Monthly Archives: May 2015

New Compliance Surveys: “The Answers Are Not Pretty.”

New Compliance Surveys: “The Answers Are Not Pretty.”

While there is no shortage of compliance and ethics polls/surveys which populate the newsfeeds, there are two that recently caught my attention, both of which point to the same result, as well stated in The Street, The Bull and The Crisis (published by The University of Notre Dame and Labaton Sucharow LLP, link here): “the answers are not pretty.”  The other poll, more informal, comes from a recent webinar organized by The Network Inc (link here for the recording and powerpoint), where I was a co-presenter, and where over three hundred participants from the compliance community responded to polls that were presented throughout the webinar. Here is one to start the conversation:

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That’s right, 57% of respondents shared that their incentive packages were developed independently of compliance programs. The ramifications of that result are disturbing to say the least, as demonstrating that compliance and compensation remain in organizational silos. What are the consequences of those silos? Well, toggling over to Notre Dame/Labaton work, where  over 1,200 professionals were surveyed in the financial services sector, their research found that “nearly one-third of respondents (32%) believe compensation structures or bonus plans in place at their company could incentivize employees to compromise ethics or violate the law.”

It all goes back to the zero-sum crossroad, where front-line personnel ponder the spoken messages of compliance and the unspoken “win above all else” incentive plans. Where those two are developed without coordination and alignment, those at the front-lines of international business will be left to question “what does management really want, compliance or sales success, as I can’t deliver both.” Furthermore, while the Notre Dame/Laboton survey is specific to financial services, readers from other market sectors should not dismiss their research, especially where they share that “23% of those earning $500,000 or more per year report experiencing pressure to compromise (ethics), compared with 9% of those earning less than $50,000.” Again, it returns to the question I often ask: Why are those who are well compensated and educated risking their own liberty (as I did), to engage in corruption, even in what we think of as petty bribery?

Under the “it is worse than we thought” category,  the Notre Dame survey finds, “nearly one in five respondents-19%- feel misconduct is part of the recipe for success, nearly double the 11% who remarked as such in 2012.”

Perhaps part of the problem (and hence, the solution) is communication, where compliance personnel need to better understand the corruption risks that front-line teams face in their work. Speaking to this issue, The Network polled webinar participants as to their level of internal communication. Only 12% responded that they “regularly ask front-line international business teams about the corruption risk they face.” Yet another reason why, as the Notre Dame report reveals, “a large number of individuals (are) in the midst of-and losing-an ethical battle of the highest order”

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You may ask, what is the connection between communication and losing an ethical battle? It is a multi-dimensional dilemma, but one which presents tremendous opportunities. First, compliance personnel can’t fix or address what they do not know, and as long as field personnel are not part of the compliance communication continuum (did I just invent a new compliance acronym as CCC?), they will continue to make compliance and ethical decisions “on the fly.”  As I often share, when it comes to anti-bribery compliance, the distance between where rules, policies and procedures are promulgated could not be further from the “sharp end” of international business, where they must take hold. How to bring those two distant points together can be as simple as bringing overseas teams into the compliance suite and asking “what are the corruption risks you face, the pressures and temptations you confront, and what kind of  real-world tools need to be calibrated to help you manage and eliminate that risk.”

As Scott Killingsworth (Partner, Bryan Cave LLP) well states in an Ethikos article (link here), “ethics and compliance professionals cannot hope to be effective in eradicating corruption if we lack a clear understanding, not only of the pressures and temptations involved, but also what actually happens in the head of the salesperson at the crossroads.” As The Network polling demonstrates, in many organizations, the conversation has not even started, which then perpetuates miscommunication, false assumptions and miscalculation, or as Killingsworth better states “irrational calculations.” Furthermore, when compliance personnel start listening and engaging with front-line teams, a sign of good news is when they are upset by what they hear. Why? Because when field teams “true up” and start sharing what is happening on the front-lines, then compliance and business personnel can work together to “fix what they know,” and to un-silo those parts of the organization that perhaps might be delivering mixed messages.

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The Best Compliance Reads Are Not About Compliance

The Best Compliance Reads Are Not About Compliance

Lately, during a number of webinars and speaking engagements where I frequently cite the work of what I consider to be thought leaders in anti-bribery compliance, attendees have asked me afterwards “can you send me a copy of that article,” or “who was the author of that book?”etc. However, what is interesting is that the  papers and books which I reference, and which I think of as extremely relevant to anti-bribery compliance, are not about compliance. They address behaviors, business strategy  and the consequences of corruption, among other relevant issues, but they are not stand-alone compliance thought pieces. Yet they address issues that I consider to be extremely important and pertinent to those who operate at the front-lines of international business and to those executives who are tasked with supporting them to manage corruption risk.

