Tag: CCO

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To Increase Resilience in Compliance, Engage More

If there is one thing I have learned in working with Carsten Tams, Ethical Business Architect and founder and Chief Executive Officer (CEO) of Emagence LLC, it is that one of the very top keys for a successful compliance program is employee engagement. Tams and I explored this topic in the popular podcast series, Design Thinking in Compliance. It also appears that engagement can lead to great business resiliency based upon a 2021 article in the MIT Sloan Management Review, entitled The Top 10 Findings on Resilience and Engagement, by Marcus Buckingham. After Covid 19 and the Russian invasion has changed business forever which has made business resiliency a key trait for any business, corporate function and most especially a Chief Compliance Officer (CCO) or compliance professional. That last arena is where engagement is so critical.

The author defined resilience as “the capacity of an individual to withstand, bounce back from, and work through challenging circumstances or events.” But it is also a “reactive capacity, describing how people will respond when challenges arise.” Conversely, engagement was seen as proactive state of mind. The authors defined the criteria by making such inquiries “as how clear their expectations were, whether they got to use their strengths every day, whether they felt they would be recognized for doing excellent work, and whether someone at work was encouraging them to grow.” Yet the most interesting part is the dichotomy between reactive and proactive. It is a bit like the difference in prevention and detection in a compliance program; clearly the former is preferred to stop illegal or unethical conduct so you do not have to detect it.

Not surprisingly, trust is the number 1 factor in both engagement and resilience. Astoundingly the author found “employees who said they completely trust their team leader were 14 times more likely to be fully engaged.” Moreover, those employees who completely trusted their colleagues, team leader, and senior leaders, “were 42 times more likely to be highly resilient.” The reason should seem obvious as it is certainly “easier to engage in our best work when we don’t have to expend mental resources looking over our shoulders or protecting ourselves against dysfunctional workplace practices that erode trust, like bullying or micromanaging. When it comes to building engagement and resilience, trust is everything.” [emphasis added throughout]

Teamwork is also a key factor. Although this is not something I have experienced over the past 12 years of working alone, the author found, “Those who said they are on a team were 2.6 times more likely to be fully engaged and 2.7 times more likely to be highly resilient than those who didn’t identify as team members. For millennia, humans have experienced psychological well-being only when they feel connected to and supported by a small group of people around them.” When the pandemic hit, working from home (WFH) was not new to me as I had been doing it since 2010 but even in the WFH or Hybrid Work era, most employees need to feel like they are a part of a team.

However, being or even feeling like you are a part of a team is a state of mind, not a state of place. I always feel like I am engaged with my blog posts and article readers, my podcast listeners and the greater compliance community. Based on that experience, I certainly agree with the author’s statement that “engagement and resilience are about who you work with, not where you’re working.” Moreover, he noted, “virtual workers are both more engaged and more resilient than those who are physically in an office or shared workspace… In 2020, well into the pandemic, 20% of virtual workers were fully engaged and 18% were highly resilient — a stark contrast to the 11% of fully engaged and 9% of highly resilient office-based workers during the same period. How the work is done and with whom people work are both important, but organizations can stop worrying about whether virtual work is detrimental to teamwork.” But even more than teamwork, it is about having relationships with your co-workers. The author stated, “Relationships boost resilience. Women are not more resilient than men, or vice versa… This data strongly suggests that it is much harder to summon and sustain one’s resilience when going through life alone.”

I can certainly attest that the unknown is more terrifying than change. The author found that employees “who reported five or more changes at work were 13 times more likely to be highly resilient. This suggests that we humans fear the unknown more than we fear change. Company leaders shouldn’t rush employees back to normalcy when so much of the danger inherent in this current “normalcy” remains unknown and unknowable. Instead, leaders should tell their teams specifically what changes they are making to their work and why to increase their overall level of resilience.”

These findings suggest that every CCO and compliance professional must work to lessen or even dissolve the disconnect between senior leadership and front-line workers. It is your front-line business folks who will make or break your compliance program. Getting your senior management more engaged will begin to create and establish the trust that your employees will need to show resilience in the face of the next major business location, whether it is a pandemic or military invasion. Giving employees needed clarity and specificity from leaders, not sugarcoated enthusiasm, will help drive this trust. The author ended by taking this concept a step further by stating, “Leaders need to see their employees not as “labor” but as the messy, complex, emotional beings they are — dealing with real-world human challenges, just like they are. The more that leaders can infuse these findings in their organizations’ policies and practices, the more likely we will all be to flourish, both during these difficult times and beyond.”

