(First published on LinkedIn)

If you’ve ever met anyone new at a social event, it may go something like this:

Stranger: So, what do you do?

You: I work in corporate ethics and compliance.

Stranger: (chuckle) Is that an oxymoron?

Or: Is that Sarbanes-Oxley? Are you an accountant?

Or: Oh I get those online courses I have to take once a year. They’re really boring.

You offer a small explanation of an ethics and compliance program, watch the stranger’s eyes glaze over, then quickly change the subject to avoid boring him to death.

Every once in a blue moon, you actually meet someone in the field, and the delight that you experience is like discovering a long lost relative.

Here, I offer a few bullet points to describe what you could say the next time you run into this situation.

• An ethics and compliance program:
  • Shows employees the right and wrong ways of doing things;
  • Tells employees what they should do if they find out that someone did the wrong thing;
  • Deals with the wrong thing that was done and makes sure that the thing doesn’t happen again.
• It’s always easier to keep people from doing the wrong thing than to deal with it after it’s been done.
• Every company should have a way of doing all of this. It doesn’t need an army of resources and it doesn’t matter if the company is small or private.
• If the company you work for is not doing these things, give me a call. I can find you someone who can help.

I think the business world would be a better place if everyone understands that they deserve a good ethics and compliance program. That way, if they work for a company whose program doesn’t meet these standards, they know enough to demand a better one.

So, go ahead, next time you meet someone socially, use the script (or make up your own) and dive into the thing that we do!

(First published on LinkedIn)

If you’re looking for a way to encourage employees to report wrongdoing, a column from The Ethicist in the New York Times offers a perfect anecdote.

In the column, a brother was troubled that he had never told his sister she was adopted. The parents had planned to do so when she was “old enough to understand.” Years passed. She’s now an adult, and all the years of secrecy meant that it is now near impossible to come clean.

The ancient Greek called this a “sorites” – which means “heap” – paradox. The idea is that one grain of sand doesn’t make a heap, nor do two grains, three, and so on. But at some point, adding a grain of sand at a time will result in a heap (aka a big mess.)

In the corporate world, when an employee finds out about a transgression, s/he may think that it doesn’t hurt to wait a day to report it. Then another day goes by, and another. There never seems to be the right time. Before you know it, too much time has passed and it becomes too hard to report the situation without sharing some blame for letting it go on for so long. In the meantime, the transgressor goes unpunished, leaving others to think that this type of behavior is OK. (The same idea applies to small infractions that add up and get bigger over time. We’ve all seen plenty of companies that have done exactly that, and had the situation blown up in their faces.)

So an important reminder for employees is that not only should they report wrongdoing, they have to do so immediately. Otherwise, they end up building a “heap” – when it’s too late to tell the truth without consequences, for the company and themselves.

(First published on LinkedIn)

I finally watched The Big Short, which left me disturbed if not utterly depressed.

For those of us whose business it is to espouse the merits of an ethical corporate culture, the story is even more disconcerting.

The character Mark Baum – a hedge fund manager who bet against the banks during the housing bubble – summed up the message near the end:

We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball… What bothers me isn’t that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and shortsighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did.

The movie blamed Wall Street for the crisis. In real life, a lot of parties were to blame: individuals, mortgage lenders, investment advisors, ratings agencies, Wall Street, the government, the Federal Reserve Bank. Some even blame a regulation from the 1930s.

Guilty or not, millions have paid the price – by losing their homes, jobs, investments, retirement savings.

But not everyone. According to an article in the New York Times, nine banks that received government bailout money gave out $32.6 billion in bonuses for 2008, despite losing $81 billion in the crisis.

For this group, the lesson may be that duplicitous – if not outright fraudulent – schemes that contribute to economic collapse may just be the normal course of business for amassing personal wealth, to be repeated when the next opportunity presents itself.

Scarier yet, others may learn from them.

Which begs the question: what if our belief that unethical behavior will lead to eventual demise is simply not true?

(First published on LinkedIn)

Who knew that last year’s summer blockbuster Jurassic World could be an allegory for business ethics?

If you haven’t seen it, I’m not spoiling anything by saying that it’s about a theme park whose main attractions are dinosaurs engineered in a lab. Predictably, things run amok and important lessons are learned.

In the movie, in an attempt to satisfy shareholders amid dwindling attendance, the CEO tasks his chief scientist to create something that would wow visitors. When he delivers, quite disastrously, the CEO is dismayed by the methods he used.

In a crucial scene, the CEO confronts the scientist on creating the creature that ends up on a killing spree and threatens the lives of 20,000+ visitors:

CEO: Who authorized you to do this?

Scientist: You did. “Bigger”, “Scarier”… “Cooler” I believe is the word that you used in your memo… You cannot have an animal with exaggerated predator features without the corresponding behavioral traits.