So, here is my list, which I will continue to update on my newly launched e-mail subscription service (see right column for sign up). To be fair and consistent, I have included links to the author’s website where they exist, or otherwise to the Amazon purchase link. In the case of papers, I have either linked  them on this site for download, or you can e-mail me for copies at [email protected]

Finally, I have had the pleasure to engage with almost all of these authors, either through e-mail, video and for many, face to face. Thus, I consider myself extremely fortunate and honored to be in a position where I can not only read these works, but to speak and correspond with these thought leaders on an individual basis, as allowing me to absorb more of their perspective and experience. Also, I have tried to do my best to annotate correctly, so any errors are my own and feel free to e-mail me with corrections.

Chayes, Sarah. Thieves of State, Why Corruption Threatens Global Security. (New York: WW. Norton & Company, 2015) Not only did I have a chance to interview Ms. Chayes for a two-part article (here and here), but I also had the pleasure to hear her speak at Yale University. For those on the front lines who think of small bribes (as I once did) as a win-win at the field level, read this book. The illusion that bribery has no victims is replaced by the detailed description of criminal enterprises  “masquerading” as governing regimes and small bribes are nothing but the tributary waters into that ecosystem. Ms. Chayes does not share her perspective from the comfortable quarters of the corporate “ivory tower”,  but rather from a “boots on the ground” experience in some of the highest-risk regions that we might think of in today’s security environment, including Afghanistan. As Ms. Chayes shares, that experience “taught me a great deal about systemic corruption and all the reasons that can be dreamed up for ignoring it.” Author’s site here. 

Feinstein, Andrew. The Shadow World: Inside the Global Arms Trade. (London: Penguin Books, 2011) Mr. Feinstein’s Shadow World is the tour-de-force on corruption into the global arms business and like Ms. Chayes, this work demonstrates the awful consequences of bribery upon societies and individuals. It is a sad but true treatise of how corruption went unchecked for so long, with a story that continues to unfold. The research and detail in TSW is extensive, impressive and leaves no stone unturned in describing the proliferation of  corruption and secrecy in the arms trade. As Mr. Feinstein states in his introduction “the trade in weapons  is a parallel world of money, corruption, deceit and death. It operates according to its own rules, largely unscrutinized, bringing enormous benefits to the chosen few, and suffering and immiseration to millions.” While that intro might sound like quite a generality, the next 531 pages address the global details which support those reflections.  My question remains, is it still happening? Author’s site here. 

Gino, Francesca. Sidetracked, Why Our Decisions Get Derailed and How We Can Stick to the Plan. (Boston:  Harvard Business School Publishing, 2013) Full disclosure: I wave this book around at every speaking engagement. Literally!  When combined with “Self Serving Altruism? When Unethical Actions that Benefit Others Do Not Trigger Guilt,” Working Paper with Ayal, Shahar and Ariely, Dan. (Boston: Harvard Business School, 2012), you now have a behavioral road map into the world of corruption. If you want to know why well educated and compensated employees (as I was), would make ethical choices that involve real world risk (as I did), this book and the referenced paper are must reads. The implications of Professor Gino’s work upon the world of anti-bribery compliance are nothing less than profound, as she shares “the line between what is right and wrong blurs, especially when we are going after short-term rewards, such as a promotion or financial benefit” as but one example. Furthermore, conclusions such as those are backed up by extensive behavioral research, of which Professor Gino shares the results and methodologies within each chapter. As Professor Gino states, and I use her work as an academic pivot to my own experience “subtle factors can lead us astray,” but in combination, we can, at the end, get totally “Sidetracked.” If you want to better understand how these factors interplay with  rationalization and justification at the front-lines of international sales, this is your book! Author’s site here.

If you would like a copy of the Self-Serving Altruism working paper, feel free to e-mail me at [email protected]

Kennedy, Alan and Thomas E. The Alpha Strategies. (Lexington, Xlibris Corporation, 2013. As I often ask, can business strategy in itself be a potential red-flag for corruption? In this work, Alan and Thomas Kennedy take strategy out of the organizational silo and look at how it impacts an organization. See here for my complete review of this very engaging book which has great relevancy to anti-bribery compliance, which from my perspective, starts at the strategic level. Do you think that risk and growth should be treated separately? Well, as the authors state, The Alpha Strategy, as their structural and process paradigm “enables boards, management, and employees to understand and agree upon current strategy.” And the reason that is so important, is that if you don’t understand current strategy, how can you shape future strategy? Authors site here.