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Blog

The CCO and Board Refreshment

Boards of Directors are coming under increased legal and regulatory scrutiny. Courts in Delaware, from the Delaware Court of Chancery to the Delaware Supreme Court, have continued to refine and expand the Caremark Doctrine. Boards are on notice they must actively engage in compliance and risk management oversight. One of the continuing challenges for boards in this era of increasing responsibility is getting the right persons on boards. I was therefore interested in a recent MIT Sloan Management Review article, entitled Meet the New Board — Same as the Old Board, where authors Cynthia E. Clark and Jill A. Brown posit that many companies are just going through the motions of recruiting more diverse board members. Moreover, they advocate the time is now to get serious about board refreshment.

In addition to these new legal requirements, other stakeholders are pushing for public companies to refresh their boards to achieve greater diversity. Shareholders have been leading the way at least a dozen public company boards since mid-2020, “accusing them of failing to broaden out with greater diversity.” Institutional investors and investment managers such as BlackRock, Inc. have voted “against more than 1,800 directors at close to 1,000 companies for insufficient action to increase board diversity.” The proxy advisory firm Institutional Shareholder Services Inc. “now recommends withholding votes from, or voting against, directors with nominating or governance roles on boards that don’t have at least one non-White director and at least one woman.” Finally, the Nasdaq Exchange, with the approval of the Securities and Exchange Commission (SEC), “will soon require listed companies to have at least two demographically diverse directors (or explain why they don’t).”

Yet board refreshment and diversity is not simply something driven by regulators or changes in the law. The authors believe, “diverse boards representing a broader range of experience may be better able to quickly navigate volatile business environments and unexpected disruptions, such as a global pandemic.” They cite to “recent data from BoardReady, a nonprofit group that promotes corporate diversity, found a positive correlation between the diversity of S&P 500 boards and revenue growth during the pandemic.” So, if the law, regulators, stakeholders and the market all believe in board refreshment, why is not this effort moving forward with greater speed and urgency?

The authors found two key reasons why many companies still struggle to appoint directors who are women, people of color, or members of other underrepresented groups. (1) They found “that corporations go through the motions of refreshment but ultimately accomplish little, replacing an outgoing director with someone similar rather than with a person who has a different professional background, identity, or perspective.” (2) Perhaps not too surprisingly, they also “found that the independence of the board’s nominating committee is often compromised by substantial CEO influence over the process, perpetuating a tendency to select directors who reflect the opinions, and often the identity, of senior management.” When these factors converge, board independence and effectiveness in overseeing management of the company is compromised, which can negatively impact corporate performance.

The authors developed four actions which they believe can allow a company to turn around these areas in board refreshment. How can boards avoid these pitfalls and achieve meaningful refreshment? Leaders who want to change the culture of the board should take the following actions.

Diversity of identity and thought

Obviously, there are certain easily verifiable and achievable standard boards can articulate around diversity, including gender, race, and other such attributes. They can then evaluate nominees against that definition and for diversity of through as well. As the Compliance Evangelist, it would surprise you that I believe more former Chief Compliance Officers (CCOs) and compliance professionals should be nominated to boards. The same is true in other areas of risk management, cyber, export controls and trade sanction and even supply chain. The authors state, “Boards should also encourage nominees to talk about what type of diversity they believe they would bring to the board.” Documenting these actions will serve companies well, as multiple stakeholders are increasingly demanding public disclosure of this documented  information.

Refresh frequently

It is clear that a long-standing board is not the best system to have in place as members gradually lose effectiveness and long “tenures tend to compromise the true nature of director independence.” This leads the authors to suggest boards “set earlier mandatory retirements and shorter term limits.” Some investors oppose the re-election of directors who have served on a board for more than nine years, while others may limit service to seven years. Interestingly, the authors note, “in industries where business models and operational contexts change fast, tenures might need to be even shorter.” Rotation of members and a staggered hiring tenure can also be used.

Limit CEO involvement

Given the negative impact of a Chief Executive Officer (CEO) in the process of selection, it is not too surprising the authors posit “the CEO should not have a vote in the hiring decision, implied or otherwise.” To enhance this position, they also write, “We think boards could normalize the use of executive sessions and reduce any stigma associated with them by holding them more frequently, including when evaluating director candidates.” They noted the “New York Stock Exchange (NYSE) requires executive sessions once a year and Nasdaq at least twice a year, although neither specifies that the sessions be used in the nominee search and hiring process.”

