Archive for the ‘Uncategorized’ Category

Anti-bribery enforcement is a real risk

July 8, 2009

I have sometimes gotten a sense of annoyance from executives — even the ones who are fairly ethically oriented — when it comes to the specter of the Foreign Corrupt Practices Act: the country’s primary statute to combat international bribery.  The law can hold a US company culpable for the actions of its people overseas, even something as (arguably) remote as an independent contractor sales agent being too lavish in entertaining a doctor who works at a foreign state-owned hospital. Somehow, the law’s sweep, and its ambitious aim of leveling the commercial playing field by prohibiting what for years had been viewed as an unavoidable way of doing business, seems to make some execs resent the serious work needed to avoid a violation. (It reminds me of sitcom cliches about getting kids to do math homework: “It’s so haaaaard. Do I hafta?”)

Yes, you hafta — and for potent proof see a new criminal plea that was in the news last week:

WASHINGTON, June 29 /PRNewswire-USNewswire/ — A former executive of Philadelphia-based Nexus Technologies Inc. pleaded guilty today in connection with his participation in a conspiracy to bribe Vietnamese government officials in exchange for lucrative contracts to supply equipment and technology to Vietnamese government agencies, in violation of the Foreign Corrupt Practices Act (FCPA),…

This was not a big FCPA case against a big company. Siemens wound up shelling out some $800 Million in fines and disgorgements. But Lukas could wind up with ten years in the slammer.

So I think the Lukas case is a more potent warning. It says that FCPA enforcement won’t be limited to monster claims against ginormous companies. Any company can get nailed, and more to the point, executives who are not little Madoffs can still go to jail.  Consider that, next time you hear an exec acting like her  lawyer’s warnings about FCPA are the compliance equivalent of the Boy Who Cried Wolf.

And on the positive side, setting up the training, and systems, and monitoring, to mitigate the risk of FCPA violations can pay corollary benefits in terms of setting”tone from the top.” You can always quote JFK, and say your team should do it because it’s hard.

Corporate campaigning may get new rules

July 5, 2009

Let’s say that as a business leader, you want your company to “Lead Good” in more than its own operations. You want your company to “Lead Good” across the country — by spending corporate coin on ads to promote (or oppose) candidates in a federal election.

Right now, as the law stands, you can’t do it, not exactly. You have to limit campaign spending to the company’s PAC. And there’s no buying TV or radio ads to support or oppose a specific candidate in the final days leading up to an election. Those restrictions are part of the fabric of campaign-finance reform rules and laws in place since the early ’70s, including the so-called McCain-Feingold Act.

But corporate political advocates may soon get their chance… and this campaign-finance fabric may be ripped to shreds. The US Supreme Court last Monday, at the end of its term, announced that it wants a major campaign finance case re-argued — not on the relatively narrow issues of the case itself, but on a whopper of a question: whether the Court should overturn the basis for McCain-Feingold jurisprudence: the Supreme Court’s 1990 decision in Austin v. Michigan Chamber of Commerce, and its 2003 decision in McConnell v. FEC.

One key issue is whether corporations get free speech and first amendment rights like any other “person” (because the corporation is a kind of “person” under the law), or whether special rules should apply to corporate speech to avoid corruption and the undue influence of money on elections.

It’s rare that you find an issue that puts Common Cause supporters on one side (“Fight Corporate Domination!”) and ACLU-types on the other (“More Choices in the Marketplace of Ideas!”), but this is it.  Another example: The Austin opinion was written by Thurgood Marshall, with former Chief Justice William Rehnquist among the Justices joining his majority.

The re-argument order suggests that there are five votes potentially ready to overturn the present scheme. If the cases are overturned, a lot of rules, regulations, and procedures that have become familiar, at the government and corporate level. will get scrapped. Could lead to a wild and wooly world of corporate campaign speech until the dust settles, with plenty of opportunities for CEOs to lead well or trip on their own feet.

In a dramatic and unusual move — and one that turns up the heat on the speed of the confirmation of Justice-Designate Sotomayor — the Court has set argument for September 9th, even before its next term formally begins on “the first Monday in October,” the 5th.

The Government as Shareholder

June 20, 2009

Followers of this blog might enjoy my essay-length article “The Government as Shareholder: Governance When Uncle Sam Takes Over.” It is the new featured article this week at the compliance industry website CorporateComplianceInsights.com.

For reality now confronting hundreds of American businesses, most notably and recently GM, the topic of “the Government as Shareholder” has attracted little published scholarly or professional thinking. I’d welcome colleagues to join me in considering it, by commenting here or (even better) on the Corporate Compliance Insights site.

My thanks to Charles M. Elson, Director of the University of Delaware’s Weinberg Center for Corporate Governance, for suggesting the topic, and to my colleagues Retta Riordan and Gloria Barr, for generously providing a peer review of the article.

