"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.”