What is the intersection of tax and compliance? Why does a Chief Compliance Officer (CCO) or compliance professional need to sit down with the corporate head of tax? How does a corporate tax function fit into a best practices compliance program? It turns out there is quite a bit a compliance professional can learn from a tax professional. Moreover, there are many aspects of tax which should be considered by a CCO and compliance professional from an overall risk management perspective. Unfortunately, these questions are rarely explored in the compliance community.
To explore these issues (and remedy this lack of awareness) I recently sat down with noted tax professional Tracy Howell to explore these and other questions. We tackled these issues and others in a five-part podcast series for Innovation in Compliance. In Part 2, we turn to the question of what is transfer pricing and what does this have to do with compliance?
We began at the beginning – what is transfer pricing and what methodologies are used to determine or estimate price transactions? Howell began with the rather astute obligation that if you are “a compliance officer and you can say anything more than just the words “transfer pricing”, you are indeed an FOT (Friend of Tax).” He went onto explain, “Transfer pricing encompasses the methodologies required by tax code and regulations around the world to price transactions between affiliated companies. It is the provision of and sale of goods between affiliates, sale of services, provision of services, including the licensing of intangibles. Finally, transfer pricing requires you to press the transactions at an arm’s length rate.”
Transfer pricing is a critical issue when you have transactions between related parties, which in a large multi-national organization is almost always. To help illustrate the issues involved, Howell compared two transactions. First if you are selling goods, “such as Ford Motor Company selling an automobile, it is easily comparable if manufactured in Canada and sold to the US, because you could compare that transaction to something that was manufactured by Chevrolet.” However, Howell noted, “when it gets really complicated is if you’re manufacturing proprietary products. In oilfield services for instance, your organization might manufacture a very unique valve. What would the arms-length rate be if it’s manufactured in the US and sold to Mexico?” Here the tax professional must have a process to prove the arms-length rate of value for sale between related parties. The methodology to do so would be to get some comparables for those kinds of transactions. But this may be hard to do if you are selling proprietary top specialized manufactured equipment.
As Howell related, “it becomes an art, and that art is developing and applying an arms-length rate for comparable transactions between comparable entities. Even trickier is if a one-off piece of equipment does not have a comparable, so then you have to broaden the scope of finding manufactured goods, for instance, or something comparable. It is an art and its normally tax issues of an exact nature and transfer pricing is not but the key is to have a defined methodology.”
We then turned to the several entities involved in the government side of transfer pricing and how they may at times be at odds, complicating the job of the tax professional as well as the compliance practitioner. Initially Howell noted that governments are involved with their different regimes for the selling and buying side of tax jurisdictions. This means in every case you have a seller of goods or services and a buyer. The objective of governments and their taxing jurisdictions is to get their fair share. In reality, this means that every government is trying to expand its tax base. They do that by trying to grab as much of multi-jurisdictional transactions profit as possible.
Then there are third party organizations that are involved, such as the Organization of Economic Cooperation and Development (OECD). The OECD is pushing standard transfer pricing laws and regulations throughout the world. They provide model laws, treaties and transfer pricing strategies. As Howell noted, their objective is to “try to standardize the government’s laws and regulations, so that you do not have a mismatch between very aggressive and very liberal transfer pricing laws. The OECD is trying to provide some guidance on what is a fair share.” But as Howell further related, “at the end of the day, what is fair? And that’s just somebody’s opinion; what is fair.”
We concluded with a look at the transfer pricing negotiation process. Most interestingly, the process Howell described mirrored the process when negotiating with the Department of Justice (DOJ) in a Foreign Corrupt Practices Act (FCPA) investigation or enforcement action. It all starts with your credibility. You must demonstrate credibility to the taxing authority and then back up that credibility with documentation (Document, Document, and Document). From there it is demonstrating your consistent process and methodology to demonstrate how you came up with a rate for transfer pricing of a good or service, similar to how a CCO would demonstrate compliance program effectiveness to the DOJ. But here the tax professional will face an added wrinkle from a that of a CCO. Howell explained that if you are in a country like Kazakhstan, your submission must in the format required by Kazakh law. If you are required to use local language in your submission, you are partway there. Howell ended with “you have not gone all the way. You must follow the laws, even if they are a little bit different. That includes language and formatting in all your jurisdictions.”
