Rationalizing Risk: Compliance as "Bonus Prevention"

As part of my series on “Rationalizing Bribery,” I now turn to the issue of personal incentive compensation. As tweeted by Ben DiPietro, @BenDiPietro1, Wall Street Journal Reporter, during my interview at the Dow Jones Global Compliance Symposium (DJGCS) on April 23, 2014 “I knew (what) I was doing was wrong but rationalized the risk.”

I call attention to his tweet to make clear that in sharing my “rationalization process,” I am by no means attempting to justify or deflect responsibility from my own behaviors. Rather, I hope that by revealing my thinking as I confronted corruption in the sales field, that I might provide value to today’s compliance professionals, as they look to assist those who work in challenging markets where there is a high level of corruption risk.

Joel Schectman, Wall Street Journal Reporter, @joel_schectman, tweet from the DJGCS: “You’ve already lost when it’s a zero sum game between compliance and profit. Richard Bistrong…”

Lets start with the premise that behaviors in any organization are driven to some degree by compensation.  As Andrew Leigh states in Ethical Leadership (2013) “you increase the chances of desired behavior happening by rewarding it.”

The relationship between compensation and compliance becomes even more critical when an international salesperson is working in a “low integrity” territory. Simply stated, if a salesperson has a high percentage of total compensation based on individual sales performance in a “low integrity” territory, the message of compliance becomes distorted by economics.  That salesperson is being paid in a way that encourages him to view compliance and compensation as a zero sum game.  Such a person is being asked by his paycheck to ask himself “Does my sales manager want compliance or sales?” Corporate compliance and ethics are now compromised, as a sales person tallies his “deliverables” if he is ever confronted with risk or actual corruption in the field.

Ben DiPietro, @BenDiPietro1 tweet during DJGCS “Bistrong: how you compensate a sales person will impact how they view compliance.”

Again, by putting someone in a "low integrity" territory with a high percentage of compensation based on individual sales performance, a company is sending out mixed messages.  Personal sales incentives ask an employee to focus on the ends, or “wins”  while compliance focuses the employee on the means.  When the two messages speak to conflicting priorities, a salesperson will be left to wonder what management really wants.

Integrating this type of compensation into an environment of procurement instability (as discussed in my previous post), certainly creates the potential for a  “perfect storm,” of risk rationalization.

There will be no shortage of sales, marketing and business development employees, with lucrative incentive compensation packages, who are going to want to push the envelope on finding a way to deliver sales success over compliance to a sales manager.  In an unstable procurement environment, where purchases are sporadic, unpredictable, yet financially significant, a sales person knows that if he or she misses a major procurement, it may or may not come back in the sales and bonus cycle.

Thus, when confronted with a corrupt transaction, the sales person may think, “I have a lot on the line here personally, this purchase won’t happen again for another year, at least, so what does my sales manager want, compliance or sales?”  As in my prior post on Cisco In Russia, when the Cisco employee heard the talk among his agents turn to bribes, he was reported to have left the room, and when invited to stay, he said “I don’t want to.” He did not walk out to call his compliance officer, he walked out as to not witness anymore what he was already hearing. What drove that decision, compliance or performance? 

Donna Boheme, Principal of Compliance Strategists LLC, @DonnaCBoehme, Tweet at the DJGCS, “Bistrong #DJGCS: for intl sales people “#compliance is ‘bonus prevention”

According to Mr. Leigh, “badly chosen incentives can undermine ethical behavior and even encourage unethical practices.”Accordingly, when compliance and compensation are not aligned and the message of anti-bribery gets distorted through personal incentive pay packages, then the result could, in fact, be a decrease in desired "compliance" behaviors.

In a recent conversation I had with a Eurpoean compliance professional, I shared my concerns about the impact of individual incentive compensation in sales organizations, specifically regarding anti-bribery compliance. He said in many companies, the C-Suite message is compliance and anti-corruption, but the pay schedule only tells employees “to win.”  These companies leave it to the salesperson to figure out the priorities.  When company executives engage in such “double-speak,” saying one thing, but paying for another, there could be serious consequences for all involved.  

