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“Why Transformation Efforts Fail,” Final Lessons.

David Stulb, Global Leader for Ernst & Young, Investigation & Dispute Services, in introducing Maryam Hussain’s recent book Corporate Fraud, the Human Factor, (link here for more info) states that “aggressive prosecution of bribery and corruption is increasing the risk of operating in many new markets. Yet these are the same markets which are critical to business growth and establishing a sustainable supply chain.” I think of that potential tension between overseas business growth and corruption when concluding my thoughts on John Kotter’s work on corporate transformation, which in the context of this discussion, includes transforming a corporate culture to embrace a true anti-bribery ethic and program. As in prior posts, I continue to focus on the relationship between compensation and compliance as part of that transformation process.

John Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, Harvard Business School, in “Leading Change, Why Transformation Efforts Fail,” (HBR, January 2007) discusses why companies seeking to change the way they operate in a new “more challenging market environment” often encounter internal institutional resistance from “those in the trenches of the business,” and why “leading change is both absolutely essential and difficult.” Today I will conclude my discussion of his work as relating to my own experiences, and to bring the reader through Kotter’s thinking so that others may consider how to “avoid the common pitfalls.” For those who are interested in learning more, including the details of eight unique steps to transformation, here is a link to the work.

If transformation includes the creation and sustenance of a true anti-bribery culture and program, then incentive compensation for a sales and marketing organization needs to be aligned with desired behaviors to insure that compliance and compensation do not become a zero-sum game. As Kotter states “sometimes compensation or performance-appraisal systems make people choose between the new vision and their own self interest.” Hence, as in my prior post where I reference the MIT Sloan Management Review article called “Combining Purpose with Profits”, if the C-Suite is proclaiming the “pro-social” goals an anti-bribery effort while delivering a financial message as articulated through a lucrative sales compensation plan to “bring home” the financial goals of sales over compliance, then the best FCPA compliance program will be diluted, or worse, discarded by the time it reaches the overseas sales and marketing organizations.

Kotter concludes that “change sticks when it becomes “the way we do things around here,” when it seeps into the bloodstream of the corporate body,” and he adds that “until new behaviors are rooted in social norms and shared values, they are subject to degradation as soon as pressure for change has been removed.” From my perspective, compensation needs to be a part of that “bloodstream” to insure that incentives align with desired behaviors. While I was struggling to describe what that transformation might look like, I refer to Andrew Leigh’s book Ethical Leadership, Creating and Sustaining an Ethical Business Culture, (see here for more information) where with permission of the Ethics Resource Center, he illustrates a chart (referencing Prudential Financial, Inc.) called “making the right choices.” The chart lists Four Ethical Filters for Decision Making and I have taken the liberty to put them in a general context, as follows:

1. Policies: Is a decision consistent with policies, procedures and guidelines.

2. Legal: Is the decision legal?

3. Universal: Does the decision conform to company values? Does it benefit stakeholders, internal and external?

4. Self: Does the decision “satisfy my own personal definition of right, good and fair? Can I be proud of this decision or action?”

If a company has implemented a “transformational” anti-bribery program and ethic then individual and organizational decisions throughout the sales and marketing organizations, no matter how far from the “C-Suite” will always be “yes” to the above, and where there is uncertainty, the employee will feel secure in calling upon corporate resources “available to provide… guidance to make sound ethical decisions.” I think the above four criteria provide a solid foundational definition as to how transformation results in a “bloodstream” anti-bribery culture.

I was recently watching a video from the 2013 Dow Jones Compliance Symposium, moderated by Nick Elliott, Editor, Risk and Compliance Journal, Wall Street Journal, (link here), where Peter Y. Solmssen, General Counsel, Siemens AG, was talking about a project manager who was working in Thailand, who stated that when he is working on a deal, his response to a corrupt event is not “compliance won’t let me do that,” but that “I don’t do that.” In my opinion, and the history of change at Siemens has been well reported, that is is what I would characterise as true transformation.

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