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At Large: Are we doing compliance all wrong?

Journalism professors will rap my knuckles for leading with a question (or two), but here goes: Are we designing our compliance programs all wrong? Are we programming our compliance programs for failure?

Consider this: Compliance programs are intended to be an antidote to greed. That’s because greed, as we all know, motivates corporate crime. So far so good. But what if greed doesn’t motivate all or even most corporate crime? What if something else is behind those FCPA violations?

Like fear.

Wait. Fear? Corporations aren’t afraid of anything. They’re big and powerful. They bully their way through life.

Except they don’t. In reality, corporations live in fear. At least the smart ones do. They know that every day, no matter how hard they try, they’re facing economic extinction.

Why? Because that’s capitalism. Someone out there is always trying to eat your lunch. This could be the day when a previously unknown competitor swoops in and takes it all away. Today you own the market. Tomorrow you’re on the trash heap of history. Remember MySpace, Compaq, Yahoo, Polaroid, and Netscape? Neither does anyone else. For those a little older, how about Blockbuster Video, and who has their old World Book Encyclopedia set?

Oh, you’re thinking, that can’t happen to Amazon, Apple, Microsoft, Google, and Facebook. They’re bigger, smarter, and more “modern.” They’ve surrounded themselves with giant moats that protect them from competition — interlocking patents, robot controlled distribution centers, a billion lines of unique code, the biggest user base on earth. Why should they be afraid of anything?

Moats, huh? Warren Buffett (of course) talked about them first. He said he searches for companies to invest in that have big moats. But he had another profound insight — that ultimately moats, even the deepest and widest, have no real value.

“Most moats aren’t worth a damn,” he said. No company is ever safe. That’s competition. The Oracle of Omaha, by the way, owned World Book Encyclopedia. Ten years after buying it he called it “Berkshire’s most difficult problem.”

Warren Buffett isn’t the only person who knows that moats aren’t worth the strategic plan they’re written on. In any corporation there are smart people — from leaders to worker bees — who get it. They know success in business is fragile and fleeting. Disruption happens. Technology shifts. Consumers move on. One day everyone is drinking pinot noir. The next day, it’s boozy seltzer water.

But hold on. Facebook has 2.5 billion users. That’s the greatest network-effect moat on the planet, the experts say. Notwithstanding Warren Buffett’s caveat, Facebook’s market position must be unassailable. The company has nothing to fear.

And yet . . . . that’s not how Facebook behaves. This month the Wall Street Journal reported that European Union antitrust investigators are looking into Facebook’s “alleged efforts to identify and squash potential rivals.”

If Facebook has an uncrossable moat, why does it allegedly need to “squash potential rivals?” Could it be afraid of them?

Ok, maybe Facebook is just greedy. That’s a possibility too. Greed also plays a role in a lot of corporate crime. I asked a former FCPA defendant why he had bribed foreign officials. “The short answer,” he said, “is that it started with fear and ended up with both fear and greed.” In other words, as motivators of graft, fear and greed are two sides of the same coin. They produce the same result.

But when a big corporation cops to an FCPA offense or other crime, we automatically point to greed as the reason. Fear isn’t mentioned. Are we overlooking something important?

So, let’s close this with a final question (or two): Has our fixation on greed distracted us from seeing how fear motivates so much corporate crime? And does that mean compliance programs are still falling short because we’re trying to cure the wrong disease?

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  1. Yes, yes and yes! And you know what the opposite of fear is? It’s TRUST. Ponder that!

  2. Really interesting article. Thank you.

    All negative emotions stem from “Fear”…greed is a negative emotion. All positive emotions stem from “Love”.

    Love creates, builds and abundance/love has no “fear” of failure….because it is not “greedy” or attached to a positive outcome. It has no fear of failure in essence.

    Fear can build wealth too but the foundation of anything build on this model is very different to the former because it is build on the fear of scarcity, fear of competition.

