West Side Story and GSK In China – Board Oversight and Tone in the Middle

Yesterday, I celebrated the anniversary of one of America’s cultural lows. But today, I am extremely pleased to open with exactly the opposite, that being one of America’s greatest gifts to the performing arts. For on this day in 1957, the musical West Side Story premiered on Broadway. There are so many facets to one of the great, even greatest, works of musical theater. Leonard Bernstein penned the score, Stephen Sondheim wrote the lyrics, Jerome Robbins choreographed the dance and the story was by Arthur Laurents, inspired by Romeo and Juliet.

There are many great songs, dances and moments in the play. Most of us (at least of my age) outside New York were introduced to the play via television where it ran for one showing in 1971. The show never toured until the 2000s. When I finally got to see the stage production I was absolutely blown away. I had never seen anything like and it and I will never forget the 5-counter point singing by Tony, Maria, Anita, Bernardo and the Sharks, and Riff and the Jets, as they all anticipate the events to come that night in the song Tonight’s Quintet. The show truly is one of America’s gems.

I thought about the continuing appeal of West Side Story as a musical and why the story continues to resonate with the American people when I continued to consider some of the lessons learned from the GlaxoSmithKline PLC (GSK) matter in China. Today’s areas for reflection should be the role of a company’s Board of Directors and the second is the ‘tone in the middle’. While we have not heard from the GSK Board on this case, it has become clear that the GSK Board was aware of both the anonymous whistleblower allegations and the release of the tape of the GSK China Country Manager and his girlfriend. One of the lessons learned from the GSK scandal is that a Board must absolutely take a more active oversight role not only when specific allegations of bribery and corruption are brought forward but also when companies are operating in high risk environments. Further how can a company move its message of doing business ethically and in compliance down the employee chain.

In a NACD Directorship article, entitled “Corruption in China and Elsewhere Demands Board Oversight”, authors Eric Zwisler and Dean Yoost noted that as “Boards are ultimately responsible for risk oversight” any Board of a company with operations in China “needs to have a clear understanding of its duties and responsibilities under the FCPA and other international laws, such as the U.K. Bribery Act”. Why should China be on the radar of Boards? The authors reported, “20 percent of FCPA enforcement actions in the past five years have involved business conduct in China. The reputational and economic ramifications of misinterpreting these duties and responsibilities can have a long-lasting impact on the economic and reputation of the company.”

The authors understand that corruption can be endemic in China. They wrote, “Local organizations in China are exceedingly adept at appearing compliant while hiding unacceptable business practices. The board should be aware that a well-crafted compliance program must be complemented with a thorough understanding of frontline business practices and constant auditing of actual practices, not just documentation.” Further, “the management cadence of monitoring and auditing should be visible to the board.” All of the foregoing would certainly apply to GSK and its China operations.

Moreover, the FCPA Guidance makes clear that resources and their allocation are an important part of any best practices compliance program. So if that risk is perceived to be high in a country such as China, the Board should follow the prescription in the Guidance, which states “the amount of resources devoted to compliance will depend on the company’s size, complexity, industry, geographical reach, and risks associated with the business. In assessing whether a company has reasonable internal controls, DOJ and SEC typically consider whether the company devoted adequate staffing and resources to the compliance program given the size, structure, and risk profile of the business.”

To help achieve these goals, the authors suggested a list of questions that they believe every director should ask about a company’s business in China.

• How is “tone at the top” established and communicated?
• How are business practice risks assessed?
• Are effective standards, policies and procedures in place to address these risks?
• What procedures are in place to identify and mitigate fraud, theft, and corruption?
• What local training is conducted on business practices and is it effective?
• Are incentives provided to promote the correct behaviors?
• How is the detection of improper behavior monitored and audited?
• How is the effectiveness of the compliance program reviewed and initiated?
• If a problem is identified, how is an independent and thorough investigation assured?

Third parties generally present the most risk under a Foreign Corrupt Practices Act (FCPA) compliance program and are believed (at least anecdotally) to comprise over 90 percent of reported FCPA cases, which subsequently involve the use of third-party intermediaries such as agents or consultants. But this is broader than simply third party agents because any business opportunity in China will require some type of business relationship.

