive Officer (CEO) of Wildfire, a company which provides social media marketing software.

Company Values

Ransom spoke about the role of senior management in communicating ethical values when she said “Another lesson I’ve learned as the company grows is that you’re only as good as the leaders you have underneath you. And that was sometimes a painful lesson. You might think that because you’re projecting our values, then the rest of the company is experiencing the values.” These senior managers communicate what the company’s ethics and values are to middle management. So while tone at the top is certainly important in setting a standard, she came to appreciate that it must move downward through the entire organization. Ransom came to realize “that the direct supervisors become the most important influence on people in the company. Therefore, a big part of leading becomes your ability to pick and guide the right people.”

Ransom said that when the company was young and small they tried to codify their company values but they did not get far in the process “because it felt forced.” As the company grew she realized that their values needed to be formalized and stated for a couple of reasons. The first was because they wanted to make it clear what was expected of everyone and “particularly because you want the new people who are also hiring to really know the values.” Another important reason was that they had to terminate “a few people because they didn’t live up to the values. If we’re going to be doing that, it’s really important to be clear about what the values are. I think that some of the biggest ways we showed that we lived up to our values were when we made tough decisions about people, especially when it was a high performer who somehow really violated our values, and we took action.” These actions to terminate had a very large effect on the workforce. Ransom said that “it made employees feel like, “Yeah, this company actually puts its money where its mouth is.””

Ransom wanted to make clear to everyone what senior management considered when determining whether employees “are living up to the company culture.” The process started when she and her co-founder spent a weekend writing down what they believed the company’s values were. Then they sat down with the employees in small groups to elicit feedback. Her approach was to look for what they wanted in their employees. They came up with five.

• Passion: Do you really have a thirst and appetite for your work?
• Humility and Integrity: Treat your co-workers with respect and dignity.
• Courage: Speak up – if you have a great idea, tell us, and if you disagree with people in the room, speak up.
• Curiosity: They wanted folks who would constantly question and learn, not only about the company but about the industry.
• Impact: Are you having an impact at the company?
• Be outward-looking: Do good and do right by each other.

Leadership

Ransom came to realize that as her company’s leader, more was expected from her. Her employees listened to what she said. This is one of the best descriptions of ‘tone at the top’ that I’ve seen. Ransom “started to realize how what you say can have such an influence. You can’t just say things off the cuff anymore, because people take it so much more seriously than you ever meant it. And that can be good and bad. The bad is that you might say something sort of flippant, or you’re trying to be really transparent and honest with the team about the challenges we may have. But that can get passed on down the line and repeated until there’s a panic.”

But equally important was what she does not say. This is because she learned “how comforting what I say can be to the team, even if I’m not giving the answers. I thought at first that I always needed to be able to give them the solution, but I realized that actually that wasn’t needed at all. All that was needed was acknowledging the challenges, and showing that we’re on top of it and we get it.”

Ransom had an equally valuable insight when she talked about senior management and ethical values. She believes that “the best way to undermine a company’s values is to put people in leadership positions who are not adhering to the values. Then it completely starts to fall flat until you take action and move those people out, and then everyone gets faith in the values again. It can be restored so quickly. You just see that people are happier.”

I found the Ransom interview to be quite useful to the compliance practitioner. She makes clear that ‘tone at the top’ is only one key to instituting ethical values throughout your organization. It also means ‘tone in the middle’ and ‘tone at the bottom’. But she points out not only how to establish that tone but more importantly how to walk the walk of ethics and compliance. Her interview also showed the importance of establishing the values that you want in your company. By doing more than simply writing and then announcing them, through her work with small employee groups she was able to get buy-in from everyone. This was more than communication, this was collaboration. If you make your employees feel that they are a part of the process you will have greater success in your mission to bring ethical values to your organization.

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Please join Patrick Taylor, CEO of Oversight Systems and myself tomorrow afternoon for a webinar on Anti Corruption and On-going Transaction Monitoring. The webinar will be at 2 PM EST and is free. For registration and information click here.

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Ethical Leadership: Leading a Company Conversation on Compliance

Ethical leadership is absolutely mandatory to have a successful compliance program, whether it is based upon the US Foreign Corrupt Practices Act (FCPA) or the UK Bribery Act. Senior management must not only be committed to doing business in compliance with these laws but they must communicate these commitments down to the organization. But leadership is not limited only to senior management within an organization. Tone at the Top begets Tone in the Middle; which begets Tone at the Bottom. At each rung there is the need for compliance leadership. In an article in the June issue of the Harvard Business Review, entitled “Leadership is a Conversation”, authors Boris Groysberg and Michael Slind discuss how to improve employee engagement in today’s “flatter, more networked organizations.”