In this type of environment, it is extremely risky to allow your international sales, marketing and business development personnel to decide corporate, group and individual goals.

More to come, as the Perfect Storm grows.

Rationalizing Bribery: A Perfect Storm from the Field of International Sales.

On April 23, 2014 I was interviewed by Chris Matthews, Wall Street Journal Reporter, at the Dow Jones Global Compliance Symposium, in a keynote interview entitled "Informing on Bribery." The session started by discussing elements of my cooperation with US law enforcement, including my disclosures to the Department of Justice and FBI concerning overseas corruption in which I had participated, as well as witnessed, during my career in international sales.  These initial disclosures, made during my proffer sessions at the Department of Justice, ultimately commenced my two and half years of covert cooperation with US and UK law enforcement. I addressed how the FBI witnessed, during my cooperation, the "wink and nod" language of foreign bribery, as confirmed by my first consensually monitored conversation in July of 2007.

Mr. Matthews then turned the questioning towards "what was I thinking" as I encountered corruption in my overseas work. My initial response to his question was that it was a "perfect storm of rationalizing risk," which I broke down into four elements:

1. International procurement instability.

2. Personal incentive compensation.

3. Lack of witnesses.

4. Illusion of no-victims.

Over the next week, I will post on each one of these factors, which all contributed to my "rationalization" of bribery as I encountered it during my international sales experience. To be clear, I make these observations in no way to "justify" my behavior, or even to "explain it away." To the contrary, my goal here is to open the window with respect to my thinking and how I rationalized overseas corruption. My hope is that by sharing my experience, compliance professionals and practitioners might better understand the forces facing international executives, and to better assist them with the  tools and training to help them manage the risk they face, especially the front line personnel, who are, in my experience, the most exposed to foreign corruption in their work. As Wall Street Journal Reporter, Ben DiPietro, tweeted during the interview "I knew (what) I was doing was wrong but I rationalized my risk." Well, here's how:

International Procurement Instability. Winner Take All or Win Big-Lose Big.

Having spent about half my career (the first half) as a VP responsible for US law enforcement and US military sales, I could easily describe that procurement environment as stable. As I shared with Mr. Matthews, take a fifty mile radius around Washington DC and consider all of the surrounding federal, state and local agencies, each one of which has a procurement department(s). These procurement agencies all purchase goods and services on a regular basis. It does not matter if there is a change in departmental leadership, a new President, a new Mayor, etc, the purchases continue. If a procurement official goes on vacation, takes leave, retires, etc, there is someone to take his or her place in the bureaucracy. In addition, the frequency of purchases ranges from long sales cycles (as in large military contracts), to smaller, high-frequency purchases. For a sales person, this is a stable environment and one which can easily be modeled into a sales forecast. If a sale is lost to a competitor, there will be another agency to go after, or that same agency will be buying again in the near future.

Contrast that environment to overseas procurement, regardless of product or services. In many countries, including EU and NATO members, the Ministries at the national level procure goods and services for the entire country, from the federal to local level in a single integrated contract. Thus, in those countries, the contracting entity is concentrated in a specific national Ministry, be it Health, Finance, Interior, Defense, etc.  In addition, those contracts, which cover the purchases for the entire country, often have renewal and escalation clauses which reduce the probability that they will be offered again for public tender in the near future. In my experience, it was common for a Ministry of Defense or Interior to award a contract and to use renewal clauses over the course of three or four years.

So, How Does that Impact an International Sales Executive?

It means that in a territory there will be a small number of tenders for the products/services that he or she sells, and that those tenders will be significant in value. In addition, if the sales person "loses" the tender to the competition, it means that in terms of the identified market segment, there will be no more business opportunities, perhaps, for years to come.  Thus, for the sales person, and for the company, in most overseas countries, it is "win big or lose big" for sales to state controlled entities.

Is That All?

