Why Teaching Compliance Isn’t Sufficient
Sales teams live and die on incentives. And there’s nothing wrong with that per se, but consider what’s at risk when incentives push sales reps in the wrong way. Valerie Charles, Chief Strategy Officer at GAN Integrity, examines the compliance challenges organizations face in encouraging ethical conduct and mitigating corruption risk.
It doesn’t take a rocket scientist to understand that one of the main reasons a salesperson would make a bribe is to make a sale. This kind of corrupt practice is common and even expected in many areas of the world. It is why sales and anti-corruption compliance are so often uttered in the same breath.
Sales and compliance is a pairing that must be examined closely and continuously. However, risk assessments often aren’t thorough; internal controls don’t catch suspicious transactions; one side doesn’t know (or trust) what the other one is doing.
When the compliance and sales functions aren’t aligned with respect to how they approach anti-corruption risk, all of the above missteps can happen. Even more frustrating is that most sales leaders want to behave ethically; they want to close sales based on their own skill rather than by cheating. Winning is that much sweeter when they do. So then, how do things keep going awry in practice?
For starters, the emphasis on ethical conduct doesn’t resonate with the sales department because they hear multiple conflicting messages. One comes from the top, that ethical conduct is important. The other comes from somewhere below the top, that sales goals must be met by any means necessary.
This is a situation that requires some serious thought; it means that your corporate culture isn’t unified. Instead, you have a subculture (“meet sales goals”) that contradicts the ethical culture the CEO and other senior executives like to talk about. If you can identify that you do, indeed, have conflicting messages and subcultures at your organization, then you can attack that subculture with practical steps to stamp it out.
One place to start would be to rethink your incentive program. Sales teams live and die on incentives, and there’s nothing inherently wrong with that – if your incentives push them in the correct way. Do your incentives punish failure more than they reward success? Do they encourage cooperation among the team or pit sales reps against each other?
Of course, independent measures should be part of a compliance program, such as accounting controls that block suspicious payments to intermediaries, or audits of due diligence procedures. The compliance function always needs to act with independence, and verifying the sales team’s compliance with policy and procedure is part of that job.
Even so, companies don’t really encourage compliance itself. Rather, they explain compliance, which is a procedure that employees should follow. They encourage ethical conduct, which is (or should be) a core corporate value — and when employees embrace it, their behavior naturally follows the compliance procedures companies have established.
What’s the point of making this seemingly small distinction? The point is that companies can indeed enforce compliance with the sales team: by auditing and punishing noncompliant behavior or sealing up opportunities for noncompliance. If those efforts are strong enough, you might even prevent compliance failures on those efforts alone.
Ultimately, though, what will the financial or cultural cost be? A stringent system of controls, rules and punishment might make for fewer FCPA mistakes (although that’s stretch). It also sounds like a painstaking system to implement and a miserable place to work.
So, what is the alternative? Make sure that ethical business conduct is at least an equal priority (if not greater) to hitting sales targets. Then you can ponder: are we structuring incentives to support that priority? Are we relying on intermediaries and agents to the minimum amount necessary? How many due diligence duties can we put onto the sales team, and how many do we place with compliance or audit to trust but verify?
These are important questions, and the answers are not always easy to find. In most organizations, with pre-existing sales functions, business practices and cultures, the answers will also be laborious to implement. At least, however, sales and compliance will be aiming toward the same objective of doing business ethically — and that’s what alignment is.
When working from a place of alignment, an organization stands a far better chance of keeping sales practices compliant than when its sales and compliance teams are circling each other in distrust. That leads only to frustration and a negative work environment. Encouraging ethical conduct rather than merely “teaching compliance” will position your organization for greater success.