Join us tomorrow when we explain why tax needs a seat at the table. Check out the full podcast series Taxman: On the Intersection of Tax and Compliance on the Compliance Podcast Network. Check out Tracy Howell on LinkedIn.
Tag: CCO
Tom Fox is back again for a special new five-part series, Taxman: On the Intersection of Tax and Compliance. Tracy Howell, Tom’s colleague and tax expert extraordinaire, joins in to discuss the intersection between compliance and tax.
Why Should Compliance and Tax Interact?
All organizations have an enterprise risk management (ERM) system. One risk common to multinational companies especially is corporate tax risk; and yet, it tends to remain under the radar. While tax professionals are usually very good at identifying and mitigating tax risk, if there is no close interaction between compliance and tax professionals, the risks are elevated.
Sophistication in Taxing Jurisdictions
Most jurisdictions have a tax code, but street rules tend to also be in play. “You have to establish very early on that you don’t pay bribes,” Tracy advises. The results of following the law are more expensive, but it pales in comparison to the cost of putting your company at risk.
Resources
Tom Fox’s Email
Tracy Howell | Email | LinkedIn
Welcome to the Great Women in Compliance Podcast, co-hosted by Lisa Fine and Mary Shirley.
Today is the day after International Women’s Day, and we are so pleased to welcome Alison Hinds-Pearl. Alison is the Chief Compliance Officer and Assistant General Counsel at Revlon and previously had senior roles at MasterCard and Bayer. Her career is remarkable in many ways, particularly as she has been in three very different industries, finance, pharma and now beauty and self-care products.
Alison talks about the differences and similarities in these different industries, particularly as finance and pharma are so heavily regulated. Alison also started at Revlon during the pandemic and discusses her experience.
Lisa and Alison discuss the importance of diversity in our organizations, and Alison shares some insight from her experience, as a woman and as a woman of color, including an early experience at the Bronx District Attorney’s Office. This is a great discussion not only for Women’s History Month, but to conclude the winter session of #GWIC.
Great Women in Compliance will be back on March 30 with a special bonus episode hosted by Tom Fox. Lisa and Mary want to say thank you to the #GWIC community, especially during Women’s History Month.
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.
Compliance into the Weeds is the only weekly podcast which takes a deep dive into a compliance related topic, literally going into the weeds to more fully explore a subject. This week, Matt and Tom take look at a recent speech by SEC Commissioner Alison Herron Lee where she considered the role of lawyers as gatekeepers under SOX 307. Some of the issues we consider
· Who do lawyers represent?
· What is the difference between lawyers and gatekeepers?
· How can or should lawyers represent multiple interests on SOX issues?
· How does this comport with state bar requirements?
· How, if at all, does SOX 307 impact compliance professionals?
· Was the speech a policy change announcement, trial balloon or something else.
Resources
Matt in Radical Compliance
SOX 307
Categories
Using Purpose to Create a ESG Program
I have advocated that compliance is uniquely situation to lead a corporate ESG effort. In a recent Harvard Business Review article entitled, What is the Purpose of your Purpose? authors Jonathan Knowles, Tom Hunsaker, Hannah Grove and Alison James looked into creating Purpose in an organization. Their article laid out a great road map for companies to identify “an authentic and motivating basis for alignment among key stakeholder groups” for the elusive concept of Purpose. I found their piece to be a great way to think about bringing ESG into your corporate purpose.
