Corporate culture is all the rage now, meaning it is an often used topic to signal commitment, sensitivity to issues of employee concern, and awareness of governance trends. In practice, as we all know, culture is not just about words but about action. As the often repeated phrase goes — talk is cheap. In this Corporate Culture Roundup Episode, Michael Volkov examines some culture-related issues involving: Culture + Action Steps, Civility in the Workplace, and What Happens when HR and Compliance are Disconnected.
Tag: corporate culture
Ty Francis is a renowned compliance leader and the Chief Advisory Officer at LRN; he leads the company’s worldwide ethics and compliance consulting, ESG, and community outreach strategy. Tom Fox welcomes him to this week’s episode of Innovation In Compliance to discuss LRN’s new report, Assessing Corporate Culture.
The Genesis of the Assessing Corporate Culture Report
Tom asks Ty about the genesis of the LRN report. This is the second report LRN produced; the first one was about activating culture and ethics in the boardroom. Their previous research led the team at LRN to realize that most corporate boards did not understand the culture. Ty says, “Over the last 10 years, culture is so high on those lists, but when you look further into the survey and ask them what they’ve done to measure this culture, it’s nonexistent.” Therefore, LRN sought to discover the general opinion on culture and ethics compliance and provide a roadmap on how to activate these skills within a company.
Roadmap for Building Corporate Culture
Tom highlights how the report can be used as a roadmap to building culture. Ty says that building corporate culture starts with defining ethical culture. Ethical culture is the codification of what an organization stands for and the systems that support those beliefs; the core architecture should be reinforced by leadership in how they model desired behavior. The second step in building culture is getting to know the most valuable members within your company, in each department. Culture is extremely important for building relationships within a company and allowing people to hear opinions from all sides.
The Relationship Between ESG and Corporate Culture
The culture within a corporate setting has always been an ESG issue. The governance aspect of ESG is directly related to culture as it is something that companies should have been implementing for years. Ty remarks, “It shows the company’s values across the board and I think when you have a mismatch of what the company says it’s doing and what they are really doing, that can fragment any ability for a company to demonstrate that it is really a forward-thinking, future-expanding company.” The governance is to be upheld by the board, stewards, stakeholders, and managers. He lists five key considerations for boards:
- prioritizing culture on the board agenda,
- challenging the board’s culture,
- mentoring and monitoring,
- articulating the desired culture, and
- establishing clear communication.
Looking Ahead
Acknowledging the new legal and regulatory requirements, public pressure, and the evolution of thinking surrounding corporate culture, Tom asks Ty if he believes that boards will maintain the corporate culture into 2025 and beyond. Ty believes these pressures will force boards to manage and maintain the corporate culture.
Resources
Ty Francis | LinkedIn | Twitter
LRN | LRN Report – Assessing Corporate Culture
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
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Welcome to the Gallocast-Episode 1
Welcome to the inaugural episode of the Gallocast. You have heard of the Manningcast in football. Now we have the Gallocast in compliance. The two top brothers in compliance, Nick and Gio Gallo come together for a free form exploration of compliance topics. It is great insights on compliance brought to you by the co-CEOs of ComplianceLine. Fun, witty, insightful with a dash of the two brothers throughout. It’s like listening to the Brothers Gallo talk compliance at the dinner table. Hosted by Tom Fox, the Voice of Compliance. Topics in this episode include:
· Return to office, WFH or hybrid?
· Moderna CFO lasts for 1 day.
· Keeping culture positive during acquisition?
· ESG and climate reporting.
· Howard Schultz goes on a listening tour.
· When should a startup put in a compliance program?
· Did we learn anything during the pandemic to end or at least reduce useless meetings?
· What does Ukraine War mean for compliance?
· What can top management do to ‘talk the talk’.
Resources
Nick Gallo on LinkedIn
Gio Gallo on LinkedIn
ComplianceLine
Compliance into the Weeds is the only weekly podcast that 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 a deep dive into the recent speech by Kenneth Polite, the Assistant Attorney General for the Criminal Division. Every compliance professional needs to read his remarks in-depth as they give significant insight into what the DOJ expects in compliance programs and CCOs involved in enforcement actions. Highlights include:
- It all starts with a risk assessment.
- The importance of culture.
- Continuous testing and continuous improvement.
- The role of monitors.
- CCO certification going forward.
Resources
Matt in Radical Compliance
This episode of the FCPA Compliance Report begins a special two-part series with two well-known compliance professionals. Matt Galvin, most recently the CCO at AB-InBev and Dan Kahn, former acting Deputy Assistant Attorney General of the Criminal Division, Chief of the Fraud Section, and Chief of the FCPA Unit. Dan is now in private practice at DavisPolk. In this concluding Part 2, we take a deep dive into the Lisa Monaco Speech focusing on how the DOJ might look to access corporate culture, the Speech’s effect on the Benczkowski Memo, using the Monaco Speech and other external information for internal corporate presentations and the DOJ reviewing other corporate misconduct.