    Question is how much fear (and what derivative of fear…eg. greed, bondage, poverty) is mostly commonly used to keep people’s greed in check, until more of us collectively move the abundance model? And what emotion will be required (if any) to keep us in check during and post the collective transition from building wealth based on fear to building wealth based on abundance/love?

  3. Fear? Petrobras, 1MDB, Luanda leaks, Zuma-gate i.t.q. a matter of fear? Most of them: preempting intruders, blocking new entrants & silencing whistleblowers – with all means. Assumption of greed redundant while probably applicable to all of them.

  4. Great article Richard. Thank you for churning the thoughts

    However, isn’t it greed that breeds fear? The greed to get that extra piece of bread breeds the fear that one may not get it and therefore the wrong step.

    An ideal compliance program should not cater to greed or fear but should emphasize that growth needs to be achieved in an overall sense. Taking the analogy of the greed for the bread, compliance should not only be looking at how the extra piece of bread was collected but also first to question whether there is an appetite for that extra piece, are there overall controls in place for the extra load or whether it will disturb the system and therefore lead to generation of extra crap?

    One may say that is not the job of Compliance as it should concentrate only on whether fair means were used to get that extra piece of bread. That’s a piecemeal approach (pun intended). Engagement of compliance in business decisions from the initial stages of defining hunger and the need for growth can help overall development and help foresee risks and avoid pitfalls. Thus, it will help to avoid greed and therefore fear.

    It is therefore important that Compliance is independently placed at the top and involved in the strategic business decision making process. Compliance should work at getting there. Are we there in the real sense…. ??…

    To conclude, compliance is curing the right disease but is still not well equipped and is engaged after symptoms are observed and most times after being infected

  5. Competing assumptions? A narcissistic sense of untouchability – self-overrating – might be a plausible candidate.

  6. Great story Richard!

    I agree that fear is a big motivator in business, as are many human traits. Executives are fearful of many things (e.g. shareholders, the board, etc.) and that drives their actions. As Warren Buffet said: “it takes 20 years to build a reputation and five minutes to ruin it”.

    I’m not sure that we are designing our compliance programs for failure. It’s a process of continuous improvement, and the phycological factors that influence human behavior (e.g. fear) are starting to play a major role in the structure and improvement of compliance programs, at least at progressive companies. See here:

    As you point out, fear is certainly a major psychological factor to consider. It also helps identify those in the organization who are most at risk at being involved in unacceptable behavior. Namely, senior management and executives.

    There are many companies that say “this is what we expect of you, the employees”, but very few that state clearly “this is the behavior you can expect from your executives and board members”. And, several corporate surveys clearly indicate that employees don’t trust their managers or executive teams.

    Therefore, there needs to be greater emphasis on addressing the phycological factors that underpin the decisions of our senior leaders. While fear of meeting corporate and business objectives is an issue to analyze, we also need to correct the behavior of using fear as a weapon against others. Namely, against witnesses to the crimes that may have been conducted by senior managers and executives.

    This is a significant problem, that continues to haunt some companies, especially those that have senior managers and board members who have spent several years or decades at a company. That “collective history” has an extreme fear of what the truth will reveal.

    Remember, executives with the backbone of a jelly fish will use fear to silence those who know “what they did last summer”.

    • Excellent article! You’re really spot on! It’s fear that’s the final root cause.

  7. Thanks for this really great article.

    To me, the opposite of fear is courage. The courage to face your fears and still do the right thing regardless. How many times have we heard salesmen at their disciplinary hearings or termination interviews tell you that they did what they did because they were afraid of losing their customer to the competitor, or they did it for the sake of the company? But that courage is not just to the right thing, but is also to stand up to the bosses and tell them that they refused to pay a “fee” or agree to a kickback to secure that fat deal.