Silverstein, Ken. The Secret World of Oil. (London: Verso Books, 2014) I really enjoyed this book, as I read and reviewed it (here) prior to a speaking engagement at an Oil and Gas Conference in Houston. As Mr. Silverstein shares in his introduction, a  “constant in the energy business is corruption,” adding that “two central figures in this secret world are fixers and traders.” As with Mr. Feinstein’s book, The Secret World of Oil proves to be a valuable window into the front-lines, and as Mr. Silverstein well states “the lines of US anticorruption laws are drawn very strictly, but oil company executives are sent overseas to make deals, and they are measured by performance.” Indeed, and that reflection goes back to my front-line dilemma where field personnel ponder “what does management really want, compliance or sales, as I can’t deliver both.”  As a Chevron executive shared with Mr. Silverstein “You’re supposed to be clean, but you’re also supposed to create business. That leads to a tension.” Amazon site here.

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A few papers worth a shout out as well.

Appleton, Robert, M. “The Incidents of Foreign Bribery Remain Largely The Same. A circumstance unlikely to change.”  (White-Collar Crime Committee Newsletter Winter Edition, March 2. 2015). Link here to the entire work.  As to Mr. Appleton, I had the pleasure of recently meeting him, but this was not the first time we crossed paths.  In 2006, he was the Chairman of the United Nations Procurement Task Force – an ad hoc investigation unit, created within the UN by the General Assembly to root out fraud and corruption in the UN, all of its peacekeeping missions around the world and its overseas offices. The PTF was part of OIOS, the Office of Internal Oversight Services – and Mr. Appleton reported directly to the Under Secretary General for OIOS, Ms. Inga Britt Ahlenius. The PTF operated between 2006 and the end of 2008 –when its funding expired. It was during this time period that Mr. Appleton targeted me as the subject of an internal UN fraud investigation, which ultimately led to my dismissal from my former employer to be followed by my Justice Department proffer and years of cooperation.

When I read his interview with Sam Rubenfeld in the Wall Street Journal (link here), I dowloaded his paper which was referenced, relating to the OECD Bribery Report. Mr. Appleton brings a unique view to the  field of anti-corruption which is quite unprecedented. In addition to Mr. Appleton’s  UN experience (including Special Counsel and then Chief Investigations Counsel to Paul Volcker, Mark Pieth and Richard Goldstone as part of the UN Iraqi Oil for Food Programme Scandal), he was a Supervisory Assistant United States Attorney for thirteen years, Director of Investigations & Senior Legal Counsel for The Global Fund to Fight AIDS, Tuberculosis & Malaria for over four years,  and now Partner at Day Pitney LLP.

As to the OECD Bribery Report, Mr. Appleton raises a serious issue with respect to the methodology in that the results and conclusions are only the collective summation of 427 reported enforcement actions. In other words, it leaves us with the issue of “we don’t know what we don’t know.” Indeed, as Mr. Appleton states, reflecting on his own experience, the conclusions of the OECD Report “under-report the state of corruption in developing economies, and under emphasize the extensive presence of corruption in public contracting worldwide.” As Mr. Appleton argues from his own experience with over 600 forensic investigations “public bribery remains ubiquitous, and remains largely unaddressed.” He goes onto list a number of categories as to why the OECD Report might not be an accurate reflection of bribery activity “because no prosecution was pursued and no “case” was successfully made.” The reasons as to why bribery remains “unaddressed” are compelling as he describes how what we might think of a “culture of corruption” in the developing world is nothing less than “customary practice. The reason which gave me reason for pause was Mr. Appleton’s experience of how, when an “investigation reaches closer to the party in power, or in the higher ranks of a government, the less likely it is to be pursued by the host government.”

Miles, Roger. Dr Roger Miles is a Behavioural Risk Lead  for Thomson Reuters and recently published “Tracing the True Origins of Bad Behavior: New Ways to Predict Conduct Risk Exposure.” (Thomson Reuters, April 2015) When I am not waiving Professor Gino’s Sidetracked I am  quoting Dr. Miles who has provided me with a plethora of “go-to” lines. My favorite is “the most powerful predictor for bad behavior turns out to be when people won’t talk about bad behavior.” From there I turn to Dr. Miles’ WAH as to “what actually happens.” While the field of anti-bribery compliance presents no shortage of the “formal organization” and the essential structures of compliance, it does not address that WAH which reflects on Dr. Miles’ statement that “we can either cling to the comforting, but wholly misguided, view that published rules and codes are effective ways to curb human bad behavior, or we can work with real human behavior to develop new forms of risk control that don’t rely on systems and false proxy measures of performance.” His description of local influencers, what he calls “a person’s immediate work group,” which “defy all interventions from corporate control structures,” is a must read for those who want a true understanding of  how well trained, educated and compensated employees can easily “go local” at the front-lines of international business.

