Corporate Scandals- How Long Will the Pain Last? Nearly Five Years...

How long does the average customer remember a corporate compliance scandal? Common wisdom states that people’s attention spans are smaller every day, shrinking to nano-seconds when it comes to trends, fashion or the latest antics by a celebrity.

If we extend that logic to corporate scandals, then they shouldn’t hurt that much anymore, right? There are scandals every day, so it’s easy to argue that one more won’t be remembered tomorrow. Right? Wrong.

Bloomberg reported on a new study out of Stanford University showing that the average corporate scandal resulted in 258 news articles and reputational damage that lasted nearly five years. Five years is a very long time to have a company’s name drug through the mud and associated with misdeeds and problems.  
The fallout from the failure to invest properly in compliance and corporate governance controls can be vividly seen by the recent ouster of LendingClub CEO Renaud Laplanche.

Laplanche created the largest online lender by volume, but was told to resign or face being fired after it was learned that he owned an interest in a company that he recommended LendingClub invest in, creating an obvious undisclosed conflict of interest. LendingClub lost nearly half of its stock market value within 48 hours of the scandal being made public.

The Wall Street Journal reported that “LendingClub grew so fast that its internal controls couldn’t keep up.”
Rapid growth without proportionate internal controls creates disaster. LendingClub’s securities filing detailed what is obvious from the fallout:an internal review revealed that they had “control deficiencies.”

Five years of reputational damage, hundreds of negative articles, fired executives and failed leadership are high costs to pay for a lack of investment in compliance, corporate governance and good proportionate internal controls.

Compliance officers are often asked for metrics to prove the return on investment that a company gets for putting money into the compliance program. Ironically, the more successful the compliance program, the more likely compliance is to have its budget cut, as the company forgets the risk and believes that everything will continue swimmingly with no further investment.

As history has shown, without investment, especially in times of corporate expansion and financial growth, the risk of compliance failure increases dramatically.

When executives and boards consider the cost of investment in compliance, they must consider the ultimate cost of compliance scandal. Failure to see the value in avoiding five years of reputational damage is willful blindness that cannot stand any longer in the face of the evidence.
 

3 Wildly Effective Ways To Request Resources From The Board or C-Suite

It seems like every day there is a new regulation requiring you to update your program.  New directives and legislation come into force, new sanctions are imposed, and new enforcement actions change expectations.  When your program needs more resources, it is critical that you receive them.  But in this cost-cutting, post-recession world, how do you effectively make your case to the Board of Directors or the C-suite?  How do you ensure the best chance that the resources you need will be forthcoming? 
 
In my former role as Chief Compliance Officer, I was responsible for making the case for the compliance department’s budget, and for asking for additional resources when I needed them. Here’s how to do it so you get a yes.

One: Be Explicit and Specific
 
It is obvious to you why you are requesting more resources – you need them!  But in order to request more than you already have, you need to do two things.  First, you need to ask with specificity for what you want.  Second, you need to make the case as to why you need the resources.
 
When you ask for you what you want, you must make a solid business case.  This can be done by (1) briefly explaining the cause of the change, such as a new law or a new market that has opened up and (2) using statistics, examples and specific metrics.  Many times resources are not approved because people have not made a solid case for why they are needed.  If you say, “there are new sanctions so I need more money,” that is unlikely to be effective.  However, if you say, “the company is expanding throughout East Africa.  As there were several previous governments in the region where sanctions have been imposed against former leaders and their associates, our department needs an additional $25,000 to neutralize the risk presented in this environment.  The $25,000 will be used as follows…”  The more specific you can be with your need, the more likely the resource is to be granted. 
 
Two: Practice
 
People have faith in people who come into the room confident and ready to make their presentation.  Practice enables you to be confident in your presentation and to be ready for any follow up questions.  If at all possible, use another member of your team to ask you every question he or she can come up with about your proposal to the Board.  Practice the proposal and the question and answer session until you are comfortable with making your business case.  The more specific you can be, the more prepared you will seem, and the more likely you are to get approval for your request.
 
Before I went into any Board meeting, I would ask my junior attorney to watch my presentation and to give me feedback.  She’d sometimes see places where I’d made a leap in logic without explaining myself.  When you’re an expert on the topic, it is easy to forget to explain the background in enough detail that a layman would understand it.  By practicing out loud and getting unbiased feedback, I was able to make my presentation more effective. 
 
Three: Use Stories

People have been using stories to educate and inspire others since the beginning of communication.  You can use stories in a powerful way to obtain buy-in from the Board or C-suite.  One of the most effective ways to use stories is to bring in cautionary tales from your industry.  If another company in your industry or an adjunctive industry has recently had a compliance failure or import/export fine, use the story to put the Board or C-suite on notice. 
 
