I recently read “War Room: The Legacy of Bill Belichick and the Art of Building the Perfect Team” by Michael Holley which is about Bill Belichick, the rise of the New England Patriots and the sophisticated player evaluation system that Belichick and others installed in New England. The book also talked about Belichick disciples Scott Pioli and Thomas Dimitroff who took this player evaluation system to new General Manager positions at Kansas City and Atlanta respectively. Neither disciple has had the sustained success that Belichick has maintained for a full decade now. In fact Pioli was fired this year from his position after three straight losing seasons in Kansas City. Dimitroff has achieved a bit more success, with Atlanta winning its first playoff game under his regime this year.
One of the things that struck me about the Belichick player evaluation system and how it was used by all three men for their respective teams is that is a building block system. It takes a system and builds that system, building block by building block until the overall system is completed. This is then fine-tuned and updated through continuous monitoring, assessment and review. For the compliance practitioner, I found this approach to have several valuable lessons.
The values of a risk assessment are well known. It is something that should be a part of every compliance program. I recently wrote in praise of the mock audit where an in-house team performs a preliminary assessment of a utility plant to get that facility ready for a more formal federal or state regulatory mandated audit. The concepts of monitoring and reviewing are also well known if often being confused. Monitoring is a commitment to reviewing and detecting compliance programs in real time and then reacting quickly to remediate them. A primary goal of monitoring is to identify and address gaps in your program on a regular and consistent basis. Auditing is a more limited review that targets a specific business component, region or market sector during a particular timeframe in order to uncover and/or evaluate certain risks, particularly as seen in financial records.
However using the Belichick model as a guide, I also think that it also points to less formal, but equally useful reviews of the process and system of compliance. Of course you can take a look and self-assess your overall program, particularly if you benchmark it against the US Sentencing Guidelines, Seven Elements of an Effective Compliance Program or the FCPA Guidance’s Ten Hallmarks of an Effective Compliance Program. So I think you should take the opportunity to perform informal testing throughout the year. My colleague Mary Jones told me that she would occasionally pull third party representative invoices and review them to determine if they were billing as per their contract with Global Industries and whether the descriptions for services raised any red flags. This allowed her to catch any problems early in the cycle but also gave her the chance to informally determine if the training she was putting on was effective or if it needed to be modified in any manner.
Sitting on the flip side of continued updating is how this building block system can help a compliance practitioner when they are faced with what may appear to be an insurmountable compliance related task. I have often heard stories where an Associate General Counsel (AGC) is tasked with putting together a vendor compliance program or other task that simply seems so large it is difficult to even get one’s arms around it before the task is due to be completed. It may be a full policy and procedure update, writing a new set of internal controls or any other task that simply seems monumental.
The Belichick player evaluation system provides a guide which is to construct your overall system, building block by building block. You can think about constructing your compliance program in the same manner. The added benefit to this approach is that comports with what I believe to be one of the key takeaways from the Department of Justice (DOJ)/Securities and Exchange Commission (SEC) FCPA Guidance, that being that a company should assess its risk and then manage those risks, starting with the highest risks and moving on from there. Another way to put it might be construct your compliance program, building block by building block, beginning with the high risk and use that as the foundation to construct your overall program.
Getting back to the AGC tasked with the Supply Chain task, one approach might be to risk rank the vendors based on the following approach:
Government Services Providers – Any vendor who represents your company before a foreign government, such as a freight forwarder, logistics company, import/export services provider or customs broker.
High Risk Supplier – Any supplier who meets one of the following criteria: (A) Is based in or supplies goods/services from a high risk country; (B) Is more of a business partner, similar to a joint venture partner; (C) It has been convicted of, or is alleged to have been involved in, illegal conduct and has failed to undertake effective remedial actions.
Low Risk Supplier – Any supplier who meets the following criteria: (A) Is based in a low risk country where the goods or services are delivered, it has no involvement with any foreign government, government entity or Government Official; or (B) Is subject to the US Foreign Corrupt Practices Act (FCPA) and/or Sarbanes-Oxley (SOX) compliance.
Nominal Risk Supplier – Is a supplier who meets the following criteria: (A) Supplies goods or services which are non-specific; (B) For any particular job or assignment; and (C) The value of each transaction is less than $10,000.
Supplier of General Goods and Services – Is a supplier who: (A) Supplies goods or services which are widely available to the public; and (B) Does not fall under the definition of Minimal Risk Supplier.
Based upon this risk ranking, you can set your compliance process, building block by building block. You start with the highest risk ranking and move down from there. Indeed this is what I believe the FCPA Guidance suggests when it says the following, “Individual companies may have different compliance needs depending on their size and the particular risks associated with their businesses, among other factors. When it comes to compliance, there is no one-size-fits-all program. Thus, the discussion below is meant to provide insight into the aspects of compliance programs that DOJ and SEC assess, recognizing that companies may consider a variety of factors when making their own determination of what is appropriate for their specific business needs. Indeed, small- and medium-size enterprises likely will have different compliance programs from large multi-national corporations”. That means you can use a system like the one I laid out above or come up with your own system but make it one that works for your company and your risk profile.
If you focus on the risks to your company, I think that you can use the model of Bill Belichick and the New England Patriots as a guide. Build from the ground up by assessing your risk and then managing that risk. When you have completed the part of your compliance program which deals with the highest risk that you have assessed move on to the next risk or level of risk and begin the process of constructing a compliance system to assess that level of risk. But do not forget the second part of the Belichick formula. You do not have to wait until an annual assessment to revamp your system. You can take more informal input from a variety of sources to tweak your program and move it forward. Constant evaluation and improvement are the hallmarks of any successful system and you should incorporate these concepts into your compliance program.