Changing culture

Every CCO and compliance professional who has dealt with a board understands refreshment and corporate culture are tied together. The very act of refreshing an old, stagnant board with new people and ideas changes the culture of a board. That change permeates down into an organization. It is almost axiomatic that “A group of directors with similar experiences, opinions, skills, and identities will naturally tend toward consensus much too often.”

A CCO should work to get directors “to think about and freely discuss the existing board culture, including their own behavior and whether it needs to change.” You could also encourage a board to hire “a consultant to help diagnose and possibly change your board culture.” Finally, work to  “Encourage board members to voice their opinions, especially when they challenge the consensus.” As with most things in life, if you do what you did, you get what you got. The same is true for boards. If you replace one old white guy who was an executive in your industry with another old white guy who also is from the same industry, you have not refreshed your board member, you have simply replaced one for another. In this time of near constant change, boards need to be able to respond quickly and nimbly. That is going to take new blood into your Board of Directors.

And do not forget the ‘G’ in ESG.

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Blog

Woodstock and Redesigning Work

On this date in 1969, one of the all-time events in music history, the Woodstock Music & Art Fair, drew to a close after three days of peace, love and rock ‘n’ roll in upstate New York. According to This Day in History, the promoters sold “about 186,000 tickets and expected no more than 200,000 people to show up. Close to half a million people attended Woodstock, jamming the roads around Bethel with eight miles of traffic.” Woodstock certainly brought a new way of thinking about such events. I thought it was a good way to introduce today’s topic of thinking through a different way to redesign your compliance program based on an article in MIT Sloan Management, entitled The Four-Step Process for Redesigning Work by Lynda Gratton. Gratton believes that a “fear of failure weighs heavily on many leaders tasked with managing new workplace expectations. Seeing the challenge as a process is the way forward.” Her piece provides a great way to think about the decision on hybrid or other models of working going forward.

Moreover, this fear is disrupting other areas which demand corporate attention right now and  “has left leaders hypersensitive to issues of retention and unsure what accommodations, if any, will attract and keep talent. They are also apprehensive about what their competitors are doing. This has a ripple effect: Because of the fear of failure, I’ve seen leaders begin to stumble on issues of inclusion, belonging, and identity. Rather than being bold and adopting an experimental mindset, they are falling back to familiar ways of operating and becoming less empathic to what others want. When we fear failure, we retreat to the known.” I would only add the same is true for the corporate compliance function.

Gratton believes all of this means “the way organizations work is in need of a structural overhaul, and that the task of moving forward needs to be worked out by more people than just an organization’s top leadership. Leaders who have confronted their fears and set about this task of overhaul have done it by moving through four crucial steps: understanding people, networks, and jobs; reimagining how work gets done; modeling and testing redesign ideas against core principles; and ensuring the overhaul sticks by taking action widely.” I have adapted her work for the compliance professional.

Understand What Matters

Probably the top fear or concern is the decision to work from home or require workers to return to the office. But the key is “to understand with precision what matters: for example, where and how productive work takes place, what people want, and how knowledge flows.” For instance, being in the office can allow more productivity in crucial tasks particularly around individual thinking, analyzing, and writing. It turned out that for these people, being out of a busy office during lockdown was a plus.

But that is not the only equation as “work, people, and knowledge flow differ across companies.” As Gratton noted from one study participant, “Bringing ideas from across all our disciplines is crucial for us. In the office, we have engineers, designers, planners, technical specialists, and consultants. We want them to talk to each other and bounce ideas off each other.” This leadership clarity allows that “an office-based way of working would maximize highly valued cooperative behavior.”

Reimagine new ways of operating

Understanding the focus of your compliance team can be a key driver of productivity but it can also lessen “fears about pushing for an office-based way of working and enabled them to be imaginative and bold.” For instance, you might try to create opportunities for some employees to work anywhere for three months. Once again this might not work for all companies but if your compliance tasks can lend themselves to this approach it could be useful for you to consider it going forward.

The author reported, “Unilever reimagined the employee contract — the set of promises that employers make to their people.” To that end, “the conglomerate reimagined how to enable employees to work for Unilever while also engaging in other activities such as starting a business, traveling, or caring for a family member. In this model, called U-Work, some employees receive a monthly retainer and earn assignment pay. Importantly, they also get pension support and access to health insurance.” This allows flexibility “between being a full-time employee and being a contractor or agency worker from a third-party organization.”