CEO: What you’re doing here… What you have done… The Board will shut down this park, seize your work, everything you’ve built…

Scientist: All of this exists because of me. If I don’t innovate, somebody else will.

CEO: You are to cease all activities here immediately.

Scientist: … but we are doing what we have done from the beginning… you didn’t ask for reality. You asked for more teeth.

CEO: I never asked for a monster!

Here are some lessons I got out of it:

1. Empower employees, but don’t turn a blind eye. Management has to make sure that anything done to achieve company goals must be ethical and law-abiding.
2. Beware of creating a culture that values profit above all else. Business decisions must take into account their impact on people, the community and the environment, not just the balance sheet.
3. One ethical lapse could lead to the creation of a monster. One lapse, when tacitly tolerated, could lead to others to one day become a monster issue. By then there’s no turning back and no way to control it.
4. When hell breaks loose, the real victims are often innocent bystanders. Innocent people the world over have lost retirement savings, been sickened by pollution, or been injured by shoddy products when business decisions prioritize profit above humanity.

So, a simple piece of business advice taken from Jurassic World: “Don’t create a monster, and don’t let anyone else do it either.”

 

(First published on LinkedIn)

Nothing renders “tone-from-the-top” worthless faster than seeing an act of non-compliance go unpunished because it was committed by someone deemed too important to discipline.

It doesn’t matter whether that someone is a high-performing sales representative or a senior executive. Once the perception sets in that certain people are exempt from ethics and compliance, no number of CEO videos or messages touting company values would make employees believe in them.

For those looking to strengthen the “tone,” Paul O’Neill, the CEO of Alcoa from 1987-1999, is probably the best example we can all learn from.

As soon as he took over the helm, he announced that worker safety would be his number one priority. At the time, Alcoa was an aging giant in the aluminum manufacturing industry suffering from quality and efficiency issues, not to mention a decreasing stock price. This announcement confounded investors who expected him to talk about inventory, costs and revenue. One investor immediately called his largest clients to dump the stock, thinking that a “crazy hippie” was in charge and is going to ruin the company.

To show that he meant business, O’Neill demanded that every injury be reported to him within 24 hours. Every single one. When he discovered that the president of Alcoa’s strongest division had failed to report an incident that exposed 150 workers to carbon monoxide fumes, O’Neill fired him. There were no “ifs” or “buts” about it.

To further set the tone, he threatened to fire any financial staff who tried to calculate how much money they were saving by being safe.

“From now on, we’re not going to budget for safety. As soon as anyone identifies anything that could get someone hurt, I want you to fix it and I will figure out how to pay for it,” he said during a visit to a large manufacturing plant in Tennessee.

He was prepared to put whatever resources were necessary to reach his goal, and didn’t want employees to think that worker safety was a priority only because it would save the company money.

He also gave out his home phone number to union leaders to call him if safety issues persisted. Late one night, he got a call from a production worker about a broken conveyer belt that had not been fixed in several days. O’Neill called the plant manager to get the problem fixed and report back when the job was completed. He got the call at 5am that morning.

To help employees quickly report injuries up the management chain, O’Neill invested in a communication network that was a precursor to today’s company-wide email system. For a company of 140,000 employees that operated in 36 countries before the Internet era, that was no small feat. Employees around the world used the communication network to suggest solutions to prevent future incidents, and even started to use it to make recommendations for improving business operations.

What he ended up with was an injury rate that dropped from 1.86 per 100 employees to 0.2. Along the way, the organization was transformed into one that was much more efficient and quality-driven.

The investor who thought O’Neill was a “crazy hippie” eventually realized his mistake, as the company’s market value rose from $3 billion to $27 billion and net income rose from $200 million to $1,84 billion by the time O’Neill retired 13 years later.

The takeaways from Alcoa are intuitive, yet not universally followed:

1. Tone-from-the-top has to be backed up by actions;
2. A stated priority is only truly a priority if there are adequate resources behind it;
3. A core value that everyone rallies behind can be the transformative force in leading the whole business to success.

While Alcoa focused on worker safety as the core value to rally around, what if a company focused its efforts on an ethical culture, with a goal of zero transgressions?

Personally, I think the results would be just as spectacular.

For those curious to learn more, I got my information from the following sources:

11/4/2002 – Harvard Business School Working Knowledge article by Martha Lagace

5/13/2012 – Pittsburg Post-Gazette article by Mark Roth

4/9/2014 – Business Insider article by Drake Baer

The Power of Habit: Why We Do What We Do in Life and Business by Charles Duhigg

(First published on LinkedIn)

Recently I wrote about How to Do “Tone-from-the-Top” and Really Mean It and highlighted the legendary leadership of Paul O’Neill while at Alcoa.

But for most companies, it takes more than one leader – no matter how exemplary – for tone-from-the-top to actually mean anything.

