When Crisis Erupts: Surmount or Surrender?

“The easiest period in a crisis situation is actually the battle itself.

The most difficult is the period of indecision -- whether to fight or run away.

And the most dangerous period is the aftermath.

It is then, with all his resources spent and his guard down, that an individual must watch out for dulled reactions and faulty judgment.”  

~Richard M. Nixon, 37^th President of the United States

As a Chief Compliance & Ethics Officer, you know that the eventuality of crisis striking your organization is not a matter of “if”, but only of “when.” You spend your career crafting and implementing a governance system of policies & procedures, training, monitoring, and reporting whose value will ultimately be assessed in those moments and days following the crisis. Not all systems (nor all leaders) will survive the test.

Crisis will not politely schedule an appointment with you on a lazy afternoon, but will more likely descend upon you furiously, publicly and embarrassingly at the most inopportune of moments. Crisis will arrive in the guise of a viral tweet, a regulatory inquiry, or a criminal indictment. A loyal staffer will hesitantly summon you from a meeting into the hallway to advise you of the breaking news. And so begins the moment of decision.

As Compliance leaders we have trained our entire lives to guide and protect our organizations from harm. The very same principles that we have employed to prevent and mitigate risk will come into play when we must navigate our organization, its leadership and its board through and beyond the crisis. Decisive action that engenders trust must remain at the forefront of the response.

Thus, together we must continue to:

•        Act ethically and decisively;
•          Communicate frequently and transparently; and
•          Modify practices appropriately.

Act ethically and decisively

Crisis does not represent your organization in its entirety. Your mission, your values, and your people remain fundamentally sound, even when something has gone awry. Therefore, even as you and your leadership team are undertaking an investigation and crafting a response to the statement, incident, or charge, you will continue to direct your employees to perform their day-to-day responsibilities with the accustomed level of adherence to ethics, compliance, and mission-focus. Your organization will survive the crisis, and so the continued service to your employees, clients, customers, vendors and shareholders must remain highly-functioning.

Communicate frequently and transparently

Do not compound the temporary negative impact of a crisis by shrouding the crisis in a cloak of shame and secrecy. While not proud of the event that has triggered the crisis, you remain nonetheless committed to your employees, your customers, your brand, and your mission-focus for the long run. Within that long view context, communicate quickly that leadership is:

·         aware of the situation;

·         taking it seriously;

·         cooperating fully; and

·         is committed to resolving it.

Convey that future communications will follow as additional information becomes available, and adhere to that pattern, even if only limited information becomes available. Your stakeholders are better served by hearing the truth from you, than the mistrust that will take root if they begin to receive their information—accurate or misconstrued--from external sources.

Modify practices appropriately

While some crises will end with a conclusion that the crisis was merely malicious and unwarranted, often the investigation will reveal a compliance or control weakness that must be addressed by your organization. Once identified, own both the root cause and the solution, communicating the same to your stakeholders. Then set to work implementing the required changes that will ensure the situation has been appropriately addressed. If additional training is warranted, then make every effort to involve the affected employees in designing and testing the training before it is rolled out to the larger audience. Schedule subsequent time to review the modified practice and test its effectiveness, regardless of whether required to do so by a regulatory body or not.

***

Crisis will erupt. You will be called upon to act in the best interest of your organization and its stakeholders. If you have prepared yourself, your leadership team, and your board in advance of this moment, then you will pilot your organization to a brighter tomorrow with the flag flying high. Otherwise, armed only with dulled reactions and faulty judgment, you will find yourself waving the flag of surrender.

Ethical Business Conduct: Context Makes a Difference

"There’s a big difference between what you have a right to do and what is right to do." ~ Potter Stewart, former U.S. Supreme Court Justice

“If everyone is thinking alike, then somebody isn't thinking.” ~ George S. Patton, former U.S. General


In this day and age, it is an increasingly popular sentiment for organizations to describe their workforce as entrepreneurial and empowered. Genuine engagement of today’s employees is a hallmark of the knowledge worker economy, and has led to continued innovation and heightened productivity. In conjunction with the advances made in employee engagement, many organizations have reduced layers of complexity and bureaucracy, and in some cases have even removed offices and walls to encourage greater collaboration between teams. Do not lose sight of the truth that roles and authority—whether explicit or implicit—continue to exist within these organizations.