Interested? I hope so, and feel free to e-mail me at [email protected] for the entire paper.

Finally, the Harvard Business Review,  April 2015,  has a series of articles under the Heading of Inspire Your Sales Force.  Perhaps more than any other work on the impact of incentives upon behaviors, these three articles have tremendous relevancy, and will certainly be the subject of future blogs. The first,  How to Really Motivate Salespeople by Doug Chung states that  “studies of personality type show that salespeople typically have a larger appetite for risk than other worker,” and it talks about how that intersects with quotas, forecasts and the risk of the sales cycle. While I list these articles in order of appearance, Mr. Chung’s is probably the most significant piece of the three in the context of anti-bribery compliance.

Who’s Your Most Valuable Salesperson by V. Kumar, Sarang Sunder and Robert R. Leone addresses forecasting and performance. As the Authors share,  salespeople “respond quickly and enthusiastically to monetary rewards and recognition.” The final of the three is The Right Way to Use Compensation by Mark Roberge, which addresses strategy. As Mr. Roberge well states, compensation “is the most powerful tool you have” when it comes to shaping  and motivating behaviors. In his conclusion, Mr. Roberge states “the sales compensation plan should reflect the type of business you’re in and the stage of business you’re at,” to which I would add “and calibrated to the risk of the region in which you operate.”

I do have a limited number of pdfs for these three  articles which I can share, so if interested in the full version please e-mail me at [email protected] If you are an HBR hard copy or digital subscriber, a search on any of these titles will bring you to the link.

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What does anticorruption have to do with CSR?

What does anticorruption have to do with CSR?

Today’s Q & A is with Alison Taylor.

Hi Alison, thank you for participating in today’s Q & A. While we have had the opportunity to collaborate on a number of guest pieces, including Reconciling Sales Strategy with FCPA Compliance (link here), perhaps you can share some of your background and perspective with our readers.

AT: Thank you Richard. I have a background in corporate investigations and intelligence, including anti-corruption consulting and compliance training. I spent 11 years at Control Risks as a Senior Managing Director, focusing on risk management, market entry, due diligence, stakeholder mapping and corporate intelligence. More recently I became interested in the gap between policies and procedures – how things look on paper compared to how people actually behave. I studied organizational psychology at Columbia, and used the concepts of organizational psychology to look at the challenges in embedding risk and anti-corruption in a company’s culture. I have found that a focus on human behavior, group dynamics and social relationships is hugely valuable in understanding what makes compliance programs more or less effective. The area tends to be neglected, as it is difficult to quantify, measure and build a process around. But understanding what really motivates people and what they really care about is crucial if we want to address the corruption challenge. I have recently moved to the world of sustainability and CSR, as I think company’s ethics and corruption challenges need to be addressed and framed in terms of a wider perspective on mission, strategy, leadership and culture. Some of my work is here  and here . Also, here is my Linkedin profile if someone would like to contact me.

Thank you Alison, so, what does the anti-corruption world have to learn from sustainability and CSR? And for all who might be “afraid to ask,” what does CSR mean, beyond the acronym.

AT: CSR stands for ‘corporate social responsibility’. The term is bandied around a lot, but involves thinking about the way your business does business, going beyond the idea of compliance and not breaking the law, and considering the spirit of the law, ethical norms, and the consequences of your business activities across all stakeholders. The term is often used interchangeably with sustainability, showing that there is a need for further definition in the field. Sustainability is often associated with environmental ‘green’ initiatives, but is in fact about running your business with a long term view, about protecting the needs of future generations, and about bringing social and governance as well as environmental concerns to the forefront of managing a business.

