Richard Bistrong FCPA Blog

Richard Bistrong FCPA Blog

A Real World Compliance Blog based on the actual experiences and perspective of Richard T. Bistrong, a former international sales executive. A venue dedicated to the open and professional exchange of real-world FCPA compliance issues and challenges. Now at

Sunday, March 30, 2014

Why Transformation Efforts Fail: Lesson 3.

As introduced last week, John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, Harvard Business School, in “Leading Change, Why Transformation Efforts Fail,” (HBR, January 2007) discusses why companies seeking to change the way they operate in a new “more challenging market environment” often encounter internal institutional resistance from “those in the trenches of the business,” and why “leading change is both absolutely essential and difficult.” Today I will continue to follow Kotter’s outline by focusing on his third “common error”  as  relating to my own experiences, and to bring the reader through Kotter's thinking  so that  others may “avoid the common pitfalls.” For those who are interested in learning more, including the details of eight unique steps to transformation, here is a link to the work.

Lesson 3: "Lacking a Vision."

First, the simple question, of which there have been many answers in academic and corporate discussions-: "what is vision?" Kotter defines it as "a picture of the future that is relatively easy to communicate and appeals to customers, stockholders, and employees" with the additional, and critical caveat that vision "helps to clarify the direction in which an organization needs to move." So, what happens when vision is not clear or well articulated in the process of transformation? As Kotter explains, the process "can easily dissolve into a list of confusing and incompatible projects that can take the organization in the wrong direction, or no direction at all."

In the context of a company looking at corporate transformation when it comes to FCPA compliance and ethics, this "vision thing" is more than just lip service to a "sound bite." To the sales person sitting and traveling in an overseas territory, far away from the home office, if that vision is not amplified at the start, it can become diluted, distorted, and at worst, ignored,  through each level of the org chart, as it gets communicated "downward."  All it takes is one person in the communication process, maybe a sales manager, a business development executive, or perhaps even a divisional leader, to say to that person in the field, "don't worry about that stuff, just focus on selling," and all that transformational  effort at the corporate level melts away and never  touches the person(s) most likely to come into contact with foreign bribery: the overseas sales and marketing team.  I once heard a Global (yes, Global) VP of Sales at a large multi-national company refer to his compliance department, after a major FCPA training conference, as the "business prevention department." So, for the sales team working in that organization, looking for direction, operating in remote territories, what did the corporate vision mean to them?  Back to my "kidney stone" management analogy. Its going to hurt during the process, but "hang tough" through the pain, and it will be back to normal soon enough.

So, in my experience, while I agree with Kotter that vision needs to be clear and well articulated, it also needs the "lesson 2" mandate of a powerful and broad guiding coalition to insure that it is heard as loud in remote foreign capitals where the sales team operates, as it is in board rooms of the home office. Thoughts?

Friday, March 28, 2014

Why Transformation Efforts Fail: Lesson 2.

As introduced yesterday, John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, Harvard Business School, in “Leading Change, Why Transformation Efforts Fail,” (HBR, January 2007) discusses why companies seeking to change the way they operate in a new “more challenging market environment” often encounter internal institutional resistance from “those in the trenches of the business,” and why “leading change is both absolutely essential and difficult.” Today I will continue to follow Kotter’s outline by focusing on his second “common error” as to bring the reader through his thinking  and “avoid the common pitfalls.” For those who are interested in learning more, including the details of eight unique steps to transformation, here is a link to the work.

Lesson 2: "Not Creating a Powerful Enough Guiding Coalition."

In my own experience, I think this is perhaps one of most deadly of the transformational sins, as it often only takes one person who is out of  alignment in the coalition of change, to impact how change is perceived by those in an organization, especially by those "lower in the org chart." Kotter recommends bringing in personnel from the organization who are not at the C-Suite level in the reform process as such efforts where the current system is failing “generally demands activity outside of formal boundaries, expectations and protocol.” Kotter spends a great deal of time discussing the necessity of a powerful “guiding coalition” as to not “underestimate the difficulties of producing change.” He adds that "if the existing hierarchy were working well, there would be no need for a major transformation."