Amidst this seemingly egalitarian shift in the workplace, organizations continue to implement and improve governance over ethical business conduct. Codes of Conduct flourish as more organizations recognize the real benefits, both tangible and intangible, or providing written guidance supported by training and modeled by leaders at all levels. While well-written Codes detail and illustrate appropriate business conduct guidelines and many prohibitions, these Codes do not seek to define every action for every situation. More importantly, Codes cannot be regarded in isolation of other pertinent organizational guidance and leadership structures.

The Code of Conduct should be drafted so as to apply to all levels of employees within an organization. The CEO is no less subject to conducting her business affairs in an ethical manner than is the mid-level manager or line staff. All employees should adhere to business principles that support the legal and ethical attainment of the organization’s mission. But the authority, opportunity, and tools available to senior leaders and other employees within an organization may very well differ pursuant to board approval, corporate policy, or culture.

For example, a publicly-traded company remains committed to increasing shareholder value. While the senior leadership of that company focus upon profitable long-term strategy, and salespeople focus upon generating daily and monthly revenue, both groups’ actions should align with the best interests of the shareholders. To fail to act in the shareholders’ best interests would represent an unethical (and possibly illegal) breach of duty. That being said, the day-to-day roles and authority levels of the senior leadership differ from those of the salespeople and other employees.

One area where this difference may be illustrated is in the authority to enter into contracts that bind the company. A senior level executive may have been granted authority under corporate policy to negotiate and execute large-dollar multi-year contracts with external vendors, likely with additional internal controls in place. In contrast, a salesperson may have been granted authority under corporate or departmental policy to accept orders from customers, subject to additional internal review and approvals. Both groups, acting on behalf of the company and in the company’s best interest, have been granted contractual authority, but subject to different financial thresholds and internal controls.

Thus, were the salesperson to seek to negotiate and execute a contract with an external vendor in this scenario, he would have committed a breach of corporate policy, and likely the Code of Conduct. A senior level executive, though generally not engaged in sales to customers, might not be similarly constrained from accepting a customer order.

Codes of Conduct and corporate policies serve to educate and guide employees at all levels of an organization. While Codes and policies should provide clear guidelines, especially with regard to prohibited conduct, employees must recognize that excerpts of such documents should not be read in isolation or taken out of context when evaluating business conduct. The context—including role, implicit and explicit authorization, and culture—do provide a backdrop against which all business conduct must also be ethically evaluated. Every employee has the duty to act ethically; not every employee has the authority to engage in all actions. Thus, context does make a difference when it comes to interpreting your Code of Conduct and corporate policies.

EXPOSING MY DIRTY LAUNDRY: Responding to Ethical Incidents in Advance

“Ethics is knowing the difference between what you have a right to do and what is right to do.”

~Potter Stewart, former U.S. Supreme Court Justice

“The time is always right to do what is right.”

~Martin Luther King, Jr., U.S. civil rights leader

Today’s revelation that former Olympus Corporation Chairman Tsuyoshi Kikukawa had received a suspended sentence for his role in a $1.7 billion accounting fraud is a reminder that neither business ethics courses nor prior real-world examples have stemmed the tide of high-profile executive wrongdoing.  In addition to former Olympus Executive Vice President Hisashi Mori, Hideo Yamada, the former auditing officer, also received a suspended sentence, debunking any myths that corporate audit and compliance professionals are above temptation.

Sufficient ink has been dedicated to detailing the corporate, government, and NGO ethical downfalls throughout the modern age. Fraud observes no geographical, political or industry boundaries. Ethical lapses remain pervasive and persistent, but I believe they are preventable.