Model and test new ways of working

Obviously, any model work should be aligned to the company’s purpose or business strategy. Unfortunately for many top-down run businesses, that means treating your employees like children. But if you succeeded during the pandemic (and you had to) you should be able to determine a hybrid way of working that could have a longer-term play.

For compliance that might mean a fuller determination of what being “customer-centric means and how hybrid work would have to align to changing customer needs.” Of course, for a compliance professional, your customer could be a variety of stakeholders such as employees, Supply Chain vendors or other third parties. The author’s overall point is to “be bold and courageous in your attend… in the spirit of being experimental.”

Act and create

A clear concern is that new models of work may end up becoming fads that are never really embedded into the culture of the company or will be discarded at the first sign of a recession or cost cutting. While senior leadership is critical in supporting such initiatives, Gratton identified four ways to deepen engagement and support throughout an organization for such a change.

  1. Managers must be engaged. A series of workshops with them helped create a managerial playbook.
  2. Communication to describe how these new work models would positively impact talent attraction and retention while supporting the strategic aim of the business.
  3. Managers should have open and active communications channels with their teams to make agreements on details such as when employees would work together in the office and when they would engage in focused work at home.
  4. Managers should support each other through peer networks to support and learn from each other.

Gratton ended her piece by challenging leaders to ask themselves three questions: “Where are you now on the journey of redesigning work? Are there steps you need to reengage with in a more purposeful manner? And are you clear about what your biggest priorities are? The actions you take now will create your signature model of work and define the deal that you are making with your employees and your customers.” The same is even more so for a Chief Compliance Officer (CCO) and corporate compliance function.

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Great Women in Compliance

Deb Barrett – On Top of Her Game

Welcome to the Great Women in Compliance Podcast, co-hosted by Lisa Fine and Mary Shirley.

Deb Barrett is Chief Compliance Officer of Qualcomm.  She shares some insights of what it was like being in a company that has undergone some regulatory scrutiny.  She and Mary Shirley discuss some ways to combat Compliance fatigue – important for any company with a robust Compliance program to consider but particularly ones that have prioritized Compliance initiatives for a period of years.  The episode is rich with takeaways and ideas, including Deb’s thoughts on Compliance KPIs.

 Are you planning on heading to the SCCE CEI in Phoenix in October?  Check out Lisa and Mary’s speaking sessions on the agenda and sign up!  We invite you to say hello and introduce yourself during the conference – it’s going to be a great time.

 The Great Women in Compliance Podcast is on the Compliance Podcast Network with a selection of other Compliance related offerings to listen in to.  If you are enjoying this episode, please rate it on your preferred podcast player to help other likeminded Ethics and Compliance professionals find it.  If you have a moment to leave a review at the same time, Mary and Lisa would be so grateful.  You can also find the GWIC podcast on Corporate Compliance Insights where Lisa and Mary have a landing page with additional information about them and the story of the podcast.  Corporate Compliance Insights is a much appreciated sponsor and supporter of GWIC, including affiliate organization CCI Press publishing the related book; “Sending the Elevator Back Down, What We’ve Learned from Great Women in Compliance” (CCI Press, 2020). If you enjoyed the book, the GWIC team would be very grateful if you would consider rating it on Goodreads and Amazon and leaving a short review.

You can subscribe to the Great Women in Compliance podcast on any podcast player by searching for it and we welcome new subscribers to our podcast.

Join the Great Women in Compliance community on LinkedIn here.

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FCPA Compliance Report

Ty Francis on Assessing Corporate Culture: A Practical Guide to Improving Board Oversight

In this episode of the FCPA Compliance Report, I am joined by Ty Francis, Chief Advisory Officer at LRN. We dive deeply into a recently released LNR/Tapestry Networks Report on Assessing Corporate Culture: A Practical Guide to Improving Board Oversight. Some of the highlights include:

  1. The genesis of this report.
  2. How does the Report serve as a roadmap to a clearer picture of the company’s ethical culture?
  3. How can the Report help determine how to improve culture throughout the enterprise?
  4. Who should a Board collaborate with, and how?
  5. How does the work LRN conducts help organizations foster more effective collaborative cultures?
  6. How do you prioritize culture on the board agenda?
  7. What is the challenge to the board’s culture?
  8. How does a Board measure and monitor?
  9. How does a Board articulate the desired culture?
  10.  How can a Board establish clear communication?