For the Chief Compliance Officer (CCO), determining an ESG strategy is fundamentally a business decision and must be anchored in your business strategy. This means “identifying the most authentic and motivating basis for alignment among the key stakeholder groups on which the success of the business depends.” Moreover, determining and then implementing such a strategy “sits at the intersection of four business agendas: (1) For marketing and sales, it can help win customers and enhance their loyalty. (2) For HR, it can attract, engage, and retain employees. (3) For governance and sustainability, it can enhance environmental, social, and governance performance. (4) For strategy and finance, it can guide how resources are allocated and risks are managed.” Maneuvering through these four agendas is critical.
The authors begin with the idea that there are three senses of purpose. They are competence, which they define as the function which your product or services serves in the marketplace; culture, which they define as the intent in which you run your business; and cause, which they define as the social good for which your organization aims. These three ‘senses’ operate in different manners which can be confusing. For the CCO, separating these three senses into different components can be an important exercise. Here the authors identify three key gaps in these three senses which every CCO must overcome.
The competence-cause gap. This is the lack of alignment between the nature of your business and your espoused cause, such as when the business your pushing is at odds with your stated goals. Next is the competence-culture gap which is when a company is valued by customers but treats its employee poorly, usually through overwork, low salaries and wages or tolerating a culture which is less than respectful. The final gap is the culture-cause gap where your organization has a clearly stated purpose but employee engagement on that purpose is low. Like having a great paper compliance program but then engaging in bribery and corruption. To remedy these weaknesses, the authors have developed a five-step approach to finding your corporate purpose. Once again these are an excellent way to help create and foster a ESG program.
- Identify the types of interests and constituencies for your corporate ESG program. The authors identify four interests: (1) sales and marketing, (2) employees, (3) governance and sustainability, and (4) strategy and business valuation. As CCO, you need to work with all four interests to navigate a unified approach for all the internal and external constituencies who will need to buy into this approach. Your internal constituencies include employees, senior management, Board and shareholders. Your external constituencies could include potential shareholder, third parties such as suppliers, localities where you do business and customers.
- The three senses of purpose. All three senses have their advantages. The authors note, “A competence-focused purpose presents a clear value proposition for both customers and employees. A culture-focused purpose creates internal alignment and collaboration with key partners. A cause-focused purpose aligns customers, employees, and communities around the societal benefits that the company generates.” Moreover, each will have overlap in your ESG agenda.
- Link ESG strategy to purpose. What will be the biggest drivers for your organization into 2025 and beyond? Obviously, sales and growth are critical but what about talent acquisition and retention? Is it expansion through organic growth or through M&A? How about access to capital through PE financing, floating new shares or even bank financing? Whatever the purpose(s) is or are, the authors note that you should “develop a clear sense of the business objective that the purpose will support. How can it enhance the relevance and sustainability of your value proposition to customers and other stakeholders and strengthen the company’s relative advantage? This step typically produces a short list of three to five key ideas for defining your purpose in a way that aligns strongly with the strategy of the business.”
- Get out of siloes. Here you need to be seen as moving past simple corporate self-interest. The authors list several questions you can ask to your working group. They include Is the usefulness of what we provide so self-evident that we need say nothing more?Does the nature of your business make it credible for us to assert that we are out to do good?Does our leaders’ behavior support the idea that we are in the business to make the world a better place, even if that is not our core focus? Do we deliver value to customers while also being an attractive employer, partner, and corporate citizen? Does how we do business create value for society in ways unusual for our industry? By asking and answering these questions it will help you to move past the self-interests of the groups you have identified as internal constituencies.
- Embed purpose in corporate behavior. Execution is where the rubber meets the road. As with all things corporate it starts with senior management who must set the tone, commitment and walk the walk. But the interesting insight from the authors note is that while senior management tends to view such efforts as a top down experience, “Most other stakeholders experience it from the bottom up—through their interactions with products and services, employees, physical locations, and communications…From a bottom-up perspective, it is more important that purpose increase the sense of authenticity, coherence, and engagement derived from the day-to-day experiences of customers, employees, partners, and the communities in which the company operates. The ultimate test of your purpose is whether it improves the way the business actually operates.”