Studies have shown that people relate most strongly to stories featuring people like themselves.  If you can tell a true story using people from a competing company, or people from a company in the same industry, country, city or company size, you are more likely to have the Board members put themselves in the shoes of those that had a failure.  You are much more likely to get what you need when the Board is emotionally affected by the possibility of a compliance failure.  Stories create emotional reactions in people in a way unadulterated facts and figures do not.  Use the power of storytelling to your advantage.
 
For example, let’s say you work in the technology sector and you want to implement a Know Your Customer protocol. You could tell the Board members about the recent multi-million penalty against a competitor for selling products to Iran and Sudan, and to sanctioned parties in Syria.  Using an example within your industry can be particularly effective, as leaders within an industry frequently know each other socially from industry meetings and networking events.  When you make the case that the new program will cost $100,000, versus the risk of a $1.5 million fine and the accompanying reputational damage, it is much easier to have your request approved. 
 
Another way to use stories is to paint a picture of how the business would be more efficient, more effective or better served by the granting of the resource request.  Tell the story of how the company will work after implementation focusing on the results of the investment.  It is unlikely the Board or members of the C-suite are interested in the details of how your new computer system or employee resources will work.  Instead, tell the story of how much better off the company will be after the resources have been implemented.  A good story is worth more than 1000 spreadsheets.
 
Putting it Together
 
Asking for resources can be a daunting experience, but the more practiced you are, and the better you’ve prepared with a strong business case, the more likely you are to receive what you need.

5 More Ways To Be A Wildly Effective Compliance Officer

Back in February I wrote a post for the SCCE Blog called “5 Ways to Be a Wildly Effective Compliance Officer.”  The post was shared nearly 2000 times, and numerous compliance officers wrote to me with their tips on becoming wildly effective.  As a result, I’m excited to share with you five more ways compliance officers can be wildly effective at their job.
 

Leverage Compliance Believers and Champions

As a single individual or small team, you can only do so much.  People within the business are likely to spend much more time with their line managers, co-workers and other functions than with the compliance officers.  Therefore it is critical to leverage the people you meet in the business who can encourage, influence and evangelize the compliance message to the people around them.

When I was a Chief Compliance Officer, I would look for middle managers who believed in the compliance agenda.  When I found one, I would ask them if they would please publicly thank one or more of their rank and file employees who had done something that supported or promoted the compliance program.  By asking them to publicly acknowledge their employees for compliant actions, the employees learn that (1) they can win points with the boss for supporting compliance and (2) the boss thinks compliance is important.  Creating a culture of compliance is easier when leaders use praise to encourage the compliance message.
 

Make Time for Small Talk

Because of the proliferation of regulations and expanding areas of responsibility, most compliance officers find it hard to get everything done within the working day.  You may be tempted to skip chatting by the water cooler or joining in a coffee break with co-workers so you can get your work done.  Don’t do that.  Making time for small talk allows you to be seen as one of the team.  You’ll hear the local gossip and learn what is really going on when people are used to seeing you in the halls or in the breakroom.  It’s hard to be effective unless you know what’s really happening rather than the party line.  People are much more likely to talk to you when things are hard if they’re used to talking to you when things are easy.
 

Listen 70% of the time, and Talk 30%

David Sandler, the great teacher of sales techniques, advised his pupils to listen 70% of the time, and to talk 30% of the time.  By listening, you invest in the other person, so that they are more interested in hearing your response when they’ve fully talked through their problem.  Many times people don’t really know what is bothering them until they have the opportunity to talk it out.  If you listen carefully, you’ll be seen as a strategic ally who is genuinely interested in solving the problem.  Make active listening a habit and you’ll immediately win friends in the business.
 

Proactively Work with Other Business Functions

To be wildly effective, compliance officers should have a positive working relationship with the other functions in the business, especially Legal, Audit and Human Resources.  In some companies, Information Security, Information Technology, Health and Safety, or Finance may be critical allies.  Rather than engage in turf wars, try to strategically and pro-actively work with the heads of each of the other functions.  See if there is anything the compliance department can do to support the mission of the other functions.  Educate the other functions on how they can help compliance, and ask where you can work together.  The more the business functions can work together, the more effective compliance will be.
 

Remember Your Mission

It’s easy to get discouraged when resources are taken away or it appears that no one cares about the compliance program.  When this happens, remember that you are part of a greater community that is changing the world for the better.  Compliance officers ensure that bribes aren’t paid, that employees don’t get in trouble with law enforcement, and that the company doesn’t have to pay fines which could jeopardize jobs and family stability.  Our mission is important, and, when things are hard, we need to take a step back and remember that we have an amazing opportunity to help to make the world a better place.