You Better Get Ready

June 15, 2009

It’s not as lofty as my last post, but there is another enormous leadership message in this weekend’s events in Iran: as Andrew Sullivan so deftly puts it, “The Revolution Will Be Twittered.” Millenials took what oldsters think of as a plaything of a communications medium, and Carpe Diem! So Sullivan concludes:

That a new information technology could be improvised for this purpose so swiftly is a sign of the times. It reveals in Iran what the Obama campaign revealed in the United States. You cannot stop people any longer. You cannot control them any longer. They can bypass your established media; they can broadcast to one another; they can organize as never before.

Which, in a sign of the bizarre things that the human mind can do, suddenly made me hear a management and HR warning in a harmless offering from The Monkees, from my own revolutionary youth — something I never thought would be deep.

We’re the young generation/and we got something to say

So you’d better get ready/we may be comin to your town.

A Reminder from Iran: It Matters

June 14, 2009

Feeling cynical about leadership and ethics? Feel like compliance is an annoyance in a world of relativistic morals? Think the Rule of Law can be gamed?

Look at this, a Howard Beale moment but deadly serious, all organized by Twitter… and you will get over your cynical attitude.

I’m wearing green tomorrow, not because I think it will make a difference in Iran, but because I appreciate the rebuttal to they are providing to those of us comfortably here.

What becomes a CEO most (Part 2)

June 14, 2009

I promised in an earlier post to revisit a study, publicized by David Brooks, about what characteristics seemed to make for the most successful CEOs.

The study is actually from July 2008, by Kaplan, Klebanov and Sorensen. It set out to compare the relative contribution to CEO success of what the study calls “execution” skills versus “interpersonal” skills.

The study concludes, in part:

[S]uccess and performance are more strongly correlated with execution-related skills than  with interpersonal and team-related skills, conditional on hiring a CEO.  In other words, CEOs with the execution-related skills of a Jack Welch appear more successful than CEOs with the more team-related skills of Jeff Immelt.

So I reviewed the study and tried to put aside how badly Brooks interpreted it. I already did that rant.

The first thing to point out is the authors’ study sample, and their definition of success. The leaders they evaluated were 316 candidates for the CEO job at companies funded through private equity — either VCs or leveraged buy-outs (LBOs); the main measure of their success for purposes of the study was whether they got the job. In that respect the study may tell us more about what private equity firms think matters in a CEO than they do about what actually works and doesn’t work.

(Which off the bat reminds me of a comment I once heard at venture capital event, that VCs were like a Kindergarten soccer game: the ball rolls one way, and all the kids chase after it in that direction; the ball rolls the other way, and all the kids chase after it again. The VCs in the room laughed and nodded. But I digress.)

Even between the LBOs and VCs, there were differences:  “Buyout CEOs score higher on characteristics related to a broader range of managerial and executive functions while VC CEOs appear to score higher only on characteristics related to intelligence and vision.”

To the extent the study measures performance success, it looks only at factors it concedes are “coarse.” Performance success means a good exit or good press; failure means being fired, going bankrupt, or getting bad press. By these measures, the authors conclude “Success tends to be positively related to execution-related skills, particularly for LBO CEOs, and tends to be
unrelated or negatively related to team-related skills, particularly for the VC CEOs.”

But the part of the study I dwelled on, were the distinctions the study makes to categorize skills as either “execution” or “interpersonal” — the key distinction in the study:

[W]e informally refer to characteristics as interpersonal / team-related, neutral, and execution-related.  Based largely on the factor analysis we describe below, we refer to “Develops People,” “Treats People with Respect,” “Calm,” “Flexibility,” “Listening,” “Open to Criticism,” and “Teamwork” as interpersonal or team-related skills.  We view “Removes Underperformers,” “Efficiency,” “Aggressive,” “Moves Fast,” “Persistence,” “Sets High Standards,” “Proactive,” “Work Ethic,” “Holds People Accountable” as execution-related skills.  We classify “Network,” “Hires A Players,” “Follows through on Commitments,” “Organization,” “Brainpower,” “Analytical,” “Strategic,” “Creative,” “Attention to Details,” “Integrity,” “Enthusiasm,” “Writing,” “Oral Communication,” and “Persuasion” as neutral or mixed.

These are some fascinating distinctions. Spend a few seconds picking out a skill and see how the authors categorize it.

And see that the study basically does not measure the contribution to success of CEO skills like organization, analysis, and attention to detail… or like enthusiasm, communication, and persuasion. Those are considered “neutral” skills. (So why did Brooks say the study reported those skills don’t matter? (Oops. I said it again.))

“Follow through” is neutral, not an execution skill.

“Holds people accountable” and “removes underperformers” are scored as execution skills, not an interpersonal skill, like “develops people.” A bias toward firing instead of building?

Finally –  but fundamental for the purposes of this blog — the study also treated “integrity” as a neutral skill. The study just doesn’t evaluate if integrity is good for business, or not.

So if you like to talk up mission and values, you don’t need to feel daunted by this study.