As a field, CSR and sustainability are still very young, and are often criticized for being vague, and ill-defined. However, we only need to open a newspaper to see that sustainability is the single biggest issue for business leaders today. Whether we are thinking about future business models for the traditional oil and gas industry, human rights abuses in the supply chain, managing the environmental impacts of your business, or providing access to energy and health services for people that have historically lacked both, there is no doubt that sustainability is here to stay. It is the single most effective way to reduce reputational risk, but it also makes employees happier and more productive. There is a growing body of research showing that it improves corporate financial performance over the long term. It also suggests a fundamental transformation of a company’s relationships with all its stakeholders, not just its customers, suppliers and distributors. It is a new model of how business fits into society, and there are strong grounds for thinking that it is a fundamental basis for future commercial success.

Thank you, but where does that intersect with anti-corruption efforts?

AT:  The anti-corruption field is also evolving fast, driven primarily by enormous new media and public interest in issues such as money laundering through property, the theft of state assets by kleptocrats, and offshore ownership structures facilitating organized crime and tax evasion. However, corporate responses to anti-corruption have so far remained overwhelmingly narrow and process-driven. There are entire conferences dedicated to the nuances of niche areas like gifts and entertainment policy and whistleblowing lines. There is a sense in which the legal frameworks for anti-corruption, which have driven an entire industry of compliance program design, are meaning that companies miss the wood for the trees.

I think that speaks to one of my favorite “go-to” Alison Taylor quotes that “compliance needs to be more than a bolt on set of rules and procedures.” Correct?

AT: I am not saying that the internal compliance approach is misguided, as in the right hands it can clearly reduce a company’s risk and drive better employee behavior. However, process is no match for organizational culture. Too often, companies are putting in place policies and procedures that forbid the payment of bribes, at the same time as incentivizing sales teams to take immense risks to meet punishing sales targets. Or, they are entering markets with high integrity risk, and not factoring this into their growth forecasts. Or, they are encouraging leaders not to ask penetrating questions about how these forecasts are being met, in case they lose the opportunity to plausibly deny any involvement in wrongdoing. In these circumstances, employees will make trade offs about whether a company’s commercial or ethical goals are more important.

Well said Alison. As I have often asked, when those stretch goals are reached in low integrity regions, is it all “high fives” in the C-Suite and Board Room, or is someone asking “how did we get there.” But, as you have said, if the current compliance models are not working, and we only need to look at the enforcement news streams to see that, what are the alternatives?

AT: All of this means that companies need to take a more holistic approach to anti-corruption, transparency and governance, and to ask tough questions about the implications of their entire business model. I have recently completed research for a thesis in which I interviewed 23 prominent anti-corruption experts. They shared my view that companies with market leading approaches to anti-corruption are also the companies that respect human rights, that favor transparency even if it leads to short term difficulties, and that limit their environmental impact. Because none of these things are fundamentally about compliance processes, reporting or gaming the system to make things look OK, while still doing business in the same way. They require a new approach to doing business, and one that takes account of group behavior, norms, and incentives.

The financial crisis demonstrated clearly that battalions of lawyers and compliance officers could not control pathological risk taking behavior on the trading floor. This is a question of status, culture, and what kind of behavior gets rewarded. This says to me that embedding anti-corruption programs within a wider culture of sustainability and ethics makes sense. Compliance teams need to be empowered to move beyond tick box solutions, but companies also need to consider the needs of their stakeholders, the structure of their supply chain and the social risk dimension more broadly. By considering all these things from a sustainability perspective, it will be easier to fight corruption. If your biggest supplier is paying kickbacks to your procurement team, it is probably not putting in place protections for workers’ human rights, either. If your community engagement strategy is focused on getting benefits to the people that need them, and not just awarding contracts to powerful local businesses, it is less likely that you will have a negative impact on your surrounding environment.

So, how does this circle back to sustainability?

AT: Sustainability issues tend to sit within CSR departments, and anti-corruption is the responsibility of the legal and compliance team. These teams don’t always speak the same language. But there is a high correlation between success in sustainability and in ethics and anti-corruption. Companies that consider anti-corruption not in terms of ticking the box and evading legal scrutiny, but rather in terms of whether their businesses can grow and thrive sustainably in their surrounding environments, will be much more successful, and can even reduce costs in the process. We need to bring these conversations closer together.

The other issue is that people aren’t particularly influenced or inspired by a set of rules telling them what they shouldn’t do. Negative, risk-based cues just aren’t inspiring. But a company that is genuinely focused on sustainability, that considers its social relationships and its reputation, is inspiring. To behave well when no one is watching, because it is the right thing to do – that’s a sustainable, ethical culture. Right now it is still a very innovative and cutting edge approach. But I am very confident that it is key to future commercial success, to employee engagement, and to operating ethically and effectively.

Thank you Alison, and I look forward to more of your contributions. 

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