The authors conclude that there are two additional elements which must be considered: pragmatism and authenticity. Both of these elements are directly in the wheelhouse of the CCO and compliance function. ESG can be powerful tool to speak to a variety of stakeholders in any organization. Using the approach to Purpose the authors have outlined, designed for a ESG program, can be a direct way for a CCO to move forward in the design, creation and implementation of what can well become a successful ESG program.
The Compliance Life details the journey to and in the role of a Chief Compliance Officer. How does one come to sit in the CCO chair? What are some of the skills a CCO needs to success navigate the compliance waters in any company? What are some of the top challenges CCOs have faced and how did they meet them? These questions and many others will be explored in this new podcast series. Over four episodes each month on The Compliance Life, I visit with one current or former CCO to explore their journey to the CCO chair. This month, my guest is Audrey Harris, who handled FCPA cases prior the explosion of FCPA enforcement actions in the early 2000’s, sat in the CCO Chair, led compliance program work back in private practice and now is Managing Director for Global Anti-corruption, Compliance, Ethics & Non-Financial Risk at Affiliated Monitors Inc.
Even though Audrey had seen numerous CCOs ‘die painful professional deaths’ in 2015, Audrey moved into the CCO Chairs at BHP. She gave the Top 10 CCO lessons she learned in that role. When asked what her top accomplishment was, she answered that it was seeing the professional growth in her team and how this compliance team grew and led a compliance reset for the company. She also learned to make the commercial case for compliance.
Resources
Audrey Harris on LinkedIn
Audrey Harris on Affiliated Monitors, Inc.
Almost all of the world has condemned the Russian invasion of the Ukraine and I will add my small voice to that condemnation. In trying to choose what to write, I did not want to emphasize the better the geopolitical commentary, so I decided to focus on how this invasion and its attendant fallout might impact compliance professionals and programs. At this point Russia has limited its attacks to Ukraine but my fear as more EU, other Western allies and the US respond with arms and technical support to the Ukraine government and army, we might see Russia unleash its cyber warfare specialists on those who are supporting Ukraine with material and other support. This week I am going to write about some of the issues a Chief Compliance Officer (CCO) needs to think about now. Today, I consider Russia.
The list of sanctions is growing as the situation on the ground becomes more intense and dynamic, so you need to be in constant contact with your operations, sales and supply chain functions. At this point, you should probably add Belarus to that list as they appear to be the only other country actively supporting Russia at this point. Given the US, EU and UK sanctions that have been levied and likely will be sanctioned over the next few days and weeks, at this point your organization probably needs to prepare for a full ban on sales from your organization into Russia. Russia (and Belarus) appears to be headed to the same list as North Korea and Iran and your business needs to ready.
Know Your Customer
One of the first thing every CCO needs to do right now is determine what goods, products or services flow from, through or to Russia. This means knowing who your customers are and where they are located. If you have not stopped selling to any Russian companies now you probably need to stop tomorrow. But this inquiry does not stop or even start at the Russian border. It means any products which might go into Russia through any of your sales channels. Do you have distributors? What countries are they in? Same inquiry for resellers. Any entity that can get your company’s products into Russia needs to be determined now. Make preparations now to cease all business.
Time for your legal department to start looking at every force majeure clause in every contract. Because of where I live, I have looked at force majeure clauses almost every hurricane season and I cannot remember one that did not include a war clause. I rewrote many such clauses to make such pandemic and other health emergencies covered. But your corporate legal department needs to be ready to invoke them under the war clause.
Who is in Your Supply Chain?