The authors posit that the issue of how leaders handle communications within their organizations is as important as the message. They believe that the process should be more dynamic and more nuanced and is a process that they term “conversational”. Building on this concept they suggest a model of leadership which they call “organizational conversation” which resembles ordinary person-to-person conversations. They believe that this model has several advantages, including that it allows a large company to function like a small one and it can enable leaders to “retain or recapture some of the qualities…that enable start-ups to out-perform better established rivals.” The authors have found four elements of organizational conversation which “reflect the essential attributes of an interpersonal conversation.” They are: intimacy, interactivity, inclusion and intentionality.

Intimacy: Getting Close

Here the authors appear to focus on two works: listening and authenticity. Recognizing that physical proximity may not always be feasible but emotional or mental proximity is required. They advise leaders to “step down from their corporate perches and then step up to the challenge of communicating personally and transparently with their people.” This technique shifts the focus of change from a top-down hierarchical model to a “bottom-up exchange of ideas.”

Interactivity: Promoting Dialogue

Interactivity should make a conversation open and more fluid. You can obtain this by talking with and not just talking to an employee. The purpose of interactivity builds upon the first prong of intimacy. The authors believe that efforts to close the gap between employees will founder if both tools are not in place along with institutional support which gives employees the freedom and courage to speak up. The authors believe that social media can be a useful tool to help foster such interactivity, but care must be taken to ensure that managers do not simply use social media as another megaphone. The authors suggest that more than just social media is required and that something extra is needed and that is social thinking.

Inclusion: Expanding Employees Roles

Following on intimacy is inclusion as intimacy should force a leader to get closer to employees while inclusion challenges the employee to play a greater role in the communication process. Inclusion expands on interactivity by enabling employees to put forward their ideas “rather than simply parrying the ideas that others present.” Clearly this is the prong that brings employee engagement into the communication process by calling on employees to “generate the content that makes up a company story.” Employees who become committed to a message can become the best brand ambassadors that a company can ever hope to have on its payroll.

Intentionality: Pursuing an Agenda

While the first three prongs of the authors’ model focuses on opening up the flow of communication, intentionality is designed to bring a measure of closure to the process. The goal here is to have voices merge into a single vision of what the company’s communication is for. In other words, the conversation should reflect a “shared agenda that aligns with the company’s strategic objectives” that will allow employees to “derive a strategically relevant action from the push and pull of discussion and debate.” The leaders role here is to “generate consent rather than commanding assent” for a strategic objective. The authors believe that this enables employees at the top; at the middle; and at the bottom to “gain a big-picture view of where their company stands” on any issue which has gone through the process.

The Box Score of Organizational Conversation

	Intimacy	Interactivity	Inclusion	Intentionality
Old Model: Corporate Communications	Information flow is primarily top down;Tone is formal and corporate	Messages are broadcast to employees;Print newsletters, memos and speeches	Top Execs create and control messaging;Employees are passive consumers of information	Communication is fragmented, reactive and ad hoc;Leaders use assertion to achieve strategic alignment
New Model Organizational Communications	Communication is personal and direct;Leaders value trust and authenticity	Leaders talk with employees, not to them;Organizational culture fosters back and forth, face-to-face interaction	Leaders relinquish a measure of control over content;Employees actively participate in organizational messaging	A clear agenda informs all communications;Leaders carefully explain the agenda to employees;Strategy emerges from a cross-organization conversations
What it means for employers and employees	Leaders emphasize listening to employees, rather than just speaking to them;Employees engage in a bottom-up exchange of ideas	Leaders use video and social media tools to facilitate two-way communication;Employees interact with colleagues through blogs and discussion forums	Leaders involve employees in telling the company story; Employees act as brand ambassadors and thought leaders	Leaders build their messaging around company strategy;Employees take part in creating strategy via specifically designed communication vehicles

Reading this article was a real eye-opener for me. I could not stop thinking about the possibilities for the compliance practitioner in using these techniques throughout an organization. Just think how employees might feel if senior management engaged them directly regarding compliance and how the company is going to do business ethically. As a compliance practitioner you can leverage this to seek more ideas from business unit folks on how to do compliance more efficiently and most probably with greater results for the company. Also imagine what it might do for employee moral if they thought that senior management “had their backs” when it came to being rewarded or even acknowledged for doing business the right way. The possibilities seem endless and you are only limited by your own imagination. But read the article, as I have only scratched the surface of the content that the authors have presented.

