Yesterday, November 11th, was the 100thanniversary of the end of World War I (WWI). While any retrospective of the end of this catastrophic loss of over 20 million lives would probably be insufficient, it is appropriate to reflect on what the conflict wrought. In addition to the lives lost in WWI, it directly led to World War II (WWII) with over 40 million in losses of life. When you add in the interregnum of conflicts in the interwar years of 1918 to 1939, then consider the post-WWII conflicts all the way up to the fall of the Berlin Wall in 1989, you see the scope of what this cataclysmic conflict unleashed in ways seen, foreseen and unseen. All of these events helped lead to the upsurge in the fight against bribery and corruption.
The driving force in the fight against the worldwide scourge of bribery and corruption can now be seen as an outgrowth of the forces unleashed by WWI, when in its immediate aftermath, the winning powers divided up the Middle East into the lines which still in place today. For the fight against corruption leads in the fight against terrorism, a by-product of hobbling of worldwide economic growth by the nefarious nature of bribery and corruption on the international economy and robust economic growth.
Today I begin a five-part podcast series on ethics, compliance and independent integrity monitoring with Affiliated Monitors, Inc., (AMI) who is the sponsor of the series. It focuses on the international aspects of compliance and anti-corruption enforcement. It not only reminds everyone that not only has the US led the fight against bribery and corruption through the passage and robust enforcement of the Foreign Corrupt Practices Act (FCPA) but also through its leadership in mandating and then expanding compliance. Beginning with the US Sentencing Guidelines in 1992 and moving forward into the past decade of the doing of compliance as has been required by the Department of Justice (DOJ) and Securities and Exchange Commission. Starting as early as 1998, the DOJ began articulating what should constitute a best practices compliance program.
Through enforcement actions, Opinion Releases and most significantly in the 2012 FCPA Guidance with its Ten Hallmarks of an Effective Compliance Program; the DOJ and SEC have led the conversation on compliance programs. That leadership has continued through speeches, presentations, the 2016 FCPA Pilot Program, the 2017 Evaluation of Corporate Compliance Programs, with its theme of operationalizing compliance and the FCPA Corporate Enforcement Program and its continued evolution in 2018. The DOJ has continued to emphasize corporate compliance programs as a key step in the international fight against bribery and corruption.
This is where you and I come in. While the DOJ and SEC have led the implementation and furthering of compliance programs as a legal requirement, it is compliance professionals who have led the continued evolution of compliance programs inside corporations. Compliance is a service within your organization, yet under the operationalized model, compliance is a profit generator for a business. Just as law departments generate business by doing transactions, compliance can be viewed as delivering services not only to the business units but also third parties with whom the company does business. This means not only traditional transaction partners such as sales agents, representatives and distributors but also joint venture (JV) partners, teaming partners and others. Compliance can deliver compliance related services to these third parties as a profit center.
Doing compliance means doing business. There are multiple types of risks in a business; operational, regulatory and reputational, just to name a few. The effort to measure and then manage each of these risks can be led by the compliance function. The more efficiently these risks are measured (i.e. assessed) the more easily and efficiently these risks can be managed. This means that the business is not faced with a binary 1/0 or Go/No Go decision on risk but if compliance moved into measuring and the managing risk through the operationalization of compliance into the business unit; the process would help you to do business more efficiently and with greater profitability.
Compliance is a platform to make your company not only a better run organization but can also demonstrate the thoughtfulness and effectiveness of your compliance program should a regulator ever come knocking. This is because if you operationalize compliance into the fabric of your organization, compliance internal controls will touch every aspect of the employment experience in ways that are not obtrusive and will not slow down what you are trying to achieve.
Take compliance as a platform in Human Resources (HR). At every point in talent management, HR can insert compliance into the cycle. Those points include the pre-employment interviews and screening, the interview process with progressively higher senior management, the initial on-boarding process, the quarterly, semi-annual or annual performance review, annual bonus reviews, assessments and awards, promotions and even exiting of an employee. The platform of compliance can record each of these touch points and you now have an internal control burned into HR which is a compliance internal control. Further, if there is any attempt to circumvent or over-ride one of these HR internal controls involving the hiring of a son or daughter of a foreign governmental official, a red flag can be raised and sent to the compliance function for further review.
Compliance is a marketing platform. Some attention has been paid to the use of compliance as a recruiting and hiring tool for millennials. One of the facts of their generation is they want to work at companies which are seen to be doing business ethically, all the while making money. Moreover, as Ethisphere demonstrates annually with its World’s Most Ethical Company awards, businesses which win those awards, on average, exceed the New York Stock Exchange (NYSE) blue chip average for profitability. Earlier this month, a new academic paper demonstrated the financial benefits of a robust internal whistleblower program. Even more than the dollar return, a robust compliance program demonstrates a company’s commitment to institutional justice and institutional fairness.
Compliance embraces public advocacy. The Volkswagen (VW) emissions-testing scandal is one of the largest corporate scandals of the past few years. One thing that makes the VW scandal so unique is that it is one of the few scandals where a company’s actions were so transgressive they damaged the reputations of its competitors. As a response to the VW scandal, Ulrich Grillo, President of the German industry association BDI, recognized that compliance is the answer. He urged companies to check their management processes, including compliance and control systems. He suggested one of the key questions to ask should be “Are we doing everything right?” When you have the President of a national industrial association saying compliance is the answer, you need to sit up and take notice.
As we move from the legal based model of compliance to the more mature understandings that compliance may best well be thought of as a business process, we begin to see how compliance can fit seamlessly into a business. This integration will allow a business to move more nimbly and with greater acumen. Compliance has been driven largely by legal requirements. The enactment of the FCPA in 1977, the implementation of the 1992 US Sentencing Guidelines, the passage of Sarbanes-Oxley (SOX) in 2002 and Dodd-Frank in 2010 have all led to development and innovation in compliance. The DOJ and SEC have continually challenged companies to move the bar of compliance best practices forward again with the emphasis on operationalization of compliance. This development will continue to advance the corporate compliance function. When the regulators come to recognize and indeed advocate the business application of a legal solution, that solution will not go away but will continue to grow.
While today is November 12th, it is still appropriate for you to consider the veterans we honor. At one point, my father and all my uncles, who all had served our country were still alive. I am down to one uncle now so I think I will take the time to call him up and thank him for his service. My family’s experience is probably not uncommon, as you may have had uncles, aunts or other family members who served. Those numbers may be dwindling, so think about calling them up to say thanks. You might also reflect on what was unleashed on the world some 100 years ago on November 11th, 1918.
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