No. Moving outside the NATO and EU community, procurement instability gets dramatically magnified. In addition to the infrequency of tenders and their large financial scope, there is also the unpredictable and unstable nature of the procurement process as a stand alone issue. Such instability, which can stall, delay, indefinitely postpone, or even cancel a procurement, can be attributable to the following issues which I have encountered the most:

• Regime Change  and Personnel Turnover. I list this bullet point first as it is probably the most common reason for procurement delay or cancellation. In many countries, a change in regime can cause a cancellation and re-bid of all outstanding tenders in the State Ministries. In addition, where there is not cancellation, many of the tenders, even those awarded, will be indefinitely delayed, as existing procurement personnel are often replaced. Such turnover in procurement staffing due to regime change is common. In extreme cases, the funding for all outstanding procurements is cancelled, and the entire tender and sales process starts from the beginning. 

I recalled a transaction in my interview where I had sales responsibility for a  procurement which was funded and licensed, yet delayed for over a year, due to regime change. The change in leadership had caused a significant turnover of personnel in the Ministry, and one of the people who needed to sign the final release of the purchase order was no longer employed  and had to be replaced. One year for a single signature: how can you account for that kind of instability in a sales forecast? 

• Logistics. In many countries, even after a purchase order is funded, signed and issued there can be indefinite delays due to licenses (if regulatory agencies are involved) and/or the arrangement and costs of logistics, including warehousing, shipping and forwarding.  I was involved in a transaction where the purchase order was executed, funded and secured, but there was a negotiation over which party would pay and arrange for the transportation costs once the goods had arrived in port, including storage fees. That negotiation lasted almost six months, mostly driven by the end user (who was a public official). Again, circumstances beyond the control of an international sales person, but one which makes for instability in the planning and forecasting process, both on the personal (as in bonus compensation) and corporate level.

What Does This Have to do with Rationalization of Bribery?

A lot. This is the procurement environment in which overseas sales, marketing and business development people operate. Infrequent but large volume tenders, delays subject to regime change, personnel turnover and logistics, all of which make the entire sales process extremely unstable. If we are talking about sales personnel with high personal performance sales goals as part of their incentive compensation (the next part of this storm), creates tremendous pressure, as it becomes difficult to predict and achieve performance goals.  In other words, the sales person starts to think, "if I miss this sale, I doubt I will see this opportunity again any time soon,  and even if I do win  it, I don't know when it will actually be booked and shipped. A miss here will destroy both my forecast and bonus."

If we are talking about a public company environment, the challenge gets dramatically magnified, as sales and expense forecasting, which are usually on a rolling and quarterly basis, are a part of corporate life. Nonetheless, how can you forecast for a "win all-lose all" tender? How can you predict when an order will get shipped and billed when it is subject to all kinds of delays due to regime change, personnel turnover, etc? All this makes for vulnerability if a corrupt offer is presented. Accordingly, this backdrop of procurement instability is a major part of the "rationalization process," even if mostly an unseen one.

More to come.

GSK, "Free Samples," and a New Business Model.

On April 16th, 2014 Hester Plumridge and Christopher M. Matthews, Wall Street Journal, reported that GlaxoSmithKline (GSK) is investigating claims that its employees bribed doctors "in Jordan and Lebanon by offering perks such as flexible travel arrangements and free samples that doctors could sell on..." (for the full article, link here).  GSK, as reported in the article, stated that the allegations "relate to a small number of individuals in these countries." In their press release of 16 April, 2014 "GSK Statement on Media Reports," (link here), GSK disclosed the number of violations, breaches, dismissals and warnings with respect to sales and marketing misconduct,  claiming "these numbers are very similar to those reported by other companies in our sector." Well, is that a good or bad statistic?

Nonetheless, what really caught my attention with respect to this article was the use of "free samples" as part of the "incentive scheme," as juxtaposed  to GSK's "rouge employee(s)" insinuation. While I am not an investigator, journalist nor compliance practitioner, I do have some experience when it comes to controlled samples (assuming these drugs are subject to some level of regulatory and customs control), and thus, I think there is an additional component to this issue.

From my perspective, it would be difficult, if not impossible, for a salesperson to transfer samples for re-sale, either through carrying such samples to the end user, which would require a carnet (see here for carnet information), or even by shipping them, without other individuals and departments knowing that these samples would never return to their point of origin. Furthermore, when shipping or carrying samples, there are numerous customs and regulatory declarations that the samples are either going to be returned, or that they are not subject to re-sale, or both. Thus, at minimum, we have what could be a serious disregard for customs and export declarations in this scheme. 