Taking this lesson to the sales field in the context of FCPA, again, I  bring up the oft used sales perception that management needs to pick either "compliance or sales," as a dangerous zero sum game in the goal of driving an anti-bribery culture and program.  By bringing  sales leadership into the transformational process, which I have yet to either hear about or experience (and I invite comment with examples), the C-Suite demonstrates that they "hear the voice of sales" in the process, and that both global and regional concerns will be addressed and valued by corporate leadership in the implementation of change. Furthermore, I agree with Kotter in that it does not have to be the VP of sales or a high level executive. More appropriate, it might be a regional sales manager in a territory which ranks low on the integrity index, as that person would be able to represent some of the most challenging issues in encountering foreign bribery to management as part of a transformational effort in rolling out an anti-bribery culture and program.

I once worked with someone who had a career in the military (as an Officer) and he told me a story that really had an impact on my thinking, and I think it is relevant to today's post. He shared with me how he was implementing a major initiative which required a great deal of work among his direct (non-commissioned Officer) reports, if it was to succeed. He told me how he got them all into a room and made everyone cover up their insignia, himself included, to discuss the program.  He then solicited  their opinions of his initiative, and asked for open and honest feedback, explaining that for the discussion, rank did not exist. He shared with me that he got incredible insights from the field, made some adjustments based on those comments, and had great results. Just ponder that for a minute, that as an Officer he did not need to either bring others into his thinking, nor solicit feedback, but as he shared with me, once his reports knew that they were "part of the team" they worked double hard and double-time to make it a success. That's what I call a powerful coalition!

Thursday, March 27, 2014

Why Transformation Efforts Fail: Lesson 1.

John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, Harvard Business School, in “Leading Change, Why Transformation Efforts Fail,” (Harvard Business Review, January 2007) discusses why companies seeking to change the way they operate in a new “more challenging market environment” often encounter internal institutional resistance from “those in the trenches of the business,” and why “leading change is both absolutely essential and difficult.” In my experience, for companies seeking to transform their compliance programs and cultures, there are important lessons to be learned from this writing, which was originally published in 1995 as a preview of Kotter’s 1996 book Leading Change.  Nonetheless, the lessons, short of twenty years later, remain just as relevant, if not more so, given the recent trends in FCPA enforcement. I will follow Kotter’s outline by focusing on his “common errors” as to bring the reader through the process and “avoid the common pitfalls.” For those who are interested in learning more, including the details of eight unique steps to transformation, here is a link to the work.

What is the end result of all this? I remember working for someone who was leading a major initiative and I asked him what was his goal; he stated that the goal was to avoid “kidney stone management.” In his definition,"kidney stone management"  is change which is “painful while it is occurring,  but if you wait long enough, it passes, and everything goes back to normal!" Thus, each day I will post one of Kotter’s eight deadly errors and invite comment in hopes of helping others to avoid future "kidney stones."

Error 1: Not Establishing a Great Enough Sense of Urgency. When implementing a change, the entire organization needs to understand the sense of urgency. I have seen examples of organizations which want to change their culture and implement FCPA compliance; according to Kotter, this kind of change (in a general sense) needs to be more revolutionary, as opposed to evolutionary. What defines revolutionary? According to Kotter, it is when “about 75% of a company’s management is honestly convinced that business as usual is totally unacceptable. Anything less can produce very serious problems later on in the process.” 

Thursday, March 20, 2014

In Walks a Public Official: A Compliance Challenge

For the compliance practitioners and professionals, I have put together different elements from my experience in overseas sales into a single scenario, for your review, thoughts and comments, which I invite and welcome. The following event did not occur as a single integrated scenario. But there are common threads from different places and different times, to demonstrate how a sales individual or organization might encounter a situation which demands the focus of a compliance professional, either internal or external. 

A Night Out

The story starts without controversy. A dinner between a line salesperson, US citizen, (not an executive, but someone who has a small international sales territory) and his third party intermediary (agent) at an overseas location. The two are on friendly terms, have been together professionally and personally over the course of five years, and have successfully worked together on small to medium sized tenders for a national purchasing entity. As far as the sales person is  concerned, the prior successes were based solely on the strength of the technical proposals and competitive pricing submitted to win those tenders. The following morning both the salesperson and the agent will attend the public opening of a significant tender for a national purchasing entity, on which they have been working together for a year.  The technical and pricing package was just submitted hours before they sat down to dine, as the deadline for submission was close of business that day.