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

Star Wars Day and Leadership Lessons for the Compliance Professional

Last Friday, May 4 was Star Wars Day. According to Wikipedia, “May 4 is called Star Wars Day because of the popularity of a common pun spoken on this day. Since the phrase “May the Force be with you” is a famous quote often spoken in the Star Wars films, fans commonly say “May the fourth be with you” on this day.” So if you are like me and still consider “Star Wars IV-A New Hope” to be the first Star Wars movie or if you are of a different age as is my 15 year old daughter who says that the first Star Wars movie was “Star Wars I-The Phantom Menace”, I hope the force was with you last Friday.

I thought about this generational dispute in the context of leadership when I read an article in the Corner Office Section of the Sunday New York Times (NYT), entitled “How to Adopt Mentors Without Really Asking”. In the article reporter Adam Bryant interviewed Shellye Archambeau, the Chief Executive Officer (CEO) of MetricStream, which presented some of the leadership lessons that Archambeau has learned in her business career. I found that some of her points could be used by a compliance professional not only for his or her career but to further the goal of compliance leadership in your company.

Mentoring

Archambeau related that she had “a lot of mentors, and I just adopted them.” Rather than making a formal request for a person to be her mentor, she began to treat people like her mentors and she said that “it worked very well for me.” To begin such a relationship, she said that she would end a conversation with something along the lines of “I’ve just got a quick question for you. Any thoughts on how…” But they key is to use the information that is presented to you and then to acknowledge the assistance. By telling the person you are trying to recruit as a mentor that the advice was helpful, it gives the mentor a sense of the positive impact of their role and it is more likely that they will be open to having a more formal mentoring relationship.

Luke Skywalker may not have sought out Obi-Wan but he certainly sought out Master Yoda.

Leadership

Archambeau provided some examples of her leadership style which you may find useful to incorporate into her ideas about leadership into your company’s compliance program. The first is hire the right team but even with the right personnel in place, there must still be an emphasis on leadership. Archambeau discusses a leadership topic at the regular meetings of her senior staff. She stated that “it makes a difference, because through these leadership topics, I get to reinforce our culture, the style and what’s expected.”

She provided two examples of leadership challenges that she has addressed. The first is “don’t be a mama bear.” She explained that, “when people come to you with problems or challenges, don’t automatically solve them. As a mama bear, you want to take care of your cubs, so you tend to be protective and insulate them against all those things.” However, Archambeau does not believe that such an approach is helpful for an employee because if “you keep solving problems for your people, they don’t learn how to actually solve problems for themselves.”
To remedy this ‘mama bear’ tendency, she tries to ask the question or present the issue back to them, saying: “What do you think we should do about it? How do you think we should approach this?”

The second leadership issue that she discussed was one that she called “who’s got the ball?” Archambeau explained “that in sports, and the ball is thrown to you, then you’ve got the ball, and you’re now in control of what happens next. “ This means that not only are you in charge but you own it as well. It is important to establish “who’s got the ball. If you’re in a meeting and you’ve had a great conversation and then everybody leaves, who has the ball? It becomes a very visible concept for making sure that there’s actually ownership to make sure things get done.” However, as important is it is to know who has the ball it is equally as important how you got the ball in the first place? Because it is “one thing if you always catch the ball if people toss it to you. It’s another thing if you are proactively going after that ball. As leaders, you’ve got to make sure that you’re actually going after that ball.”

(SPOILER ALERT) Luke and Han Solo may not have initially sought out to destroy the Empire but by the end of the series they certain were the ones ‘asking for the ball’ when it came to attacking the Death Star.

Leading by Fear

Archambeau ended by noting that she does not believe that employees do well if the company environment is too harsh. She does not believe that people “when there’s fear. Maybe people aren’t physically afraid, but they feel fear. And when people are afraid, the whole chemistry in their body changes. You just can’t be as successful in that kind of environment. I think the best environments are when you enable people to actually perform their best, but you’re still clear about what’s expected.”

That sounds very much like the Darth Vader School of Leadership where each failure, ahem, ‘ended poorly’ for his direct report.

