Commodore Perry and Integrating Compliance into the Fabric of Your Company

This article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

On this day in 1853, Japan took the initial steps to join the community of nations when U.S. Commodore Matthew Perry, representing the U.S. government, sailed into Tokyo Bay. After due consideration, Japanese officials accepted letters from President Millard Fillmore, making the United States the first Western nation to establish relations with Japan since it had been declared closed to foreigners two centuries before. This opening led to the 1854 Treaty of Kanagawa between the U.S. and Japan, opening the ports of Shimoda and Hakodate to American trade and permitting the establishment of a U.S. consulate in Japan. Then, in April 1860, the first Japanese diplomats to visit a foreign power in over 200 years reached Washington, D.C. These steps led to other treaties with additional Western powers, contributing to the collapse of the shogunate and ultimately the modernization of Japan.

This opening led to the integration of Japan into the world economic order. The integration of compliance into the fabric of any company is the ultimate goal of every Chief Compliance Officer (CCO) and compliance practitioner. The disconnect between the written anti-corruption compliance program and the doing of compliance is one of the chief forces leading to violations of laws such as the Foreign Corrupt Practices Act and UK Bribery Act. This disconnect can lead to conflicting messages and conflicting objectives within any organization. However, if a company can amalgamate compliance into its DNA, there is significant opportunity for both efficiency and value creation.

I thought about these issues when I read a recent article in the Summer 2015 issue of the MIT Sloan Management Review, entitled “Integrating Supply and Demand,” by Wendy L. Tate, Diane Mollenkopf, Theodore Stank and Andrea Lago Da Silva. While their focus was geared toward the integration of sales activities to operational activities in an organization, I found the discussion useful for the CCO or compliance practitioner. I have taken some of their key concepts and adapted them for the compliance function.

Their starting point is appropriately with Peter Drucker, who noted that the disconnect between the sales function and the supply chain was one of the “great divides” in management. Unfortunately, the same can often be said for compliance and business operations. Many companies are “still trying to play off three sheets of music – the financial plan, the marketing plan and the operations plan – with results that seldom end in three-part harmony.” You can certainly slot compliance into this more-than-occasional dissonance. The question is, how can compliance integrate into these functions to become part of the overall business proposition?

The authors posit that companies that have only a single initiative toward integration are doomed to fail. To me, that sounds quite a bit like the difference in having a paper compliance program in place and actually doing compliance. The authors identified five stages companies commonly pass through when they’ve successfully integrated these functions:

1. Develop a relevant value focus. Senior leaders must set the tone on creating value for the organization through compliance. But this means more than simply lip-service, as achieving this goal typically requires developing cross-functional structures and installing dashboard metrics that keep the business focused on implementing cross-functional integration.
2. Share knowledge across the organization. Managers must work on building cross-functional collaboration within the company, building external collaboration with supply chain partners and adopting technology that facilitates collaboration. This means more than simply training. Compliance practitioners need to be able to provide day-to-day guidance on how to do business in compliance with the company’s articulated standard.
3. Allocate resources strategically. Once the entire organization shares the same set of facts, the company can then begin to analyze thoughtfully where and where not to allocate resources based on which customers deserve priority. Executives in sales and marketing should meet with the CCO or compliance practitioners to make decisions about how to create and fulfill demand for the business. This is where a risk assessment can move to a proactive document that can serve as a roadmap to not only enhance the compliance program, but also strategically allocate compliance resources in a more agile manner.
4. Learn to walk the talk. Executives at this stage make individuals accountable not just for their own compliance performance, but for the organization’s overall compliance performance. This should empower business unit representatives to make decisions that maximize overall value and to develop new education and training systems that encourage collaboration all within the context of doing compliance. Finally, they develop new incentive systems that encourage employees to stay focused on how to provide sustainable value to the strategic use of compliance.
5. Balance capacity and demand. All of the work in stages 1 through 4 is just a prerequisite to the final goal: to make sure that the company’s most important business interests and needs can be satisfied profitably. This typically requires streamlining processes and then developing flexibility and fluid scheduling to meet variable demand. Borrowing a phrase from noted compliance expert, Meric Craig Bloch, for the CCO or compliance practitioner, it means focusing beyond “simply ‘if’ a step should be taken and moving outward to consider the ‘should management’ or ‘how would management’ approaches instead. There are always going to be times when we have to say no, but they are likely fewer than we think.”

The authors conclude their article by noting that all of this is “not a functional-level process or even a process that exclusively focuses on integration between functional processes. It’s an organization-wide orientation that spans functional domains and company politics to provide a basis on which to effectively and efficiently run an entire business enterprise. Building that capability takes time and effort. Leaders need to create the right organizational climate for integration and establish goals and metrics that align functions to organizational goals that enable the entire organization to create relevant value for customers of choice.”

To facilitate this integration, the authors present what they term as three key insights for managers. Once again, while the article is focused on supply and demand integration, I found their insights applicable to compliance integration as well. The first is that integrated knowledge is needed to guide integrated decisions. This means there must be collaboration across a wide range of constituencies and stakeholders. In addition to those groups within an organization, it also includes third parties both in sales and the supply chain. Second, pursuit of relevant values requires making choices. This means that your decisions must be based on verifiable data, otherwise you have internal battles solely based on anecdotal evidence.

Finally, and perhaps most importantly, excellence is not enough. For the CCO or compliance practitioner, it once again comes down to doing compliance. Daily compliance execution requires coordination between operations, demand generating and the compliance functions to deliver the required level of value to on each transaction. This requires both flexibility and fluidity of process, “fostered by internal alignment across operational activities.” Ultimately, “Rules, work arrangements and incentives may all need to be revised to keep everyone focused on the success of the partnership.”

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business advice, legal advice or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author gives his permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.