Imagine a sales representative sitting in Ankara, or any other foreign capital, at a late night dinner with his agent (third party), the night before a significant tender. In walks a foreign official to join the two. The sales representative clearly witnesses a corrupt scenario, as the foreign official is passing non-public information to the agent, and through some of the comments made by the agent, it is clear to the sales representative that 1) it is now a corrupt transaction involving foreign bribery, as one can deduce that the non-public information relating tomorrow’s tender is not being provided “for free,” and 2) that based on the sales representative awareness, it is clear that his company is going to win the contract for tomorrow’s tender. What does the salesman do? The employer has a very clear compliance program and the sales representative has a significant personal financial upside in winning the tender.
I thought of this scenario as I was reading an article in the MIT Sloan Management Review called “Combining Purpose with Profits.” (Spring, 2014, Birkinshaw, Foss and Lindenberg), which I think does an excellent job at articulating the tension that sales representative faced, as between corporate purpose and individual profit, and in my experience, the resolution of those tensions has dramatic implications for implementing a corporate anti-bribery culture, particularly in an international sales organization. In summary, the article details the strains, as well successful resolution practices, between corporate “pro-social” or “communal” goals, against personal financial gain and reward, which the authors label “hedonic and ”gain” goals. As the authors ask, “is it possible to strive for a higher purpose while also delivering solid profits?”
In my opinion, the relevancy of this article with respect to FCPA compliance, is in the analysis of the inherent tension between the communal goals of maintaining, respecting and adhering to a strict anti-bribery culture, and the personal goals (as in performance compensation) of an individual international sales person. In other words, is there a built in conflict between “pro-social” FCPA compliance programs and individual sales performance in the international marketplace?
While the authors see that antagonism as being managed in a way which can ultimately result in superior financial performance over the long term by embracing pro-social goals, my questions remain:
How does that get resolved at the individual sales level? In other words, how does a sales person in the field, operating far from the C-Suite, who is most likely to encounter a potentially corrupt situation, make decisions relating to communal and hedonic variables?
The Impact of Compensation
Based upon my past experience, and I will blog about this from a number of academic and practical perspectives, much of it comes down to the alignment of compensation to either common/social goals, hedonic/gain goals, or a combination of both. The fine-tuning of that compensation, in my opinion, has very serious implications for the level of anti-bribery behavior at the field level, especially for those who spend a majority of their time overseas.
Sales people behave as they are compensated, or stated more crudely “they eat what they kill. “ For an international sales organization, how that incentive compensation gets distributed from the individual, group and/or corporate level can have significant implications. I strongly believe that in compensating an international sales person, where personal performance “upside” is a high percentage of total compensation, and not tied to any group or corporate “pro-social” goals, that a potential zero-sum game in terms of compliance versus compensation can exist; consequently, where there is a zero-sum game, there is a compliance hazard at the individual level.
The authors provide an “off-ramp” to this hazard, as they lay out the results of their research around goal-framing theory, which provides an academic roadmap for aligning the social/common goals of an organization to the hedonic/gain goals of an executive, so that at the individual level, each player sees the “common“ as in the long term financial interest of the organization, as well as in his or her interest. In other words, as they state, it puts the question “what should I do to make us succeed?” on a higher order than “what should I do to get ahead.”
Can I be a “me” and “us” player?
So, how do these get balanced? As the authors explain, and I concur with my own observations, “if all the talk is about the size of the annual bonus, the gain goal will immediately dominate the others.” Nonetheless, the critical question remains what is the link for the employee to think beyond personal financial compensation? According to the authors, the challenge is for the corporation to make the common or pro-social goals more “salient and meaningful” to the organization, so that an individual can see “how their efforts fit with those of other employees” to fulfill the overall common goals. How? The authors propose that companies should:
· Promote pro-social goals before financial goals in company statements and communication. As an example, the authors recommend that individual rewards should be linked “to the performance of the group, operating unit or company as a whole, rather than to just individual outcomes.” This should be implemented at the annual review process and public acknowledgements.” As the authors state “without such reinforcement, employees will see a disconnect between the demands of their immediate job and the espoused goals of the company, and the pro-social goals will end up being displaced in favor of gain or hedonic goals. “
· Really think about commitment. Often the case is that a “pro-social goal” was “just a set of words-in effect, a veneer on top of a gain driven company.” That is what I call “tick the box” compliance or ethics.
· Motivate employees to consider pro-social goals. From three successful case studies, the authors conclude that it is indeed possible to motivate employees to realize that pro-social goals can also make economic sense by turning those goals into “consistent and committed action.” However, for an additional brilliant case study of how a company put into practice the communal and pro-social goals of compliance, see Compliance Insider, “Integrating Your Compliance Programme into the Variable Compensation of Executives.” (June-August, 2013) While this case study of The Sorin Group was not part of the MIT article, it shows just how a top down AND bottom up approach to compliance can truly align pro-social and hedonic goals, and to optimize win-win choices from the C-Suite to the individual international sales executive.
Put the right support systems in place. As the MIT Sloan case studies and the Sorin Group make clear, a company can put in place supporting systems which, as the Sloan authors state “help them operationalize their pro social goals at different levels, and thereby to make them stick.” How? By incorporating “the pro-social goals into the day-to-day work of employees.”
In addition, as both the MIT article, and the Compliance Insider make clear, there are hazards to this alignment at the CEO level. The MIT authors state that many CEOs simply pay lip-service to pro-social goals as “they know they are supposed to have a corporate vision or purpose, but they secretly think that wordy statements about the purpose of their business are just empty rhetoric. And it doesn’t take long for employees and other observers of the company to figure this out (emphasis added).” The Sorin Group, in their program, took compliance to the top, and the C-Suite incentive compensation plan had a serious compliance component “embedded,” which then cascaded down all the way to the operating divisions.
In conclusion, as the MIT authors state, “corporate executives have to work doubly hard to affirm pro-social goals and to develop systems and structures that reinforce them. “ If you doubt that is possible, a good reading of the Sorin Group case study shows that, as Michelle Bradbury, Chief Compliance Officer, US, Sorin Group, stated “once you start down this path, failure simply isn’t an option.”
It sounds like with a compliance program such as the one Sorin Group has developed, the dinner in Ankara decision is a no brainer!