One of the major failings of the GSK Board was that it apparently did not understand the actual business practices that the company was engaging in through its China business unit. While $500MM may not have been a material monetary figure for the Board to consider; the payment of such an amount to any third party or group of third parties, such as Chinese travel agencies, should have been raised to the Board. All of this leads me to believe that the GSK Board was not sufficiently engaged. While one might think a company which had received a $3bn fine and was under a Corporate Integrity Agreement (CIA) for its marketing sins might have sufficient Board attention; perhaps legal marketing had greater Board scrutiny than doing business in compliance with the FCPA or UK Bribery Act. The Board certainly did not seem to understand the potential financial and reputational impact of a bribery and corruption matter arising in China. Perhaps they do now but, for the rest of us, I think the clear lesson to be learned is that a Board must increase oversight of its China operations from the anti-corruption perspective.

GSK Chief Executive Officer (CEO) Sir Andrew Witty has certainly tried to say all of the right things during the GSK imbroglio on China. But did that message really get down into to the troops at GSK China? Moreover, did that message even get to middle management, such as the GSK leadership in China? Apparently not so, one of the lessons learned is moving the Olympian Pronouncements of Sir Andrew down to lower levels on his company. Just how important is “Tone at the Top”? Conversely, what does it say to middle management when upper management practices the age-old parental line of “Don’t do as I do; Do as I say”? In his article entitled, “Ethics and the Middle Manager: Creating “Tone in The Middle” Kirk O. Hanson, listed eight specific actions that top executives could engage in which demonstrate a company’s and their personnel’s commitment to ethics and compliance. The actions he listed were:

1. Top executives must themselves exhibit all the “tone at the top” behaviors, including acting ethically, talking frequently about the organization’s values and ethics, and supporting the organization’s and individual employee’s adherence to the values.
2. Top executives must explicitly ask middle managers what dilemmas arise in implementing the ethical commitments of the organization in the work of that group.
3. Top executives must give general guidance about how values apply to those specific dilemmas.
4. Top executives must explicitly delegate resolution of those dilemmas to the middle managers.
5. Top executives must make it clear to middle managers that their ethical performance is being watched as closely as their financial performance.
6. Top executives must make ethical competence and commitment of middle managers a part of their performance evaluation.
7. The organization must provide opportunities for middle managers to work with peers on resolving the hard cases.
8. Top executives must be available to the middle managers to discuss/coach/resolve the hardest cases.

What about at the bottom, as in remember those China unit employees who claimed they were owed bonuses because their bosses had instructed them to pay bribes? Well if your management instructs you to pay bribes that is a very different problem. But if your company’s issue is how to move the message of compliance down to the bottom, Dawn Lomer, Managing Editor at i-Sight Software, provided some concrete suggestions in an article in the SCCE magazine, entitled “An ethical corporate culture goes beyond the code”, where she wrote that that the unofficial message which a company sends to its employees “is just as powerful – if not more powerful – than any messages carried in the code of conduct.” Lomer suggested that a company use “unofficial channels” by which your company can convey and communicate its message regarding doing business in an ethical manner and “influence employee behavior across the board.” Her suggestions were:

1. Reward for Integrity – Lomer writes that the key is to reward employees for doing business in an ethical manner and that such an action “sends a powerful message without saying a word.”
2. The three-second ethics rule – It is important that senior management not only consistently drives home the message of doing business ethically but they should communicate that message in a short, clear values statement.
3. Environmental cues – Simply the idea that a company is providing oversight on doing business ethically can be enough to modify employee behavior.
4. Control the images – It is not all about winning but conducting business, as it should be done.
5. Align Messages – you should think about the totality of the messages that your company is sending out to its employees regarding doing business and make sure that all these messages are aligned in a way that makes clear your ethical corporate culture clear. 

The GSK case will be in the public eye for many months to come. Both the UK Serious Fraud Office (SFO) and US authorities have open investigations into the company. Just as the five counter-point singing or the rooftop symphonic dance scene to the song America demonstrates the best of that art form; you can draw lessons from GSK’s miss-steps in China now for implementing or enhancing your anti-corruption compliance program going forward now.

And while you are ending your week of considering GSK and its lessons learned for your compliance program, crank up your speakers to 11 and listen to some five counter-point singing the movie version of the Tonight Quintet, by clicking 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, 2014

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

(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