In my experience working with client organizations, the “tone” quickly dissipates as you move down the organization. In one project, we asked the sponsoring executives to send a rousing email to employees impacted by the project and to explain why it is important. Then we asked the next level of management to cascade the message down through each level, until all employees receive the message from their managers. When we checked to see whether the employees got the message, we found that barely any communication took place below the executive level.

This goes to show that a true tone-from-the-top takes a lot of work, especially for companies that operate in multiple countries. It’s not merely enough for an executive to make a statement, no matter of how powerful that statement is.

The graphic below shows all the work that needs to be done to achieve true tone-from-the-top.

None of these steps is difficult, but it does takes time and resources. If a company is serious about establishing tone-from-the-top, it needs to recognize the work required and commit the time and resources to get it done right.

Otherwise, it’s just wishful thinking.

(First published on LinkedIn)

When we talk about tone-from-the-top, we usually mean a positive one. But what if it goes completely the opposite way?

That’s what Fox News showed us when Gretchen Carson sued Roger Ailes for sexual harassment and retaliation. Ailes was ousted just two weeks into an internal investigation about the allegations. Since then, over 25 women (and counting) have come forward to relay stories of being propositioned for sex in exchange for career advancement, and their fear of retaliation if they spoke up. Some have shared that in interviews with Ailes, they were asked to stand up and twirl around so he could see their legs.

I wonder which part of “We treat each other fairly and with respect, establishing a high trust environment where people can do their best work” Ailes thought he was modeling from the company’s Standards of Business Conduct.

According to an excellent interview on NPR’s Fresh Air program, other high-paying executives have been let go as a result of his ouster. They were discovered to be receiving high salaries with few responsibilities, other than to stay loyal to Ailes and to keep mum about his transgressions.

Even with Ailes’ departure, the broader issue is the culture of harassment and the fear of retaliation that permeates throughout the organization. Ailes was not the only one who treated women as a buffet for their sexual appetites, and plenty of employees are still defending that camp.

I know how it feels to work in an environment where women were not respected as equals. I once worked on a team that organized an annual informal outing for men only. One year, it was promoted via company email with a photo of a half-naked, big-bosomed woman and the warning “no women allowed.” The women on the team, many of whom have worked on the same team for many years, merely shook their heads.

Shortly after I left, a former colleague told me about a corporate retreat in which drunkenness was encouraged. A couple of the men tried to kiss the women and unhooked their bras. My friend was dismayed, but no one thought to file a complaint because there’s the unspoken culture of “Oh, that’s just Joey. He’s harmless.”

If a good tone-from-the-top exists, the leader would discipline the perpetrators and warn others to never do something like this again or else, and mean it.

If the tone-from-the-top is weak, as in my experience, the faulty leader simply ignored or accepted the incidents as the way things were. The offended could speak up and risk their careers and alienating their colleagues, or suffer in silence and hope it doesn’t happen again.

But if the tone is decidedly bad, as in the case of Fox News, Ailes was not only saying laud and clear that such behavior was condoned, but that he was showing how it was done!

Incidents like these weave into the company’s unspoken culture, to be recounted to old and new employees alike. That’s how they learn “how things are done around here.”

I applaud Ms. Carlson for bringing the case forward and cracking open the seemingly impenetrable toxic culture at the network. I hope this leads to a permanent improvement in the culture at Fox News.

For other companies that have been getting away with such behavior, I hope this serves as a wakeup call for them to take their ethics and compliance program more seriously, starting from the top.

(First published on LinkedIn)

A few months ago I offered tips on How to Talk About Ethics and Compliance at a Cocktail Party. Here, I offer a way to explain it to a football fan.

The opening game between the Charlotte Panthers and the Denver Broncos was mired in controversy after Cam Newton, the Panthers’ quarterback, suffered a few hard hits to his head without invoking the NFL’s new “concussion protocol.”

Under the protocol, a player with a suspected head injury would be evaluated for signs of concussion before being allowed to continue playing. In this case, medical personnel failed to examine Cam Newton directly, but concluded that he was OK to keep playing after reviewing only video footage.

The question is – did the league ignore the protocol because it didn’t want to interrupt the game, which may hurt television ratings? It was the opening game of the season, a tight rematch of the Super Bowl teams, and one of the hits occurred with only 30 seconds left in the game. If the quarterback were pulled out, it would have made for a much less exciting show.

In the wider corporate setting, the concussion protocol is akin to corporate policies. The question is how well these policies are enforced. Are they enforced only when convenient and ignored when some other business priority – such as signing a big contract – is at stake?

An organization with a strong ethical culture would enforce the policies consistently; one with a weak ethical culture may not. When employees perceive that policies are applied inconsistently, the policies become ineffective and the corporate culture deteriorates even more.

