Innovating In Compliance To Create Shared Stakeholder Value

by Thomas Fox

7K0A0223Mercifully, the season is over for the Houston Astros. To say that the 2013 Astros will become the poster child for abysmal-ness would be to insult poster children. After all, the owner designed the team to lose so that he could make more money. By cutting the payroll down to almost $10MM, he guaranteed the Astros would be one of the worst teams of all-time. Congratulations Astros management, you succeeded. The Astros assured their place in glory by breaking the record for the most strikeouts by one team in one season; breaking previous the mark of 1,529 in 2010 set by the Arizona Diamondbacks with a total of 1,530 this year. Congratulations Astros owner, Jim Crane on continuing to use the backs of the former Astros fan base to be the most profitable team of all-time!

I thought about the opposite of Jim Crane and his dive to the bottom when I read an article in the Harvard Business Review (HBR), entitled “Innovating for Shareholder Value”, where authors Marc Pfitzer, Valerie Bockstette and Mike Stamp looked at businesses which innovated to meet their stakeholders needs and build a profitable enterprise. While the authors focused more clearly on businesses that design and implement initiatives which deliver both social and business benefits, it became clear to me that the solutions which the authors proposed would be very useful to the compliance practitioner in both designing and implementing a compliance program. So, adapting the authors five mutually reinforcing elements to create a more profitable enterprise from social issues to ethics and compliance, I present the following approach.

Embedding the Purpose

While it may be difficult for a company to define a social purpose that it wishes in engage in, it should not be difficult for a company to define its goals in the compliance arena. Simply put, a company needs to do business in compliance with anti-corruption legislations such as the Foreign Corrupt Practices Act (FCPA) or anti-bribery laws such as the UK Bribery Act through a best practices compliance program. I believe that by doing so a company will move towards the pursuit of the shared value of doing business ethically and in compliance with such laws. Ultimately it all starts at the top of an organization because resources, both human and financial, will be required to channel the purposes of compliance throughout an organization. This means that compliance begins with the board of directors and senior executives setting the proper tone for the rest of the company. As managers and employees take their cues from these corporate leaders, it is imperative that companies demonstrate their commitment from such senior management and their leaders.

Defining the Need

The need to do business ethically and in compliance is well-known. However, the key is that each company assesses and manages its risks. The FCPA Guidance makes clear that a risk assessment is the cornerstone of any FCPA compliance program. The Guidance states, “One-size-fits-all compliance programs are generally ill-conceived and ineffective because resources inevitably are spread too thin, with too much focus on low risk markets and transactions to the detriment of high-risk areas. Devoting a disproportionate amount of time policing modest entertainment and gift-giving instead of focusing on large government bids, questionable payments to third-party consultants, or excessive discounts to resellers and distributors may indicate that a company’s compliance program is ineffective.” The authors also posit that you may wish to achieve an equally comprehensive view of the problem by looking at the people affected and the barriers to setting up and implementing such a program in your company. They go on to state that “Such knowledge provides the basis for anticipating resource requirements, developing the business case, and identifying the necessary execution capabilities inside and outside the company.”

How Do You Manage Your Risk?

One of the blight’s of a Chief Compliance Officer’s (CCO’s) existence is the perception that there is no measurable Return on Investment (ROI) for a compliance program. The same is often enquired of a corporate legal department, which handles the contracts for all of a company’s business. But I believe that for compliance the perception is wrong. The view should be – how does compliance help a company manage its risk? Every transaction has commercial risk. But dealings with foreign government officials and state owned enterprises bring the additional risk of the FCPA. Moreover, every country has its set of anti-corruption and anti-bribery laws which must be followed. I cannot emphasis this final point too much, particularly after what has happened over the past three months in China. Over 20 western companies have announced they are internally investigating bribery and corruption or have been ‘shocked’ to hear their company’s name announced by Chinese regulatory authorities.

Create the Optimal Innovative Structure

Here the message is that compliance needs to work with its business units to help to integrate the compliance function into the decision making process. The authors suggest the three following components: (1) that compliance has a clear purpose; (2) that there are mutual understandings as to the rights and obligations of both the compliance function and the business unit; and (3) this leads to a strong inter-relationship between the two. This requires the compliance function to understand the business unit function and structure. I believe that risk assessment is a key tool here to help compliance understand not only the product and service offerings but the market as well. However a risk assessment still requires you to create an appropriate compliance program for your company. You need to manage your risks going forward.

Co-Creating with External Stakeholders

This is certainly one area that my Astros completely fail to consider – external stakeholders. Apparently the Astros are only concerned about being the most profitable team of all time by out losing every other team in Major League Baseball (MLB). But fortunately most corporations understand they do not function in a vacuum but in conjunction with others. Those include shareholders, employees, third parties, customers and, I would add, a world of existing regulations. But for the compliance practitioner, I believe that this means working with all such groups can help to build a stronger compliance regime. Clearly, a strong ethical and compliance culture directly supports a strong compliance program. As stated in the FCPA Guidance, “By adhering to ethical standards, senior managers will inspire middle managers to reinforce those standards. Compliant middle managers, in turn, will encourage employees to strive to attain those standards throughout the organizational structure.” But more than just employees are stakeholders in moving forward within compliance, in today’s world, third parties are also a part of a company’s ongoing compliance solution. Shareholders expect that, at a minimum, the companies which they invest in will follow the rules and design and implement an appropriate compliance system. If one is not in place shareholders can help to create one through the mechanism of a shareholder derivative action. Just as a baseball team has multiple stakeholders, so does a modern, multi-national corporation.

The authors present a lengthy study of several companies which used the five steps discussed above to help create profitable social enterprises. I believe this framework presents a calculus for the compliance practitioner to not only think through the design and implementation of a compliance regime but to pitch such an enterprise to management.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

Written by:

Thomas Fox

Compliance Evangelist on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.