Resources

Ty Francis on LinkedIn

LRN

Assessing Corporate Culture: A Practical Guide to Improving Board Oversight

Tapestry Networks

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Sunday Book Review

August 14, 2022 the Culture edition

In today’s edition of Sunday Book Review:

The Advantage: Why Organizational Health Trumps Everything Else in Business by Patrick Lencioni

Culture by Design: How to Build a High-Performing Culture, Even in the New Remote Work Environment by David J. Friedman

The Culture Code: The Secrets of Highly Successful Groups by Daniel Coyle

Organizational Culture and Leadership by Edgar H. Schein with Peter Schein

Winning Behavior: What the Smartest, Most Successful Companies Do Differently by Terry R. Bacon and David G. Pugh

Resource

5 Top Books on Corporate Culture

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Blog

Principals of Effective Organizations: Part 2 – Olivia Newton-John and Operationalizing Compliance

We also lost someone Monday who was a cultural phenomenon for many decades, Olivia Newton-John, the beautiful Australian singer who burst on the US scene in 1974. She is probably best known as the heartthrob Sandy in the movie version of Grease where she put the singer’s chaste image behind her. According to her New York Times (NYT) obituary, “her character, Sandy, transformed from a pigtailed square smitten with John Travolta’s bad-boy Danny to a gum-smacking bad girl. “Grease” became one of the highest grossing movie musicals ever, besting even “The Sound of Music.” Its soundtrack was the second best-selling album of the year, beaten only by the soundtrack for “Saturday Night Fever,” which also starred Mr. Travolta.” If you can watch Grease without singing along, you are probably dead.

For my personal tribute I will quote a Facebook post from my friend Bill Dyer who I have known since 1976 when he was my RA at the University of Texas. Dyer penned the following, “In the summer of 1974, before my senior year at Lamesa High School, I was a full-time DJ at KPET-AM. Olivia Newton-John’s “If You Love Me, Let Me Know” album had come out in May, and we had a promotional copy at the station…The single I was *supposed* to play from this album was the country & western(ish) title song, “If You Love Me, Let Me Know” — consistent with our station’s C&W format. But the track that I personally preferred from the album was this song, I Honestly Love You. The programming director gave me grief about it, and I did indeed also play “If You Love Me, Let Me Know.” But this was THE heart-throb song of the summer. And yeah: It still gets me. Requiescat in pace, Olivia Newton-John. You were jaw-droppingly talented and lovely, and your music will continue to summon forth some of my most vivid memories of my young adulthood.”

We are currently exploring 10 Principles of Effective Organizations, by Michael O’Malley. The author identified 10 research-backed principles from the field of organization development to guide companies and I have adapted them for the compliance professional. Yesterday in Part 1, we took up his first five, focusing on the Chief Compliance Officer (CCO), and today we conclude with his final five, focusing on operationalizing your compliance program.

Diversify your workforce — and create an inclusive environment

 Every CCO should be modeling diversity, but the author makes clear the benefits of diversity, noting “Complex tasks require a diverse mix of viewpoints and abilities to satisfactorily complete.”  For compliance this need will only grow with the need for a diversity of subject matter expertise (SME) in a corporate compliance function, including compliance, legal, behavioral psychology and behavioral organization, data scientist and a host of others.

Compliance functions in 2025 and beyond will “require large numbers of different agents to enhance system reliability and resilience.” In addition to the diverse workforce and discipline need for any compliance program, you should consider diversity of citizenship so that not all your compliance talent is from the domicile from your home country. You should also consider bringing other corporate disciplines into your compliance function on a rotating basis such as sales leaders, senior executives and Human Resource (HR) functionaries as well.

Promote personal growth

Almost stating table stakes in the 2022 corporate world, the author states, “An effective talent management program is one in which a company has a large pool of able, external job candidates, sufficient competent coverage of existing positions, succession plans throughout the organization, and a panoply of support programs: career counseling and development, career planning workshops and vocational assessments, mentoring and coaching programs, and in-house training and educational assistance to augment employees’ career objectives.”

Now take this base line and overlay what the Department of Justice (DOJ) has told us over the years. In theFCPA Corporate Enforcement Policy it states, “The quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk;”. This means not simply hiring competent compliance department personnel but also that they continue to grow within the compliance profession by going to conferences and growing professionally in other ways (such as reading blogs and listening to podcasts).

 Empower people

 While many CEO-types believe “the practice of empowerment in organizations is often like a parent handing the keys of a high-performance vehicle to their teenager and hoping, day after day, that the car will return intact.” CCOs and other compliance professionals recognize that empowering not simply your compliance team but indeed your employee base to ‘do compliance’ is a key manner to operationalize your compliance program to make it effective.