Then there’s the question of the timing of the concussion protocol. After decades of aggressively denying that there is a linkage between repeated concussions and brain damage later in life, the NFL has now begrudgingly admitted that there may possibly be a connection. But this did not happen until after public pressure mounted, a Congressional hearing compared football to the cigarette industry, a PBS/Frontline documentary aired and a hit Hollywood movie starring Will Smith was made.

Similarly, many companies only truly invest in and elevate their ethics and compliance programs after being caught red-handed in an ethics scandal. Tyco and Siemens come to mind, and Volkswagen and Wells Fargo may very well follow.

As for whether or not the NFL deliberately ignored the concussion protocol at the Panthers vs. Broncos game, the jury is still out. Either way, the public has now put the NFL on notice.

 

(First published on LinkedIn)

At first glance, it looks as though Wells Fargo and the two responsible executives are getting their day of judgment.

The bank is paying $185 million to settle charges for the 2 million fraudulent customer accounts. CEO John Stumpf is forfeiting $41 million in compensation and the head of the guilty division is giving up $19 million of stock awards plus $34 million of unexercised options. A group of former employees are suing the company for $2.6 billion and the state of California just suspended much of its business with the bank.

But who really suffers once the dust settles?

Not CEO John Stumpf

Sure, forgoing $41 million seems like harsh punishment, especially to the average lead teller who makes $30,000 per year here in Charlotte. But that’s only 16.5% of the total amount Stumpf could walk away with if he left the bank tomorrow because of the 5.5 million shares of Wells Fargo stock he already owns (at $45/share). As for the compensation he received for years to award his performance WHILE the fraud was happening? Well he gets to keep that.

Did I mention that Stumpf sits at the head of the Board of Directors that approves his own compensation?

Not Carrie Tolstedt, the Head of the Guilty Division

Even after forfeiting $19 million, she could still walk away from the mess with $77 million.

But the Shareholders

Only a minority of shareholders includes culpable company executives. All other shareholders – both sophisticated investors like Warren Buffet and average hardworking 401(k) contributors and everyone else in between – get to foot the bill for whatever penalty is levied or settlement is reached. Wells Fargo stock is already down by $5 since the scandal hit, and there’s no telling how it’d do as the situation continues to unfold.

And the Average Employee

Wells Fargo employs 265,000 employees, I have no doubt that the vast majority of whom are upstanding individuals, including many of my friends who work for the company. Inevitably, as the company sinks funds into fighting lawsuits while trying to keep its stock price afloat, it’d have to tighten its belt in other areas. Which means layoffs. Good employees end up losing their jobs, and those who keep their jobs get to do all the extra work left behind, for no additional pay.

And the Employees Who Were Fired

When an employee gets fired, he walks away with $0. Which is INFINITELY worse than the $250 million that Stumpf could walk away with, both mathematically and experientially. Being fired inevitably makes it harder to find another job. Multiply that by 5,300, then again by the number of family members affected, plus the ones who got fired for blowing the whistle, and the economic impact this has on the economy can be exponential.

If this sounds like a rant, it is.

For those who wish to read more:

http://www.npr.org/sections/thetwo-way/2016/09/28/495843612/california-imposes-sweeping-sanctions-on-wells-fargo-amid-scandal

http://money.cnn.com/2016/09/27/investing/wells-fargo-ceo-clawback-john-stumpf-tolstedt/index.html

http://www.npr.org/sections/thetwo-way/2016/09/26/495454165/ex-wells-fargo-employees-sue-allege-they-were-punished-for-not-breaking-law

(First published on LinkedIn)

It’s geeky, but I always find parallels to the ethics and compliance world when I watch movies. Last night, I watched the 2016 remake of Jungle Book (which was excellent) and thought how aptly it described our profession’s predicament at this moment.

In the movie, an orphan raised among wolves existed peacefully for years in the jungle until the tiger discovered his existence and threatened to go to any lengths to destroy him. Switch now to the compliance world: after years of sustained efforts to fight corruption, conflicts of interest and other ethical and compliance risks, we’re now worried that the incoming administration would upend the corporate compliance environment we’ve worked so hard to create.

Ultimately, the jungle triumphed by joining forces and adapting the code that the wolves had lived by for generations (that each wolf gives the pack its strength, and in turn the pack gives each wolf its strength), and by the boy’s courage and creativity in outwitting the tiger. In the E&C world, we should be both the boy and the wolves, using creativity to combat threats to our vision of an ethical culture, and banding together to find inspiration and strength among each other. With our collective strength, we can recruit the rest of the jungle (the corporate world) to share in the same vision.

With that in mind, here are my wishes for our profession in the New Year:

• Have unshakable belief in the vision of an honest, ethical world;
• Seek inspiration and strength in each other; and
• Show courage and creativity in the pursuit of our vision.

I look forward to meeting and working with many of my fellow “wolves” in 2017.

Happy New Year everyone!