    How do we give courage to our salesmen? Not by telling them they need to comply regardless, but for the management, the bosses, to tell the salesmen that it is not right to do anything to get the deal. The message should not be “follow the rules or else” which is management by fear, but “follow the rules because ultimately doing business the right way can and does create value and avoids costs like fines and damage to reputation”. It builds trust, which ultimately means less fear of losing your lunch.

    When a company decides as a matter of policy that they are quite ok to have slush funds and buy their way into maintaining their market share we are talking about something akin to greed but not quite; a company that decides that it is better to spend $2m a year to bribe dealers to buy their obsolete products, rather than spend $200m in R&D because the numbers say so, is just plain lazy and does not want to invest to maintain and build its market share.

    The other reason we come across these violations so often is just sheer lack of mindfulness. At the exact moment when they are faced with a decision to make, to choose, they fail to do the right thing because they were just not mindful and the ethical mindset to instinctively, automatically pick the right thing to do was not as yet burned in. To that end I have developed a training program that trains our people to be mindful of ethical issues, so that they are always on and their radar is always tuned to identify the ethical dimension in every issue. Being compliant implies a set of rules to follow. Being ethical simply means knowing the right thing to do and choosing to do it at the right. Ethics and compliance are not exactly the same thing to me.

  8. But what is one fearful of, loosing or reducing his/her position or income stream, isn’t that greed…

  9. From my experience, the foundation of effective compliance is built on values and leadership. In a world in which the rewards for cheating are immediate and concrete and the adverse consequences viewed as unlikely (who ever plans to be caught?) and in many places negligible (losing your job with no loss of severance is a punishment?), it is the combination of values and leadership that inspire people to do the right thing.

    Leaders who communicate by their behavior that rules are to be bent and that only stupid people do what is right and model that behavior should not be surprised when their subordinates believe what they DO and not the platitudes they mouth.

    Leaders who model the values they preach and the behaviors they say they want and who don’t reward people who get good results by bad behaviors have laid the foundation for effective compliance – on which they can build with investment, enforcement, training, etc.

  10. Great article!

  11. Interesting piece, but you haven’t proposed or even suggested what program changes are required to address this risk. You ask whether we’re “doing it all wrong” and whether we are “programming our efforts for failure”; if the answers are “yes” (or even “maybe”), then we want to read your follow-up article so that we can start thinking about a new approach.

  12. I’m going to respectfully disagree with the premise of this article. Let’s stipulate that, of course, fear and greed are huge motivators of corruption. But the article makes two assumptions that I do not think are borne out in reality:
    1) That it is “corporations” who make the decision to engage in corruption, as opposed to individuals; and
    2) That compliance programs are not already structured to address these motivations.

    I do think a lot of corruption is motivated by fear. The most common fear I’ve encountered is the fear of losing one’s job if they don’t hit their sales target, or meet a deadline, etc. That’s about the fears of an individual whose interests may or may not align with the overall corporation’s perspective. Sure, the biggest cases often involve misconduct at the highest level, but those are the outliers. And, even in cases where the corruption does reach the C Suite, it seems to me that a lot of those fears are not driven by a need to protect the company’s “moat,” but again to protect the individual’s job. If you are at a company where corruption is so widespread that it is woven into the company’s actual business strategy, no compliance program is going to be effective.

    Second, wherefore the assumption that compliance officers are not already designing programs to target those fears? Most good compliance programs do that in at least two ways: by ensuring employees that they will not suffer for refusing to participate in corruption and by harshly punishing those who do. This is why tone from the top is so important. The goal is to make a would-be wrongdoer realize that their long term interest is far better served by playing by the rules than breaking them. If your compliance program is not thinking about the specific factors that motivate individuals to engage in corruption – whether it be fear, greed or anything else – I’d respectfully argue that it is not going to be well suited to your business’s needs.

  13. Thomas Pynchon, in his novel about the V2 rocket, Gravity’s Rainbow, essentially builds a case that the evolution of these systems (scientific, economic, political etc.) are based ultimately on “analysis and control” motivated by the fear of death.

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