Resources
Matt Galvin on LinkedIn
Dan Kahn at Davis Polk
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Attributes of a Toxic Corporate Culture
Corporate culture is finally being acknowledged as a key ingredient in a successful business, particularly one which operates ethically and in compliance. The Department of Justice (DOJ) formally recognized the need to assess corporate culture in the speech by Deputy Attorney General Lisa Monaco to the ABA White Collar Conference in October 2021. But what are some indicia of good culture and more importantly what are some indicia of a toxic culture? A recent article in the MIT Sloan Management Review provided some guidance. In Why Every Leader Needs to Worry About Toxic Culture, Donald Sull, Charles Sull, William Cipolli and Caio Brighenti posited that by pinpointing the elements of toxic culture in a company, its leaders focus on addressing the issues that lead employees to disengage and quit. These ideas have significant importance for the compliance function as it navigates corporate culture, both in assessing and improving it.
Moreover, the Chief Compliance Officer (CCO) and corporate compliance function were identified in the 2020 Update to the Evaluation of Corporate Compliance Programs as the keepers of institutional justice and institutional fairness. This mean recognizing and then preventing a toxic culture from spreading and infecting your entire organization is squarely in the compliance wheelhouse. The article lays out key red flags for every CCO and compliance professional to look for in assessing culture. Finally, for any company with a toxic culture, the chances are much greater to be defrauded by its own employees or to defraud others through bribery and corruption by violating such laws as the Foreign Corrupt Practices Act (FCPA).
The authors identify behaviors that they call “the Toxic Five attributes”, being “disrespectful, noninclusive, unethical, cutthroat, and abusive – poison corporate culture in the eyes of employees. While organizational culture can disappoint employees in many ways, these five elements have by far the largest negative impact on how employees rate their corporate culture and have contributed most to employee attrition throughout the Great Resignation.” As a CCO or compliance professional you need to be on the watch for them and take steps to remedy them if you see or hear about them.
Non-inclusive Behavior
This is about whether your employees are “treated fairly, made to feel welcome, and included in key decisions.” It is “the most powerful predictor of whether employees view their organization’s culture as toxic. It applies to all demographic groups; “gender, race, sexual identity and orientation, disability, and age.” It can be outright discrimination to the equally invidious but more subtle conflicts of interests of nepotism and playing favorites. The topic of non-inclusiveness includes “terms like “cliques,” “clubby,” or “in crowd” that indicate that some employees are being excluded without specifying why.”
Disrespectful Behavior
The authors found that “feeling disrespected at work has the largest negative impact on an employee’s overall rating of their corporate culture of any single topic.” Lack of respect can occur in many areas. The most obvious is the lack of a speak up culture where employees understand it is useless to raise issues to management; whether serious matters such as FCPA violations to more straight-forward ideas such as process improvement. It can also be something as simple as whether or not to return to the office on a fulltime basis and whether management listens to employees about their desires to continue working from home or utilize some type of hybrid working arrangement. The authors noted, “whether you analyze culture at the level of the individual employee or aggregate to the organization as a whole, respect toward employees rises to the top of the list of cultural elements that matter most.”
Ethical Behavior
The authors believe that ethics “is a fundamental aspect of culture that matters at both the organizational and individual levels.” Interestingly, there are several different aspects to ‘ethics’ that every CCO needs to consider. Unethical behavior is “about integrity and ethics within an organization.” It also includes dishonesty, which “employees described dishonest behavior in many ways”, from outright lying to making false promises to shading the truth to simply “sugarcoating.” Under regulatory compliance employees talked about failure to comply with applicable regulations, including failure around safety standards.
Cutthroat Behavior
I found this category fascinating as it included both uncooperative co-workers and the lack of harmonization across organizational silos. This was not simply “friction in coordination” but situations where “employees talked about colleagues actively undermining one another.” It included what the authors termed as a “vivid lexicon to describe their workplace, including “dog-eat-dog” and “Darwinian” and talked about coworkers who “throw one another under the bus,” “stab each other in the back,” or “sabotage one another.””
Abusive Behavior
Having worked in law firms long ago, I understand abusive behavior. The authors called it “sustained hostile behavior toward employees” including such actions as “bullying, yelling, or shouting at employees, belittling or demeaning subordinates, verbally abusing people, and condescending or talking down to employees.” While one would hope such behaviors do not exist in the 21st century, they apparently still do. 0.8% of the employees surveyed for the article described their manager as abusive, however, when employees did mention abusive managers, it significantly depressed a corporate culture.
What CCOs and compliance professionals should try to drive forward is a “culture that is inclusive, respectful, ethical, collaborative, and free from abuse by those in positions of power.” But the authors caution that these are really the “baseline elements of a healthy corporate culture.” Employees want more than the basics and other stakeholders in an organization want companies to have strong official core values. In an interview with LRN’s Susan Divers, she called it the ‘value in values’. From the compliance professional’s perspective in means values like integrity, collaboration, respectful, and DEI.