So depending on what generation you are, you may have a different idea about the lessons you might learn from the Star Wars series. For my money, Episodes IV-VI is what Star Wars is all about. But as my 15 year old daughter might say, “Dad, you are just too retro.”

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

Bonnie Prince Charlie, Charlie Chaplin and Proportionate Procedures

Continuing our UK theme this week, we note a birthday anniversary and the anniversary of an event involving two quite different Charlie’s. The first is the anniversary of the Battle of Culloden, where in 1746 the English forces, led by the Duke of Cumberland, defeated the Scottish Jacobites, who supported the last serious Stuart Pretender to the English throne, Bonnie Prince Charlie. This battle not only cemented the House of Hanover’s seat on the English throne but also led to the decimation of the Scottish Highland Clans. In a very different anniversary celebration, we also note the birthday of Charlie Chaplin, born in 1889. Yes, the Little Tramp was a Brit.

Whilst flying over to the UK I caught up on some reading, including the Saturday Wall Street Journal (WSJ). In an article, entitled “Why Airport Security is Broken-And How to Fix It”, Kip Hawley, the former head of the US Transport Security Administration (TSA) provides his prescription on how to fix what he calls “the national embarrassment that our airport security remains”. Pretty strong language by someone who has been “to the top of the mountain.” While I find the security checks we all now go through only mildly inconveniencing, Hawley writes that the US airport security remains “hopelessly bureaucratic and disconnected from the people whom it is meant to protect.”

Hawley believes that the TSA has an incorrect approach to proportionality of the risk faced. He says that by attempting to eliminate all risk, the system is not only a “nightmare for U.S. and visitors from overseas” but that this system is “brittle where it needs to be supple.” In the aftermath of the post 9-11 attacks the system was designed so every passenger could avoid harm while traveling. Hawley believes that some of the risk factors which led to the 9-11 attacks have been remedied, such as box cutters or a small knives that could breach a cockpit door; more Federal Air Marshalls traveling on flights and greater passenger awareness and willingness to respond to such an emergency. He believes that the risk, which is now paramount, to manage is to stop a catastrophic attack. In short the risks have changed but the TSA have not changed to manage new or other risks.

Hawley lays out five changes which he believes would go a long way towards allowing the TSA to properly manage this risk of catastrophic attack:

1. No more banned items. By listing every banned item, you make each X-Ray scan an “Easter-egg hunt” and provide terrorists with the list of items the TSA will look for.
2. Allow all liquids. Hawley believes that “simple checkpoint signage, a small software update and some traffic management are all that are standing between you and bringing all your liquids on a plane. Really.”
3. Give TSA officers more flexibility and rewards for initiative and hold them accountable. There must be more independence for TSA officers ‘on the ground.’ Currently if you initiate independence as a TSA officer, you are more likely to be disciplined rather than rewarded.
4. Eliminate baggage fees. The airlines bags fees cause more passengers to bring bags on planes, which requires more security, increases costs and slows down the process which in turn requires airlines to charge more for tickets because there are more delays.
5. Randomize security. If terrorists know what to expect at airport security, they have a greater chance to evade the system. Hawley’s answer is to randomize more security checks while not subjecting every passenger to the current full security compliment.

I have set out Hawley’s thoughts in some detail because they point to how the UK Ministry of Justice (MOJ) suggests that a company should begin its anti-bribery/anti-corruption compliance program. It discusses what constitutes the Six Principles of an Adequate Procedures compliance program in Principle 1, entitled Proportionate Procedures, the MOJ Guidance states, “A commercial organisation’s procedures to prevent bribery by persons associated with it are proportionate to the bribery risks it faces and to the nature, scale and complexity of the commercial organisation’s activities.” In other words, adequate anti-bribery prevention procedures should be proportionate to the bribery risks that a company faces. It all begins with a risk assessment, but the Guidance recognizes that “To a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business.” However, company size is not to be the only determining factor as certainly smaller entities may face quite significant risks and, therefore, need more extensive procedures than their counterparts facing limited risks. The Guidance does recognize that the majority of small organizations are unlikely to need procedures that are as extensive as those of a large multi-national organization.