Always remember that as a CCO or compliance professional, your customers are your employees, and this can extend to other stakeholders such as key third-party partners. Empower these groups to do compliance and they can become not simply your good friends but also will allow you to move from a detect mode to a prevent mode. This also ties into having a true speak up culture in an organization.

Reward high performers

Here the author focuses on based pay for performance plans for employees. He believes that rewarding high performers can “increase job satisfaction and motivate action and, when appropriately structured, are instrumental in producing environments in which the best help the rest. Indeed, it is common in teams that the top members will lift the performances of good, but less capable, members.”

Yet when you consider rewarding your employee base for doing business ethically and in compliance you should consider the same benefits as a part of your compliance program. The DOJ has long recognized this as far back as the original edition of the FCPA Resource Guide which continues to state in the 2nd edition, “DOJ and SEC recognize that positive incentives can also drive compliant behavior. The incentives can take many forms such as personnel evaluations and promotions, rewards for improving and developing a company’s compliance program, and rewards for ethics and compliance leadership.” So, reward your high performers for doing business ethically within your company’s values in addition to your compliance function personnel who do great work.

Foster a Leadership Culture

Even in 2022, ethics and compliance all starts at the top. The author correctly notes, “Everyone who has worked in an organization knows the affective power of leadership and its effects on culture, both good and bad.” Appropriate tone at the top and a compliance program and function to back up “supportive, inclusive management practices that provide assurances of safety allow people to take reasonable risks, make mistakes, speak up and challenge the status quo, and ask for help and request resources to make improvements” will help your organization going forward.

Senior management who create safe environments encourage “employees to more openly and beneficially interact, learn and grow, display greater creativity, and think of themselves as potent and efficacious actors will reap those benefits. Despite the known value of leadership, organizations frequently show little genuine interest in the quality of leadership by foregoing meaningful assessments and by being far too accommodating of managerial miscreants who may be productive but are toxic to the organization’s culture.”

The author concludes, “Fulfilling these 10 principles is a tall order.” Nonetheless, any CCO who puts these into practice will have a compliance function that should be resilient and able to respond to market or regulatory changes when needed and does business ethically and in compliance through a fully operationalized compliance regime.

Tom’s Top 5 Olivia Newton-John Playlist (all from YouTube)

I Honestly Love You

You’re the One I Want

Summer Nights

Xanadu

Let Me Be There

Categories
Innovation in Compliance

Passionate About AML with Simon Winchester

 

Simon Winchester is the Vice President of Advanced Technologies at Jumio Corporation. His responsibilities entail building the go-to-market strategies for newly acquired technologies within Jumio and then driving the adoption on a global scale. One of the company’s most recent additions is its AML (anti-money laundering) solutions. Tom Fox welcomes him to this week’s show to talk about current world events and the company’s AML solution. 

 

 

Money Laundering in 2022

Tom asks Simon if money laundering schemes have become more ubiquitous since the Russian invasion of Ukraine. Simon replies that the recent events certainly had an impact. He says that money laundering is “criminals taking illicitly-gained funds and then turning them into legitimate cash or assets which are ideally free of suspicion.” At the core of this criminal process are three themes: placement, layering, and integration. Due to the digital environment we live in today, more people from all demographics are comfortable with digital banking, and criminals now find it easier to launder money, which makes it more difficult to detect. Fortunately, Jumio works hard to provide AML solutions and offer more effective compliance programs. 

 

Key AML Regulations

Tom asks Simon what are some of the key AML regulations that Jumio advises clients on. It mostly depends on where your organization is located in the world, as local enforcement bodies drive AML regulations, Simon responds. These regulations will take a cue from international standards set by the Financial Action Task Force, which functions as a “global AML watchdog”. In the UK, the EU AML directives shape policy and provide guidance. Recently, they brought a new directive into effect which “increased the frequency of regulatory updates to the KYC and AML legislation, and brought a strict obligation to industries that were not previously subjected to severe AML protocol,” Simon tells Tom. 

 

Playing Catch-Up With Money Launderers

Tom asks Simon what Jumio sees as the key components of a successful AML program. Ideally, a company providing AML solutions should have a well-defined plan, Simon says. However, that is not feasible given the current climate. The components of a successful AML program, Simon says, include three steps: 

  • A dedicated compliance officer who is tasked with creating, monitoring and reviewing the compliance program, and staff training. 
  • A written risk-based compliance program with comprehensive AML policies and procedures that are documented. This approach identifies and protects your business from financial crime and includes having the technology in place to support that framework. 
  • An appropriate customer due diligence process, which means vetting your clients to avoid financial crimes. 