The same level of inquiry you put into KYC right now should go into your Supply Chain. Obviously if you have suppliers in Russia, you need to be prepared to jettison that relationship. However even if you do not formally or legally terminate those relationships, your organization needs to be ready for serious disruptions for any components you may be depending on for your company’s products. But once again it is not simply your direct suppliers. If you have never done a deep dive into at least five levels of your supply chain, NOW is the time do so. If there are base materials or component parts coming to your organization from that part of the world anywhere in your supply chain, you had best appreciate that risk sooner rather than later. The Financial Times (FT) has reported that Russia “is also an important source of metals used in manufacturing such as nickel, titanium, palladium and aluminium. Titanium is needed by aircraft and aero-engine manufacturers such as Boeing, Airbus and Rolls-Royce, while palladium is used in catalytic converters, electrodes and electronics.” Indeed, 14% of the world’s aluminium comes from Russia.
Even if you can still have the parts manufactured, you still must bring them to your manufacturing facilities, either in the US or Europe. Thomas L. Friedman, writing in the New York Times (NYT), said, “if Poland just halts truck and rail traffic from Russia to Germany, “as it should,” it would create immediate havoc for Russia’s economy, because the alternative routes are complicated and need to go through a now very dangerous Ukraine. Anyone up for an anti-Putin trucker strike to prevent Russian goods going to and through Western Europe by way of Poland? Watch that space. Some super-empowered Polish citizens with a few roadblocks, pickups and smartphones could choke Russia’s whole economy in this wired world.” If the fighting continues much longer, we will begin to see major transportation disruptions spreading not only from Russia and Ukraine but also to eastern Europe.
Third Parties
At this point, I hope that ever CCO knows who their third-party sales agents are and that they are monitored on a regular basis. I also hope this same level of knowledge extends down to other third parties such as distributors, joint venture (JV) partners or other types of business relationships in Russia. Indeed the Washington Post announced BP was pulling out of its JV with Rosneft. But more than simply those direct relationships, you can sell your organization’s products into Russia through resale. When was the last time, you looked at your End User report? If it has been more than a few months, I would suggest that you move such a review to the top of your list early this week.
Every multinational organization needs to be fully engaged on these matters and a host of others. Michael Peregrine, writing in Forbes.com last week, said that corporate boards can perform the dual role of both governance and providing support to senior management. Indeed, they may well be obligated to do so. For every CCO reading this I would suggest you call the head of your compliance committee, tell them what you are doing, see what information they want and ask what resources they might be able to provide to you now.
Tomorrow, I will review some issues when looking at Ukraine.
Super Sunday passed with fun but poorly played, poorly officiated, and poorly coached. Tom and Jay are back to look at some of the week’s top compliance and ethics stories this week in the Rams Win It All Edition.
Stories
- Ericsson is in more FCPA trouble. Mengqi Sun in the WSJ Risk and Compliance Journal. Aaron Nicodemus in Compliance Week. (sub req’d)
- DD impeding compliance in developing markets? Katya Lysova explores in the FCPA Blog.
- ESG-no longer a nice to have. Karen Alonardo in Risk and Compliance Matters.
- State AGs are waiting. Ashley Taylor and Chris Carlson in CCI.
- The latest case on CCO liability. Matt Kelly in Radical Compliance.
- Broken windows and compliance enforcement. Anthony O’Reilly in Compliance and Enforcement.
- Companies yet again ask the EU for rules around ESG. Lawrence Heim inpracticalESG.
- White-collar enforcement trends in 2021. Jamie Rosenberg in Grand Jury Target.
- HP-Autonomy from the auditors’ perspective. Francine McKenna in The Dig.
- South African courts deny Zuma’s attempt to remove the SA corruption prosecutor. Rick Messick in GAB.
Podcasts and More
- In February on The Compliance Life, I visited Ellen Smith, a former Director of Trade Compliance who recently started her consulting firm. In Part 1, she discussed her academic background and early professional career. In Part 2, Ellen discussed her move in-house. In Part 3, Ellen discusses being a part of the Compliance Dream Team at Weatherford.
- Tom and Richard Lummis are in the middle of their annual review of Best Picturing winning movies on 12 O’Clock High, a podcast on business leadership. Part 1 reviews Schindler’s List for leadership and ethical lessons. In Part 2, the look at Gladiator.