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Monaco Speech: Part 3 – Culture
Deputy Attorney General (DAG) Lisa O. Monaco gave a Keynote Address at ABA’s 36th National Institute on White Collar Crime last week (Monaco Speech). Her remarks were noted by many commentators, including on two Compliance Into the Weeds podcasts where Matt Kelly and myself took two deep dives into her speech our podcast. Her remarks reframed a discussion about this Department of Justice’s (DOJ) priorities on white collar criminal enforcement, including under the Foreign Corrupt Practices (FCPA). Her remarks should be studied by every compliance professional as they portend a very large change in the way the DOJ and potentially other agencies enforce the FCPA. This has significant implications for every Chief Compliance Officer (CCO), compliance professional and corporate compliance programs.
Today, I am going to take up her remarks on corporate culture. They were a small but significant part of her remarks so I will quote them in full. She said,
Now, I recognize the resources and the effort it takes to manage a large organization and to put in place the right culture. The Department of Justice has over 115,000 employees across dozens of countries and an operating budget equivalent to that of a Fortune 100 company. So, I know what it means to manage and be accountable for what happens in a complex organization. But corporate culture matters. A corporate culture that fails to hold individuals accountable, or fails to invest in compliance — or worse, that thumbs its nose at compliance — leads to bad results.
Let me also be clear: a company can fulfill its fiduciary duty to shareholders and maintain a commitment to compliance and lawfulness. In fact, companies serve their shareholders when they proactively put in place compliance functions and spend resources anticipating problems. They do so both by avoiding regulatory actions in the first place and receiving credit from the government. Conversely, we will ensure the absence of such programs inevitably proves a costly omission for companies who end up the focus of department investigations.
Although we understand the costs that enforcement actions can place on shareholders and others, our responsibility is to incentivize responsible corporate citizenship, a culture of compliance and a sense of accountability. So, the department will not hesitate to take action when necessary to combat corporate wrongdoing. [Emphasis Supplied]
I asked Affiliated Monitors Inc., (AMI) founder Vin DiCianni for his thoughts around these remarks. He said, “Last week’s 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.
A culture of compliance is the foundation of an organization’s compliance program. It is a measure of how well employees feel empowered to identify, mitigate, and escalate risk within their institution. An institution’s compliance culture is set by the Board and Executive Leadership team. Their messaging should be continuously reinforced in an institution’s risk appetite statement, policies, training and enterprise-wide communications. A strong compliance culture should be evident at all levels of the financial institution and across all three lines of defense.
Tina Rampino, Associate Managing Director at K2 Integrity, laid out some key questions to ask around culture. They included:
- What is the tone that is set from the most senior levels of the organization?
- Are employees motivated by doing any and all business no matter the risk?
- Are they empowered to act with integrity and choose the right business that aligns with their compliance culture?
She went on to relate, “Many institutions have built training and communications programs to help employees understand what the “right business means” – reinforcing an institution’s risk appetite statement, incorporating policies and procedures, and training on red flags and high-risk issues.” She concluded, “A culture of compliance should empower employees, not just in the second line of defense but in all areas of the institution – to think about the risks being presented through their customers, transactions, and products and services and how they can do their part in mitigating risk to the institution.”
We next turned to some of the key actions senior executives and leaders can take to not simply ‘talk-the-talk’ but also ‘walk-the-walk’ of compliance. Senior executives and leaders are responsible for setting the tone from the top which means setting expectations for the importance of compliance throughout the organization and by modeling behaviors for their employees. Rampino details the seven elements of a culture of compliance:
- Tone from the Top.
- Establishing and communicating enterprise-wide policies and programs.
- Defining clear roles and responsibilities across the three lines of defense.
- Ensuring adequate staffing and resources for functions responsible for compliance.
- Designing and implementing a comprehensive compliance training program.
- Establishing compliance incentives
- Creating efforts to embed and sustain a compliance culture.
Monaco had two additional remarks around corporate culture and a culture of compliance that bear repeating. She said, a record of corporate misconduct, even outside the FCPA, “speaks directly to a company’s overall commitment to compliance programs and the appropriate culture to disincentivize criminal activity.” In a remark that tied back to yesterday’s discussion of monitors she said, “Stepping back, any resolution with a company involves a significant amount of trust on the part of the government. Trust that a corporation will commit itself to improvement, change its corporate culture, and self-police its activities. But where the basis for that trust is limited or called into question, we have other options. Independent monitors have long been a tool to encourage and verify compliance.” This last sentence would speak directly to DiCianni’s thoughts that “Unlike the previous administration’s very limited use of monitors, DAG Monaco described the value that integrity monitors bring to oversight for both the department and those entities subject to such oversight.”
Monaco noted she has sat on corporate boards when in the private sector. This experience certainly informs her approach as the DAG. The DOJ will be taking a much closer and in-depth look at corporate culture and whether there is a culture of compliance in any company which finds itself in a FCPA investigation or enforcement action. CCOs and compliance functions need to be ready to have demonstrable and documented evidence of a culture of compliance.