The level of risk that a business may face will also vary with the type and nature of the persons with which it is has third party relationships. A company that properly assesses it has no risk of bribery on the part of one of its third party relationships will accordingly require nothing in the way of procedures to prevent bribery in the context of that relationship. By the same token the bribery risks associated with reliance on a third party agent representing a company in negotiations with foreign public officials may be assessed as significant and accordingly require much more in the way of procedures to mitigate those risks. This means that companies will be required to select procedures to cover a broad range of risks but any consideration by a “court in an individual case of the adequacy of procedures is likely necessarily to focus on those procedures designed to prevent bribery on the part of the associated person committing the offence in question.”

Near the end of this section of the Guidance it states, “the procedures should seek to ensure there is a practical and realistic means of achieving the organisation’s stated anti-bribery policy objectives across all of the organisation’s functions.” This sounds quite similar to Hawley’s plea that the TSA needs to change its risk management away from protecting every passenger from harm while traveling to preventing a catastrophic attack. But perhaps this final point from the Guidance points up to why the TSA cannot or will not make this change in risk management. They have not received firm guidance from the Executive Branch or from US Congress on what their primary mission is, and hence the primary risk the TSA must manage. In other words, if top management does not support the Compliance Department or forces it to focus on the wrong risks, a Compliance Department may well miss the mark and cause its clients, the business unit personnel to become fed up and just as irritated with the Compliance Department as Hawley believes the traveling public is with the TSA. In other words, tone at the top does matter. Not only must senior management support the compliance function but it should support it, with the appropriate financial resources and tools to manage the correct risks.

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

Banning Beer in the Clubhouse? How to Sustain a Culture of Trust and Integrity

Continuing our sports theme this week, I was interested in my friend, Jay Rosen’s former hometown team, the Boston Red Sox move to ban alcohol from the clubhouse. I found fascinating the commentary on this move, which seemed to me to break down into two categories: (1) Pro-supporting new manager Bobby Valentine, it was a good move and needed to instill some much needed discipline in the clubhouse, which had been lost under prior manager Terry Francona; and (2) Anti-dumb and useless PR move-supporting the prior manager Terry Francona, who broke the Curse of the Bambino by leading Boston to its first two World Series wins in 86 years. We should note that Valentine did not ban Buffalo wings from the clubhouse, which were also listed as evidence by the Red Sox front office as lack of clubhouse discipline.

I thought about those questions in the context of a presentation made that the SCCE Utilities and Energy Conference here in Houston this week. In a presentation by Duane Woods, Senior Vice President of Waste Management, entitled “Sustaining a Culture of Trust and Integrity in Challenging Times”, he talked about the efforts of Waste Management to build and sustain a culture of trust and integrity throughout the organization.

Policies and Procedures

He began with Policies and Procedures, which he described as follows: Policies are used to set the rules of conduct and the desired behavior for employees; Procedures serve to provide a detailed set of uniform processes for employees to follow and they support compliance with the policies. He said that Waste Management tries to use these tools through four disciplines:

1. Regulatory – Those required by law, such as Sarbanes-Oxley;
2. Performance – The financial performance of the company;
3. Customer – They can provide guidance to the organization about customer relations particularly in the area of credit; and
4. Brand and Reputation – Letting employees know what the company brand stands for. Woods stated that this is usually set forth in a company’s Code of Conduct.

These are things that drive loyalty. Woods acknowledged that all companies make mistakes. However, his point was that the key was to rectify the error and then recover the relationship with the customer.

Metrics

Woods next turned to metrics as he believes that if you don’t measure it, you can’t manage it. Metrics are present to help measure and track the successful implementation of policies, procedures and performance. They can also be used to help govern and reward behavior and to help support a culture of compliance. Metrics are critical to defining required and desired behavior. However, even policies, procedures, systems and metrics will not sustain Compliance or Ethics if there is not the right culture of compliance within the organization. If metrics and incentives are poorly designed and implemented they will cause undesired behavior and help to make a confused culture. He also noted that even the “best compliance programs may not ensure right decisions in tough situations.” He emphasized the following points:

• Alignment – Metrics should align with Vital Business Functions and Values.
• Simplicity – Keep it simple. A common problem faced by managers is overloading of metrics.
• Good enough is perfect – Select metrics that are easy to track and easy to understand.
• Indicators – Use metrics as indicators. Key Performance Indicators (KPIs) are metrics. A KPI does not troubleshoot anything, but rather indicates something is amiss.
• Less is more – Use only a few good metrics as too many metrics, even if they are effective, can overwhelm a team.
• Metrics drive both good and bad behavior.  People do what you pay them to do, so choose carefully.