- CCI releases a new e-book from Mike Volkov, “Compliance Culture Revolution.” Available free from CCI.
- Tom looks at some innovation in compliance with a 3-part blog post series in the FCPA Compliance and Ethics Blog. Topics include Compliance Ecosystem Governance, Compliance Branding, Building Culture & Compliance Coaching.
- Are you a Star Wars fan? How about an uber-Geek? You will love the 5-part series appearing next week on the Greeting and Felicitations podcast series on the Compliance Podcast Network if you are either or both. In this series, Tom visits astrophysicist Dr. Ben Locwin on the following topics: Traveling in Hyperspace, Fighting with a Light Saber, Mechanical Prosthetics, Cyborgs and Robots, and the Death Star. It is a ton of fun, and you will love it. Each episode will post at 10 each day next week. Check it out daily.
Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
This week, we are exploring the topic of Innovation in Compliance by considering some of the newest business strategies which can be applied by the compliance profession to corporate compliance programs. My inspiration comes from MIT Sloan Management Review Winter Edition. Today, I want to head in a different direction and provide some guidance on getting your organization’s culture right.
As most readers will recall, a very large part of Deputy Attorney General Lisa Monaco’s October 2021 speech dealt with corporate culture. Regarding culture, Vin DiCianni, founder of Affiliated Monitors, Inc. (AMI), said of Monaco’s remarks, the “announcement by Deputy Attorney General Lisa Monaco and the Justice Department reignited the agency’s concentration of corporate and individual liability for white collar crimes. In doing so, she emphasized to businesses, their leadership and the attorneys who represent them on the importance of implementing and maintaining strong effective compliance programs and how DOJ will continue to look at these programs going forward.” In other words, the criticalness of culture is now paramount. Chief Compliance Officers (CCOs) need to focus on growing corporate culture to build the ethical foundation for a successful compliance program.
In the most recent MIT Sloan Management Review issue, Donald Sull and Charles Sull penned an article entitled “10 Things Your Corporate Culture Needs to Get Right”, in which they posited that “knowing what elements of culture matter most to employees can help leaders foster engagement as they transition to a new reality that will include more remote and hybrid work.” It is an excellent review of some of the key elements around corporate culture and how CCOs can move forward to lay the foundation of one.
In the piece the authors explored “What distinguishes a good corporate culture from a bad one in the eyes of employees?” Of course, culture always starts at the top but unfortunately, the authors noted that “an organization’s official core values signal top executives’ cultural aspirations, rather than reflecting the elements of corporate culture that matter most to employees.” It is only by listening to what employees want that you can begin to understand how to improve culture. The authors found 10 key elements of culture that mattered most to employees.
- Employees feel respected. Employees are treated with consideration, courtesy, and dignity, and their perspectives are taken seriously. This is by far and away the most important factor and “the single best predictor of a company’s culture score is whether employees feel respected at work. Respect is not only the most important factor, it stands head and shoulders above other cultural elements in terms of its importance. Respect is nearly 18 times as important as the typical feature in our model in predicting a company’s overall culture rating, and almost twice as important as the second most predictive factor.” The implications of this finding go to communications and a speak up culture and how they might be used by a compliance function.
- Supportive leaders. Leaders help employees do their work, respond to requests, accommodate employees’ individual needs, offer encouragement, and have their backs. Here the authors found “Employees describe supportive leaders as helping them do their work, being responsive to requests, accommodating employees’ individual needs, offering encouragement, and having their backs. Leaders, of course, influence all aspects of culture, but being a source of support for employees is especially critical and is the leadership trait most closely associated with a highly rated culture.” This ties back into the respect finding and also ties into a speak up culture and trust at an organization.
- Leaders live core values. Leaders’ actions are consistent with the organization’s values. While the regulators focus on this issue, employees need to see leaders not simply espousing words but actually doing deeds. Perhaps most interestingly, “Employees don’t expect leaders to live the core values, but they appreciate it when they do.”