Again, assuming that given the business in which GSK operates, that they have strict shipping and accountability protocols, including internal and perhaps regulatory audit, that the "we didn't know" just does not square with this type of operation.  It requires too much internal and customs paperwork for such samples to simply "disappear" without  the knowledge of  support and/or management personnel.  Furthermore, one would think that Glaxo would have internal tracking protocols which would alert them when product simply "disappears." As someone who spent over a decade dealing with the issue of controlled samples and international shipments, there is, most likely, a logistical and/or managerial underbelly to this story, beyond the "its just a few." Expensive sample drugs, such as those referenced in the article,  just don't disappear without someone signing off on the expense. 

Maybe Its Part of a Greater Issue, Maybe....

One day later, as reported in Reuters (link here), GSK appeared to have broadened their reaction, given prior corruption issues in other countries, including China, declaring that they will commence to "build a new sales model designed to eliminate sharp marketing practices."  What caught my attention was the quote attributed to GSK Chief Medical Officer James Shannon when he stated  that "sometimes you have to step backwards to move forward.." and continued, "this is an entire rethink about our business practice." When I hear a C-Suite executive publicly stating that the company is looking at a total shift in the business model when it comes to their international business strategy,  I pay attention. 

Why? Because it means that management has accepted that a tinkering of the existing model, including a shifting of compliance and ethics priorities, will not suffice in addressing the issue of international corruption. Its too deep, and even if not "discovered," it remains too engrained in the operating mentality of the international sales, marketing and business development teams which operate in high-risk regions known for corruption.  Thus, it appears in this report, that GSK is no longer content with their problems being "similar to those reported in other companies."

So, What are the Alternative Models?

Coincidentally, while reading the current reporting on GSK, I had the benefit of getting a link on  the HBR Blog Network called "How GE and IBM are Playing Global Development to Win," by Jonathan Berman, as posted on April 16th, 2014 (link here). I read Mr. Berman's post, then immediately ordered his book Success in Africa: CEO Insights from a Continent on the Rise  (link here). In his post, Mr. Berman lays out what I consider to be no less than a total change in  international business modeling, whereby GE and IBM (as two examples) analyze countries not as customers but as business development partners.  It is a mutual investment of time and resources to identify the infrastructure challenges a country faces and then to examine the potential role that the corporation can play in meeting those challenges.

Mr. Berman describes compelling examples of how both GE and IBM used the "development to win" model in order to "spur economic development and create opportunities for their companies." Thus, it is not your traditional "sales cycle" approach to business development with the standard marketing SWOT analysis (strength, weaknesses, opportunities and threats); it is much deeper, as it engages the customer, and in this context we are speaking of state owned entities, as a partner,  not just a  recipient of products and/or services.  Futhermore, in my opinion, it also reduces the level of risk which impacts overseas compliance, bribery and corruption by taking a longer term and patient approach to international business development.

Long Term Vision and the Reduction of  Risk

Again, from my perspective, a longer term horizon with respect to the international sales cycle means less exposure to corruption risk. Why? In many countries and regions the sales cycle is unstable, subject to delays due to regime change, personnel turnover, funding delays and procurement instability. Much of the history of  FCPA enforcement relates to companies trying to "overcome" these instabilities. Thus, a long term vision, as stated by Mr. Berman, includes:

• An upfront "investment of money and time to understand the growth challenges" in the perspective country.

• "Senior management and board involvement." Adding that "companies playing development to win have CEOs traveling to the region 2-3 times per year, supported by engagement of the full management team." Accordingly, here we have the involvement of the C-Suite in the international business development process, stepping outside the normal organizational groupings of sales and marketing personnel.  

• A vision of earnings, investments and returns which are "long term" and "its common to invest for a decade or more before shareholders see material earnings."