Character

Woods started off this section of his presentation by noting that Warren Buffett, when hiring people, looks for three things. “The first is personal integrity, the second is intelligence, and the third is a high energy level. But, if you don’t have the first, the other two will kill you.” Woods stated that he believes you should hire leaders with demonstrated character, who are capable of inspiring trust and confidence in others. It is more important that leaders be authentic, they must be sincere. Honesty and congruent behavior must be maintained in that you have consistent behavior. Of course respect for others and holding yourself accountable for your direct employees is paramount. Lastly, Woods noted that you should be constantly assessing character talent, are your employees living the values you want?

With these, Woods believes that you can build a culture of character in your organization and to do so starts with trust, which he believes comes from living the values and delivering the results. Trust works on several levels, these include: (1) Individual; (2) Relationship; (3) Market-customer base; (4) Community; and (5) Regulatory. With trust as the base, Woods next turned to building a culture of character within your organization. He emphasized these steps as:

• Set clear expectations.
• Train with focus on integrity, mission and values
• Coaching – The importance of role play circumstances for people.
• Mentor to reinforce behavior.
• Accountability for all employees.
• Engage your workforce – Survey to find out who the key influencers in the company are. Not necessarily the designated leaders.
• Communication – Here Woods emphasized that you should over communicate. The importance of using stories as teaching tools and lessons learned.

Woods concluded by listing the primary benefits that he sees from having the right culture at your company. They include that your organization will become more self-governing, with less need for management intervention in this area. There will be less employee misconduct and greater employee innovation. There will be not only be more customer loyalty but great employee satisfaction, and when a real crisis arises, the employee base should work together to resolve it.

So now on to question time: How about those Red Sox and their banning of beer in the clubhouse? Do you think that is evidence of a culture of compliance or should people, who are old enough to legally drink, be allowed to make that choice on their own? Does the move strengthen the Red Sox in any of their communities: themselves, their fans, the American League East Division or in the eyes of Major League Baseball? What about some of the benefits that Woods listed: will the Red Sox players be more productive or indeed even have greater employee satisfaction? Will the employees become more self-governing and impose discipline among themselves? What about those pesky Buffalo wings that were NOT banned; what role do they play in all of this? Alas, I do not have answers for the above, only questions, questions, and more questions…

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

(FCPA) Compliance and Ethics: Tone from the Middle

A panel at the Global Ethics Summit, discussed the topic of “Tone from the Middle”. The panelists were Chad Fentress, AGC for Accenture; Matthew Pachman, CCO for Altegrity and Maarten Westermann, Senior Director for Corporate Executive Board. The panel was moderated by Dr. Chris MacDonald Visiting Scholar at the University of Toronto. The discussion was around the issue of how does a company “push down” the tone from the top to the middle of an organization.

One question presented was “What should the tone in the middle be?” Pachman emphasized that his key question was “what understanding do want as a company?” That is, what should middle management’s role be in the company’s compliance program? He believes that this role is critical because the majority of company employees work most directly with middle, rather than top management. He feels that most employees will take their cues from how middle management will respond to a situation.
Westermann followed up on this point in the context of a compliance violation or other incident which requires some form of employee discipline. He believes that most employees think it important that there be “organizational justice” so that people believe they will be treated fairly. He further explained that without organization justice, employees typically do not understand outcomes but if there is perceived procedural fairness that an employee is more likely accept a decision that they may not like or disagree with.

Westermann also said that middle management must listen to the concerns of employees. Even if middle management cannot affect a direct change, he believes it is important that employees need to have an outlet to express their concerns. Fentress agreed with this and felt that middle management should receive training to enhance listening skills in the overall context of providing training for what he termed the “Manager’s Toolkit”.

Chad Fentress began the discussion be noting that because of the 200,000+ employee base of Accenture, the company could not provide live training by members of the compliance department to each employee. To assist in the overall training effort the company created compliance champions within regions. These champions received specialized training and they went out through the organization to supplement the training put on by the compliance department. He concluded by noting that an organization should use its core values as teaching points and if your company’s core values do not lend themselves as teaching points, perhaps they should be revised.

In the area of communication of company values, all panelists agreed that a company must speak with one voice. This core concept needs to be communicated throughout the organization. This concept is not meant as challenge to employee’s personal views or their lifestyle but as a company, it is important to speak as one.