- Toxic managers. Leaders create a poisonous work environment and are described in extremely negative terms. Nothing will kill culture faster than a toxic manager. From the compliance perspective, this can be a disaster for not only does a toxic manager poison the atmosphere of those around them, but also those who train under him or her will garner their toxic approach as a role model.
- Unethical behavior. Managers and employees lack integrity and act in an unethical manner. Once again this can portend a disaster for an organization. Integrity is the cornerstone of most organizations’ official culture and “Identifying toxic leaders, digging deeper to understand the context of their behavior, coaching them, or removing them from leadership positions are tangible actions organizations can take to root out people who are undermining corporate culture and potentially exposing the company to reputational or legal risk.”
- Benefits. Employees’ assessment of all employer-provided benefits. While initially this might not seem like a compliance issue, when you look at the DOJ mandate for corporate compliance to be the bearer of institutional justice and institutional fairness you begin to see the connection. Perhaps most interesting is that “benefits are more than twice as important as compensation. Benefits are important for all employees, but which benefits matter most depend on an employee’s job. Health insurance and benefits are a better predictor of culture rating for front-line workers, while retirement benefits such as 401(k) plans and pensions matter more for white-collar employees.”
- Perks. Employees’ assessment of workplace amenities and perks. This finding once again calls the CCO around institutional fairness and ties into the importance of talent attraction, acquisition and retention. Here the most interesting item I found for compliance was that “Among perks, company-organized social events are a particularly strong predictor of a high culture score. Even when you control for how employees talk about perks in general, social events like team-building exercises, happy hours, and picnics emerge as a reliable predictor of a high culture score. Organizing social events is a promising and relatively low-cost way executives can reinforce corporate culture as employees return to the office.” This provides insights on ongoing communications about compliance in the post-pandemic world.
- Learning and development. Employees’ assessment of opportunities for formal and informal learning. This finding also portends well for compliance in terms of both formal and information compliance training and messaging.
- Job security. Perceived job security, including fear of layoffs, offshoring, and automation. Most compliance functions do not consider job security as part of corporate culture. However, the authors note, “Job insecurity, however, weighs heavily on employees’ minds when they assess corporate culture. The larger the percentage of employees who talked about layoffs, outsourcing, or the possibility of getting fired, the lower the company ranked on culture.”
- Reorganizations. How employees view reorganizations, including frequency and quality. I found this not too surprising, but the authors did note, “Virtually no one has any good things to say about reorganizations.” Further, “the fewer people who mention reorganizations, the higher a company’s culture score. While you might associate the mention of reorganizations with layoffs and job instability, the data reveals that employee concerns on this issue speak to wider strategic issues for companies.”
CCOs and compliance functions face a series of challenges while navigating the post-COVID-19 return to work. Through corporate culture, companies must maintain a healthy culture as mandated by the DOJ. The authors conclude, “Understanding the elements of culture that matter most to employees can help leaders maintain employee engagement and a vibrant culture as they transition to the new normal.”
Please join us tomorrow where we will look at why you need a career coach in compliance.
Categories
Innovation in Compliance: Compliance Brand
This week, we are exploring the topic of Innovation in Compliance by considering some of the newest business strategies which can be applied by the compliance profession to corporate compliance programs. My inspiration comes from MIT Sloan Management Review Winter Edition. Today, I want to explore why Chief Compliance Officers (CCOs) and corporate compliance need to move beyond simple trust to engage their stakeholders more fully.
In Moving Beyond Trust: Making Customers Trust, Love, and Respect a Brand, authors Andreas B. Eisingerich, Deborah J. MacInnis, and Martin Fleischmann posit that the most admired brands find innovative ways to enable, entice, and enrich customers. The concepts that the authors put forward should resonate with every CCO and compliance professional. Always remember that as a compliance professional, your customers are your stakeholders, employees, senior management and third parties. If you can go beyond trust to build a brand with them, not simply will your relationship be stronger, but you will finally move to becoming part of the team to get things done.