 

The Role of a CCO in AML Solutions

Simon believes that “Chief Compliance Officers are the catalyst for the growth and innovation”. He acknowledges how CCOs often get the raw end of the deal and their role in the organization must be scrutinized and changed. With the right AML technologies, compliance team, and effective AML program, a CCO and their team can drive shareholder value through organizational growth. 

 

Resources

Simon Winchester | LinkedIn 

Jumio Corporate | Website | LinkedIn | Twitter 

 

Categories
Blog

Principals of Effective Organizations: Part 1 – David McCullough and the CCO

Last week we lost Vin Scully, this week we lost David McCullough. McCullough was one of America’s greatest living historians. He worked in a variety of formats, including non-fiction books, television and movies. He was a great writer, winning numerous national awards for his books. According to his New York Times (NYT) obituary, “McCullough won Pulitzer Prizes for two presidential biographies, “Truman” (1992) and “John Adams” (2001). He received National Book Awards for “The Path Between the Seas: The Creation of the Panama Canal” (1977) and “Mornings on Horseback” (1981), about the young Theodore Roosevelt and his family.”

Many others knew him from his television work, most notably on Ken Burns The Civil War, and as the host of the American Experience. Not exactly John Facenda-like (i.e., the Voice of God) but as Gary North said, “not imperious, yet not exactly soothing, either — comes on, and we become more calm.” He also noted, “Incredibly, you don’t want him to shut up.” I heartily agree and could have listened to McCullough read the phone book (when there was such a thing).

As for my favorite books, probably No. 1 is The Path Between the Seas. Book about places are a notoriously tricky thing but it was great history, wrapped in a great biography all the while telling a great story. My co-favorite (1A) was his biography John Adams, first and foremost because of the love story between Adams and his wife Abagail, who was truly his partner in his entire life’s work. It also set a standard for telling the story of how Founding Fathers created a new nation in the midst of a bitter war.

I thought McCullough was a good introduction to start a two-part series on business approaches to create an effective compliance. I recently saw an article in the Harvard Business Review (HBR), entitled 10 Principles of Effective Organizations, by Michael O’Malley which also intrigued me about this topic. The effectiveness of a compliance program is an ongoing dialogue but what business strategies can you use to do so. Chief Compliance Officers (CCOs) are good at using the Hallmarks of an Effective Compliance Program, as delineated in the FCPA Resource Guide 2nd edition, as a guide but in this article, the author articulates a set of criteria and goals to meet to maintain the ability of companies to compete and grow. He identifies 10 research-backed principles from the field of organization development to guide companies and I have adapted them for the compliance professional. Today we take up his first five and we conclude tomorrow with his final five.

Encourage cooperation

The central objective of every compliance program is to achieve a cooperative ethical order in an organization to do business ethically and in compliance. From the organizational behavioral perspective, this means removing “divergent motives and antagonistic goals” in an organization.  While getting everyone to row in the same direction is one part, the second part is to keep some group of employees, a business unit or geo-region, from breaking off and taking a short cut in your risk management protocol.

This means you as CCO need to channel your inner Russ Berland and buy lots of pizza for the business unit folks or others in the organization to create “strong social bonds among employees” that will drive all employees to do business in such a desired manner. The author notes, “They are affective bridges back to the organization that positively build relationships and influence performance.” That is certainly a key for every CCO and compliance professional.

Organize for Change

Many “once-great companies have found their final resting places in an expansive graveyard of slow-movers and has-beens. These companies failed because they were unable to adapt to changing conditions and succumbed to capitalism’s unapologetic truth that only the fittest will survive.” Now think about that intonation in the context of 2 years of a pandemic and the Russian invasion of Ukraine and its impact on business on a worldwide basis. Just as business has been buffeted by these winds, so has the compliance profession and its need to respond.

In effective compliance programs, CCOs “upend paralysis by generating a consensus of meaning and action. They build the case for change, create a positive mindset for change, convince others of the value and legitimacy of the change efforts, and battle against systemic forces of institutional inertia that lock companies into their current, misguided trajectories.” This is only truer in 2022 for the reasons I noted above. What the author said about companies applies to compliance even more, “Confidence, conviction, and courage are helpful companions in this journey, as not all change is readily apparent and must be made before there is an evident need for it and the window of opportunity has closed.”