In Walks a Public Official 

About half-way through dinner a gentleman walks in and joins the two. He is introduced  as a member of the Technical Evaluation Committee (falling clearly within the FCPA definition of Public Official). While it was clear that the agent expected the public official's arrival, it came as a surprise to the salesperson. As to the public official,  bids which do not pass his scrutiny the next day will be eliminated. While the conversation between the agent and the public official is in the foreign language, the salesperson notices that the tenders for the competition are now out on the table.  During his visit,  the sales person witnesses an extended conversation (again, in a foreign language) between the agent and the public official, and they are reviewing, page by page, the tenders of the competition. The salesperson is not asked to participate in the conversation, nor does he volunteer  and within an hour the public official makes his exit.

Now what?

After the public official departs the agent simply says something to the effect that  "he is with me." The sales representative does not ask any questions. He realizes that the competitors bids are not yet public information, and understands that  access to that level of non-public documentation did not come for free to the agent. 

To the compliance professionals and practitioners, here are the common threads of this scenario, through my own perspective:

1. An event happens which was not  shared prior with the salesperson. While the agent expected the arrival of the public official, he did not disclose it to the salesperson until the official's arrival at dinner. 

2. There is no visible exchange of cash, or monetary equivalent.

3. The exchange which was witnessed by the US citizen is in another language or in broken English.

4. The agent refers to the relationship between himself and the foreign official in language which is meant to be vague, give cover, or, in simpler terms "a wink and a nod."  The agent makes no mention of a bribe, using that terminology, to the representative. 

5. The sales representative now has to make a decision in a hurry, given the time differences between his current location (GMT+2), and the location of his company's offices (EST).

To the Compliance Professional, what would you advise the sales representative to do?  

As background, the tender opens the following day, the sales representative has this sale in his forecast, has spent the better part of a year working on this transaction, and before that dinner, expected that his firm would win the tender based on the strength of his company's proposal and competitive pricing. He has had a successful experience in this country, without any evidence, discussion or reference of bribery, real or potential.  Also, he is close to the agent, and has worked with him successfully in the past on other tenders, and is still working together on future ones. If he walks away from tomorrow's tender he faces a deficit in his sales forecast, reduction in quarterly bonus, and will end up having to sever the relationship with this highly successful agent, who will certainly go to the competition. That is what this line sales person is thinking as he retires to his hotel room. This is the environment under which overseas sales personnel often have to operate. 

The tender opens at 9:00 the following morning.  It is now midnight local time, 5:00 pm EST? What does that sales person do?

 I invite and welcome your comments, thoughts and guest blogs on this subject. 

Thursday, March 6, 2014

Dinner in Ankara

Imagine a sales representative sitting in Ankara, or any other foreign capital, at a late night dinner with his agent (third party), the night before a significant tender. In walks a foreign official to join the two. The sales representative clearly witnesses a corrupt scenario, as the foreign official is passing non-public information to the agent, and through some of the comments made by the agent, it is clear to the sales representative that 1) it is now a corrupt transaction involving foreign bribery, as one can deduce that the non-public information relating tomorrow’s tender is not being provided “for free,” and 2) that based on the sales representative awareness, it is clear that his company is going to win the contract for tomorrow’s tender. What does the salesman do?  The employer has a very clear compliance program and the sales representative has a significant personal financial upside in winning the tender.

I thought of this scenario as I was reading an article in the MIT Sloan Management Review called "Combining Purpose with Profits." (Spring, 2014, Birkinshaw, Foss and Lindenberg), which I think does an excellent job at articulating the tension that sales representative faced, as between corporate purpose and individual profit, and in my experience, the resolution of those tensions has dramatic implications for implementing a corporate anti-bribery culture, particularly in an international sales organization. In summary, the article details the strains, as well successful resolution practices, between corporate “pro-social” or “communal” goals, against personal financial gain and reward, which the authors label “hedonic and ”gain” goals.  As the authors ask, “is it possible to strive for a higher purpose while also delivering solid profits?”

In my opinion, the relevancy of this article with respect to FCPA compliance, is in the analysis of the inherent tension between the communal goals of maintaining, respecting and adhering to a strict anti-bribery culture, and the personal goals (as in performance compensation) of an individual international sales person.  In other words, is there a built in conflict between “pro-social” FCPA compliance programs and individual sales performance in the international marketplace?

While the authors see that antagonism as being managed in a way which can ultimately result in superior financial performance over the long term by embracing pro-social goals, my questions remain:

How does that get resolved at the individual sales level?  In other words, how does a sales person in the field, operating far from the C-Suite, who is most likely to encounter a potentially corrupt situation, make decisions relating to communal and hedonic variables? 