As Mr. Berman concludes, "The companies playing development to win need the institutions and policies with which they are engaging to yield tangible results," which in the case of infrastructure investment in state entities, means providing the benefits of those projects to the citizenry. Thus, going back to the paradigm shift, if we think of transactions involving bribery and corruption as producing short term gains, where the immediate beneficiaries are the companies receiving the contracts and those receiving the bribes, this model takes that gain out of the equation. In the "playing to win" model, the vision is long-term, whereby both the corporation and the state both have a sustainable investment in one another, and results are delivered to their mutual constituencies in order bring long term value to all.  It is a positive definition of mutual dependence and both parties have a lot to lose if they don't deliver meaningful value.

In my view, this shift takes the entire debate on corruption and compliance, both in terms of ethics and programs, to a different level of engagement. I am looking forward to reading Success in Africa, CEO Insights, from a Continent on the Rise,  for deeper understanding.

"Why Transformation Efforts Fail," Final Lessons.

David Stulb, Global Leader for Ernst & Young, Investigation & Dispute Services, in introducing Maryam Hussain's recent book Corporate Fraud, the Human Factor, (link here for more info) states that "aggressive prosecution of bribery and corruption is increasing the risk of operating in many new markets. Yet these are the same markets which are critical to business growth and establishing a sustainable supply chain."  I think of that potential  tension between overseas business growth and corruption when concluding my thoughts on John Kotter's work on corporate transformation, which in the context of this discussion, includes transforming a corporate culture to embrace a true anti-bribery ethic and program. As in prior posts, I continue to focus on the relationship between compensation and compliance as part of that transformation process.

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 conclude my discussion of his work  as relating to my own experiences, and to bring the reader through Kotter's thinking  so that others may consider how to “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.

If transformation includes the creation and sustenance of a true anti-bribery culture and program, then incentive compensation for a sales and marketing organization needs to be aligned with desired behaviors to insure that compliance and compensation do not become a zero-sum game. As Kotter states "sometimes compensation or performance-appraisal systems make people choose between the new vision and their own self interest." Hence, as in my prior post where I reference the MIT Sloan Management Review article called "Combining Purpose with Profits", if the C-Suite is proclaiming the "pro-social" goals an anti-bribery effort while delivering a financial message as articulated through a lucrative sales compensation plan to "bring home" the financial goals of sales over compliance, then the best FCPA compliance program will be diluted, or worse, discarded by the time it reaches the overseas sales and marketing organizations.

Kotter concludes that "change sticks when it becomes "the way we do things around here," when it seeps into the bloodstream of the corporate body," and he adds that "until new behaviors are rooted in social norms and shared values, they are subject to degradation as soon as pressure for change has been removed." From my perspective, compensation needs to be a part of that "bloodstream" to insure that incentives align with desired behaviors.  While I was struggling to describe what that transformation might look like, I refer to Andrew Leigh's book Ethical Leadership, Creating and Sustaining an Ethical Business Culture,  (see here for more information) where with permission of the Ethics Resource Center, he illustrates a chart (referencing Prudential Financial, Inc.) called "making the right choices." The chart lists Four Ethical Filters for Decision Making and  I have taken the liberty to put them in a general context, as follows:

1. Policies: Is a decision consistent with policies, procedures and guidelines.

2. Legal: Is the decision legal?

3. Universal: Does the decision conform to company values? Does it benefit stakeholders, internal and external?

4. Self: Does the decision "satisfy my own personal definition of right, good and fair? Can I be proud of this decision or action?"

If a company has implemented a "transformational" anti-bribery program and ethic then individual and organizational decisions throughout the sales and marketing organizations, no matter how far from the "C-Suite" will always be "yes" to the above, and where there is uncertainty, the employee will feel secure in calling upon corporate resources "available to provide... guidance to make sound ethical decisions." I think the above four criteria provide a solid foundational definition as to  how transformation results in a "bloodstream" anti-bribery culture.

I was recently watching a video from the  2013 Dow Jones Compliance Symposium, moderated by Nick Elliott,  Editor, Risk and Compliance Journal, Wall Street Journal, (link here), where Peter Y. Solmssen, General Counsel, Siemens AG, was talking about a project manager who was working in Thailand, who stated that when he is working on a deal, his response to a corrupt event is not "compliance won't let me do that," but that "I don't do that." In my opinion, and the history of change at Siemens has been well reported, that is is what I would characterise as  true transformation.

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?

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!

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.”