Anticipate the Future

This is something I have talked more and more about, as the “preservation of an organization­ depends on its leaders having the navigational judgment and skill to prepare their companies for what lies ahead.” Once again this is even more so for the compliance function. The author noted that the “short term is undertaken with greater certainty of outcomes. The short term can be very rewarding. The short term provides executives with the continuing authority to lead by demonstrating their effectiveness in producing results.” Yet as we begin to plan towards mid-century, CCOs “must be able to look past nearby obstructions to see clearly what lies beyond.”

Part of that is anticipating your organizations needs both on the sales side and in the Supply Chain. Part of that is having resiliency built into your compliance program so that if China invades Taiwan, you will be able to respond to the inevitable changing landscape. Another part is technology or ComTech. A CCO needs to have tech savvy “people who collectively challenge the assumptions on which their current actions are based in order to imagine other possibilities. As Thomas Kuhn maintained, if your conception of the world is that it is flat, you will see things one way; if your conception is that it is round, you will see things in quite other ways. But you cannot see the implications of roundness until you suspend belief in flatness.”

Remain Flexible

Compliance must be at once disciplined, resilient and flexible, “reacting to the unexpected during turbulent times and flexibly bending when rushes of demand are placed on” it, then bounce back into shape “once the need for transformation has passed.” This can largely be achieved through improved use of ComTech and by aligning that tech to meet new challenges. Here the author also speaks to the need of “a simple creative additive of divergent thinking.” What you may not need on your compliance team is another lawyer but a data scientist, behavioral psychologist or a training expert. Compliance is changing and as a CCO you need to be ready to embrace the change to deliver the top compliance services to your customer, your company employees.

Create Distinctive Spaces

Interestingly, coming out of a two-year (and still ongoing) pandemic, the author believes there is  a “link between the quality of a work environment and employees’ health, satisfaction, and performance.” This means if you are going to require your compliance team back in the office, the “basic dimensions of environmental indoor quality such thermal comfort, air quality, lighting, acoustic quality, and the ergonomic features of furnishings positively relate to enhanced performance.” Not only will it make your compliance team more effective, but it will also help in the competition for talent acquisition and retention.

Join us tomorrow where we conclude our review and note that Grease is the word.

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Winnie the Pooh Explains Compliance: Part 5 – Winnie the Pooh as CECO (Think, Think, Think)

This week I have explored compliance through a five-part podcast series, as seen through the lens of Winnie the Pooh and the characters living in the Hundred Acre Woods. I want to conclude my series by looking at Winnie the Pooh himself through the lens of the Chief Ethics and Compliance Officer (CECO).

Pooh may be a bit naive and slow-witted, but he is also friendly, thoughtful and steadfast. Although he and his friends agree that he is “a bear of very little brain”, Pooh is occasionally acknowledged to have a clever idea, usually driven by common sense. Pooh is also a talented poet; his poems and “hums frequently punctuate the stories”. Although he is humble about his slow-wittedness, he is comfortable with his creative gifts. When Owl’s house blows down in a windstorm, trapping Pooh, Piglet and Owl inside, Pooh encourages Piglet (the only one small enough to do so) to escape and rescue them all by promising that “a respectful Pooh song” will be written about Piglet’s feat. Later, Pooh muses about the creative process as he composes the song.

Pooh is very social. Christopher Robin is his closest friend, Piglet, and often chooses to spend his time with one or both of them. But he also habitually visits the other animals, often looking for a snack or an audience for his poetry as much as for companionship. His kind-heartedness means he goes out of his way to be friendly to Eeyore, visiting him, bringing him a birthday present, and building him a house, despite receiving mostly disdain from Eeyore.

We need to recall that the DOJ started from the position that the role of compliance and ethics in an organization was co-equal. Winnie the Pooh reminds us of that foundational building block. Pooh also reminds us that a CECO is a social animal. Just as he is friends with all the animals and characters we have visited this week, you as a compliance professional should make friends with all the corporate functions they represented this week: sales, HR, finance and legal. If you find you run out of hunny to pass around, you can always resort to the Russ Berland strategy of pizza.

Even though this is the final offering in this week’s blog post on Compliance in the Hundred Acre Woods, do not feel blue. We will have another week of Pooh later this summer for more compliance lessons. And if you do feel blue in the interim, check out this YouTube clip of the Pooh theme song. And always remember, when all else fails;

“Think, Think, Think”