We have previously written extensively regarding “Tone at the Top”. The focus of this panel was that the message must permeate down into the ranks. Any robust compliance program must have all levels of your company engaged. The information presented by these panelists should help you in your company’s middle management level.

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, 2011

The FCPA and Tone at the Top

Both the US Sentencing Guidelines and the Organization for Economic Co-operation and Development (OECD) Good Practice Guidance on Internal Controls, Ethics, and Compliance consider one of the key items for a best practices compliance program to be the appropriate “Tone at the Top.” 

The US Sentencing Guidelines reads:

High-level personnel and substantial authority personnel of the organization shall be knowledgeable about the content and operation of the compliance and ethics program … and shall promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. 

The OECD Good Practices reads 

1. strong, explicit and visible support and commitment from senior management to the company’s internal controls, ethics and compliance programs or measures for preventing and detecting foreign bribery; 

The Foreign Corrupt Practices Act (FCPA) world is riddled with cases where the abject failure of any ethical “Tone at the Top” led to enforcement actions and large monetary settlements. In the two largest monetary settlements of enforcement actions to date, Siemens and Halliburton, for the actions of its former subsidiary KBR, the government specifically noted the companies’ pervasive tolerance for bribery. In the Siemens case, for example, the Securities and Exchange Commission (SEC) noted that the company’s culture “had long been at odds with the FCPA” and was one in which bribery “was tolerated and even rewarded at the highest levels”. Likewise, in the KBR case, the government noted that “tolerance of the offense by substantial authority personnel was pervasive” throughout the organization. 

In addition to the two cases set out above, in a 2003 report, the Commission on Public Trust and Private Enterprise cited a KPMG survey covering selected US industries; found that 37 percent of employees had, in the previous year, observed misconduct that they believed could result in a significant loss of public trust if it were to become known. This same KPMG survey found that employees reported a variety of types of misconduct and that the employees believed this misconduct is caused most often by factors such as indifference and cynicism; pressure to meet schedules; pressure to hit unrealistic earnings goals; a desire to succeed or advance careers; and a lack of knowledge of standards. 

So how can a company overcome these employee attitudes and replace the types of corporate cultures which pervaded at Siemens and KBR and re-set its “Tone at the Top”? In a 2008 speech to the State Bar of Texas Annual Meeting, reprinted in Ethisphere, Larry Thompson, PepsiCo Senior Vice President of Governmental Affairs, General Counsel and Secretary, discussed the work of Professor Lynn Sharp at Harvard. From Professor Sharp’s writings, Mr. Thompson cited five factors which are critical establishing an effective integrity program and to set the right “Tone at the Top”. 

1)      The guiding values of a company must make sense and be clearly communicated.

2)      The company’s leader must be personally committed and willing to take action on the values.

3)      A company’s systems and structures must support its guiding principles.

4)      A company’s values must be integrated into normal channels of management decision making and reflected in the company’s critical decisions.

5)      Managers must be empowered to make ethically sound decisions on a day-to-day basis. 

The subject of management making significant changes in the manner in which a business is run has long been the topic of the business press. Most recently, the current issue of the Harvard Business Review was entitled, “Managing Change: How to do it and When to do it”. In an article entitled, “The Decision-Driven Organization”, it cited the example of Ford Motor Company and its recent business turn around, in explicitly setting out a company’s decision to change a company’s business tone. When Allan Mulally became Chief Executive Officer (CEO) in 2006, he found the company in dire need of a change in business direction. Rather than change the company’s structure and then consider the change which would come thereafter, he made the decision to change the direction of the company and then put the structure in place to facilitate that change. 

In large part the change led by Mulally was based upon the five steps noted above with. Mulally substituting ‘a different way of business’ for ethics, however the message is clear. Just like the change at Ford Motor Company being led by the CEO, the transformation in ethics and compliance must be led by the CEO. Employees take their lead from the very top management of a company. If the CEO takes the opportunity to discuss ethics and compliance at every town hall meeting, in newsletters, posters and other types of communications this message is constantly reinforced.

 It is clear from the Harvard Business Review article that management change can occur. If your company does not have the correct “Tone at the Top” it can make the change. The five points set out by Thompson give a clear path to achieving the right tone to move forward with a FCPA compliance policy. Both the US Sentencing Guidelines and the OECD Good Practices are looking to top management to set a company’s tone for the values of ethics and compliance. But more importantly your employees are too. 

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, 2010