The Impact of Compensation

Based upon my past experience, and I will blog about this from a number of academic and practical perspectives, much of it comes down to the alignment of compensation to either common/social goals, hedonic/gain goals, or a combination of both. The fine-tuning of that compensation, in my opinion, has very serious implications for the level of anti-bribery behavior at the field level, especially for those who spend a majority of their time overseas.

Sales people behave as they are compensated, or stated more crudely “they eat what they kill. “ For an international sales organization, how that incentive compensation gets distributed from the individual, group and/or corporate level can have significant implications. I strongly believe that in compensating an international sales person, where personal performance "upside" is a high percentage of total compensation, and not tied to any group or corporate “pro-social” goals, that a potential zero-sum game in terms of compliance versus compensation can exist; consequently, where there is a zero-sum game, there is a  compliance hazard at the individual level.

The authors provide an “off-ramp” to this hazard, as they lay out the results of their research around goal-framing theory, which provides an academic roadmap for aligning the social/common goals of an organization to the hedonic/gain goals of an executive, so that at the individual level, each player sees the “common“ as in the long term financial interest of the organization, as well as in his or her interest.  In other words, as they state, it puts the question “what should I do to make us succeed?” on a higher order than “what should I do to get ahead.”

Can I be a “me” and “us”  player?

So, how do these get balanced?  As the authors explain, and I concur with my own observations, “if all the talk is about the size of the annual bonus, the gain goal will immediately dominate the others.” Nonetheless, the critical question remains what is the link for the employee to think beyond personal financial compensation? According to the authors, the challenge is for the corporation to make the common or pro-social goals more “salient and meaningful” to the organization, so that an individual can see “how their efforts fit with those of other employees” to fulfill the overall common goals. How? The authors propose that companies should:

·       Promote pro-social goals before financial goals in company statements and communication. As an example, the authors recommend that individual rewards should be linked “to the performance of the group, operating unit or company as a whole, rather than to just individual outcomes.” This should be implemented at the annual review process and public acknowledgements.”  As the authors state “without such reinforcement, employees will see a disconnect between the demands of their immediate job and the espoused goals of the company, and the pro-social goals will end up being displaced in favor of gain or hedonic goals. “

·       Really think about commitment. Often the case is that a “pro-social goal” was “just a set of words-in effect, a veneer on top of a gain driven company.” That is what I call “tick the box” compliance or ethics.

·     Motivate employees to consider pro-social goals. From three successful case studies, the authors conclude that it is indeed possible to motivate employees to realize that pro-social goals can also make economic sense by turning those goals into “consistent and committed action.” However, for an additional brilliant case study of how a company put into practice the communal and pro-social goals of compliance, see Compliance Insider,  “Integrating Your Compliance Programme into the Variable Compensation of Executives.” (June-August, 2013) While this case study of The Sorin Group was not part of the MIT article, it shows just how a top down AND bottom up approach to compliance can truly align pro-social and hedonic goals, and to optimize win-win choices from the C-Suite to the individual international sales executive.

     Put the right support systems in place. As the MIT Sloan case studies and the Sorin Group make clear, a company can put in place supporting systems which, as the Sloan authors state “help them operationalize their pro social goals at different levels, and thereby to make them stick.” How? By incorporating “the pro-social goals into the day-to-day work of employees.”

In addition, as both the MIT article, and the Compliance Insider make clear, there are hazards to this alignment at the CEO level. The MIT authors state that many CEOs simply pay lip-service to pro-social goals as  “they know they are supposed to have a corporate vision or purpose, but they secretly think that wordy statements about the purpose of their business are just empty rhetoric.  And it doesn’t take long for employees and other observers of the company to figure this out (emphasis added).” The Sorin Group, in their program, took compliance to the top, and the C-Suite incentive compensation plan had a serious compliance component “embedded,” which then cascaded down all the way to the operating divisions.

In conclusion, as the MIT authors state, “corporate executives have to work doubly hard to affirm pro-social goals and to develop systems and structures that reinforce them. “ If you doubt that is possible, a good reading of the Sorin Group case study shows that, as Michelle Bradbury, Chief Compliance Officer, US, Sorin Group, stated “once you start down this path, failure simply isn’t an option.”

It sounds like with a compliance program such as the one Sorin Group has developed, the  dinner in Ankara decision is a no brainer!