What are you doing within your organization currently to acknowledge and mitigate the risks posed by executive ethical lapses?

Tone at the top is more than an email, a poster, or even a video distributed by your chief executive officer expounding the importance and benefits of maintaining an ethical cultural. Real ethical leadership takes root within an organization when the board of directors and senior leadership infuse the culture with relevant actions.

·         Strategic planning conferences and periodic governance meetings should include ethics discussions on the agenda.

·         Tabletop exercises should be built around current ethical lapse events in your industry.

·         Internal metrics should be tracked and benchmarked against other like organizations.

·         Employees at all levels must be encouraged to ask questions and report observed ethical lapses in good faith without fear of retaliation.

What are you doing when a significant ethical lapse strikes from within your own organization?

At one time or another nearly every organization, be it for-profit, government agency, faith-based, etc., will need to address an ethical incident that emanates from within its own walls. More than just the fear of negative publicity or criminal prosecution should drive the organization’s response. Many a relatively minor ethical incident has morphed into fodder for bloggers and 24/7 cable news outlets simply due to senior level fumbling and obfuscation amidst embarrassing revelations.

In fact, the best time to publicly address ethical lapses within your organization is before one has emerged.

·         Plan, document and test your organization’s Ethical Incident Response Plan (E-IRP).

·         Educate senior leadership regarding effective and transparent communication strategy, obtaining communication training in advance where needs dictate.

·         Communicate in a coordinated, transparent and timely manner both internally and externally to your organization, erring on the side of humility and candor.

Organizations are governed and led by human beings. Men and women, regardless of demographic variables across cultures, shun the humiliation and ridicule that scandal generates. Applying an objective E-IRP model in advance of ethical lapses will mitigate the risk that my dirty laundry—or yours—will hang too long on the proverbial corporate clothesline.

Your Compliance & Ethics Function: Aligned, Not Maligned

Today, more than ever, your organization needs you. As a Chief Compliance & Ethics Officer navigating the increasingly complex regulatory landscape, your objectivity and expertise provide your board and senior leadership team with a beacon to guide them. Oftentimes you are viewed as the guardian at the gate.

While your colleagues and directors will likely embrace and support your role, your precautionary observations, and your recommendations, that enthusiasm does not always translate vertically throughout the organization. Members of your team may already have encountered the resistance that emerges when raising regulatory compliance, ethics or internal control concerns in the midst of deadline-driven projects. Not often do the profit center managers in our organization stand up and cheer our scrutiny and counsel when we review their proposed product and service offerings, marketing materials, and incentive compensation plans.

We do not further the compliance & ethics mission in our organization when our role is viewed in isolation as too far removed from the day-to-day goals and objectives of our organization. Let’s face it—our organization was most likely founded to obtain a for-profit or not-for-profit objective, not to support our compliance & ethics function.

Over the years I have identified some key steps that allow own compliance & ethics role to align tightly with the growth strategies and objectives that our organizations strive to implement. I refer to these steps as getting down into the MUD:

·         Meet as many key managers at all levels in your organization as feasible. The more colleagues you become familiar with, the greater likelihood that your involvement will be sought out earlier in the planning, development, and execution of new programs, products, and initiatives.

·         Understand genuinely the plans, imperatives, and metrics that drive key managers in your organization in their respective roles. When you truly understand the why, what and how of each division and department, then you will be better able to anticipate and address potential regulatory compliance, ethical, or internal control exposures.

·         Defer to your operational colleagues when a decision does not require approval from you. Your credibility as Chief Compliance & Ethics Officer is strengthened when you resist the urge to exert your will upon every decision in a project, program, or product launch.

When we take the time to get to know our operational colleagues, understand their roles more fully, and defer to their subject-matter expertise, we will find that those same colleagues are much more likely to invite us to advise them regarding regulatory compliance, ethics, and internal control matters. Instead of being maligned as the killjoys at headquarters, let us become aligned with our shared organizational mission as we serve to safeguard it from foreseeable risks.