Brand Admiration
I am still persuaded by David Baldacci and James Patterson who both said in writing masterclasses that your brand is your word. If that is your goal as a compliance professional, its achievement can pay big dividends with your Business Development (BD) folks. As the authors put it, “Positive emotions like gratification from brand usage and pride from brand ownership generate a tight link between the brand and customers. Brand trust, love, and respect don’t just give meaning to customers’ lives; they also create a safe haven where things seem right with the world, especially in turbulent times.” As a compliance professional you might not be able to achieve that, but you can come very close, especially if you are seen as the keeper of institutional justice and institutional fairness at your organization.
Brand Benefits
Customers look at what benefits brands will bring to them, as in ‘What’s in it for me?’ That is almost antithetical to how compliance professionals view a corporate compliance program. A shift in thinking is therefore in order. Indeed, the authors write, “Benefits refers not to what features the product offers or has but rather how it helps customers meet their needs, wants, and goals. As Harvard Business School professor Theodore Levitt famously quipped, customers don’t want a quarter-inch drill; they want a quarter-inch hole. Whereas product features can help realize benefits, the benefits themselves lead customers to the marketplace.” If a compliance function shifts its thinking to this model, it may well portend a different view when compliance comes knocking.
Moreover, what customers want from products and services is similar to what employees want from compliance. “They want benefits that enable, entice, and enrich them. We call these benefit types the 3 E’s.1 Many brands do a good job of offering one type of benefit (usually enabling benefits), but brands that truly resonate with customers stand out by providing all three types. Indeed, our work shows that when combined, the 3 E’s have an exponential effect on enhancing customers’ quality of life and hence the brand’s value to customers.”
Brands Solving Problems
The real key to having compliance seen as a benefit is to help business representatives solve problems “in ways that are economically feasible, reliable, efficient, and convenient.” When a corporate compliance function genuinely enables stakeholders to do business, it removes all negative connotations associated with the compliance department as “The Land of No, headed by Dr. No”. Such states “like frustration, anxiety, fear, impatience, and anger; which inhibit admiration and loyalty” can be overcome and a corporate compliance function can move to “instead foster peace of mind and satisfaction.” How can a compliance function do so?
One manner is through resolving problems. Brands can provide enabling benefits by enabling employees “to solve their problems — both small and large — at work or … in their business relationships.” This in turns gives employee and other stakeholders a greater “sense of agency in solving their problems, they experience a greater sense of control over their environments. This in turn leads to a sense of relief and security from future threats.”
Another manner which might seem less obvious to compliance professionals is through the conservation of resources. Benefits from compliance can also enable employees and other stakeholders differently, “by helping them conserve scarce time and monetary, psychological, and physical resources,” a successful compliance brand helps employees to be less mentally taxed, less tired, and less anxious. As the authors state, “When a brand consistently enables customers over time, they begin to trust the brand. They know that they can rely on it to solve their functional problems and conserve their scarce resources.”
This means that if your compliance function can help make your organization operate more efficiently, it can be a benefit separate and apart from increasing sales. Here the use of data and data analytics can help to lead the way. As the Department of Justice (DOJ) mandated, compliance must have access to all data across an organization. The data and analysis can be used to make other processes, for example in QuoteToCash (QTC) on the sales side or ProcureToPay (P2P) on the supply side, more efficient, saving not simply physical resources but also the resource of time.
When you think about solving problems with creating more efficiencies and saving employees time, thereby benefiting them with the gift of time, you can begin to see how compliance might be seen in a new light. Whatever specific strategy you might use, compliance can become a successful brand by offering enabling, enticing, and enriching benefits in authentic ways, and becoming an essential and indispensable part of employees and other stakeholder’s lives.
Please join us tomorrow where we will look at the 10 things a corporate culture must get right.