The Tiger Stands Defender

May 31, 2009

I had the great fun this weekend of attending my college reunions at Princeton. Among the many pleasures there was seeing one of my college friends, a woman known then (and now) for her unflinching social activism. When we were in school, she was the most vocal and active of all students about eliminating the vestiges of sexism and discrimination from campus. She was thought of as a rabblerouser, and by many, a disloyal troublemaker.

Princeton Reunions are annual for every class, and their centerpiece is the P-Rade: each class, led by the 25th Reunion, then oldest to youngest, walks down the lane between all the classes younger than itself, each in our own Orange and Black regalia.

Although Yale has always favored
The violet’s dark blue,
And the many sons of Harvard
To the crimson rose are true,
We will own the lilies slender,
Nor honor shall they lack,
While the Tiger stands defender
Of the Orange and the Black

You gotta see it.

As the years went by, and my friend came to our annual reunions year after year, the crowds’ reactions to her changed from jeers to cheers. For a while, the classes younger than ours welcomed my friend as a conquering hero. More recently, she has simply become accepted, and the younger classes don’t particularly seem to notice her.

And my friend keeps coming back to Reunions, year after year after year, wearing her Orange and Black.

So here’s a nugget from my Reunions for people who run compliance programs and people who run companies. Sometimes, the would-be reformers, the rabble-rousers, even the vocal troublemakers, are the ones who are most loyal to your organization. They have the greatest passion, and they wear it on their sleeve.

When they are on your case, think long-term. Consider: are they out to destroy you, or to improve you. If the latter, they will never be apathetic or back-bite. If you show them the door instead of giving them a seat at the Round Table, you will have lost one of your greatest defenders, and one of the most important allies any leader can have — someone on the inside who will tell you when you are full of it.

Till then with joy our songs we’ll bring,
And while a breath we draw,
We’ll all unite to shout and sing:
Long life to Old Nassau.

The Ethical Taint of Post-It Notes — and the Power of a Company Policy

May 28, 2009

News yesterday (5/27) from the pharmaceutical industry that may prove the insidious power of promotional materials, and how little it may take to taint what is supposed to be impartial, objective decision-making.  But what’s really interesting in this news, and less ambiguous, is evidence of the power of organizational policies to set ethical norms.

The news is of research about how promotional items, like pens and note pads, that bear the logo of a drug, affect the attitudes of medical students toward that drug.  You’ve probably seen these pens and pads, and the like, all over your doctor’s office. The ones in the study promoted the anti-cholesterol drug Lipitor. The study appears in the Archives of Internal Medicine.

Reportedly, the study found that the little trinkets worked!  According to the New York Times:

The researchers worked with 352 third- and fourth-year students at Penn, which bans most gifts, samples and meals from drug companies, and the University of Miami, which allows them.

Using a series of psychological tests, the researchers assessed whether the students had positive or negative associations with the cholesterol drug Lipitor and a competitor, Zocor, which is available generically for less money.

Most students from both schools viewed Lipitor more favorably, the researchers said.

But when the researchers sought to influence the students unconsciously by having them use promotional materials like Lipitor clipboards and notebooks, they found that the fourth-year students at Miami showed stronger positive feelings for the drug.

The Philadelphia Inquirer dug a little deeper on how the promo items made the Penn students wary of Lipitor.

The results weren’t due to an Ivy League bias, said study lead author and Penn doctor David Grande.

The environment is important, he said. Grande and his coauthors, including a University of Miami business professor, speculated that Penn’s restrictions on marketing seem to have primed students there to react negatively to even a small marketing message.

This study is especially interesting given changes that became effective in January 2009 to the leading pharmaceutical industry trade association’s code of practices, the PhRMA Code On Interactions With Healthcare Professionals.

(Some quick background: The PhRMA Code first took effect in 2002, amid concerns over “kick-backs” in the drug business, where drug companies allegedly rewarded doctors who wrote lots of prescriptions for their medicines by showering them with monetary favors. Clearly, you wouldn’t want the pharmas to outright bribe docs to write scrips: first, it would mean we are all underwriting those bribes as they become built in to the cost of drugs, especially because the government is such a big buyer; and second, you’d hope your doctor prescribed a particular medicine solely because it was the best thing for you. Extending this idea, various laws, regulations, government “guidances” and codes have made verboten favors from pharmaceutical (and medical device) companies to doctors — like lavish meals, golf junkets, and lucrative “consulting” contracts that do not involve any real work.)

As of January 2009, for companies that adhere to the voluntary PhRMA Code, even the formerly ubiquitous post-it notes and pens bearing a drug’s logo are now disallowed. PhRMA says the revised Code:

Prohibits distribution of non-educational items (such as pens, mugs and other “reminder” objects typically adorned with a company or product logo) to healthcare providers and their staff. The Code acknowledges that such items, even though of minimal value, “may foster misperceptions that company interactions with healthcare professionals are not based on informing them about medical and scientific issues.”

Pharma compliance leaders complained bitterly off the record about this level of restriction, but the research announced yesterday provides some vindication for this aspect of the new PhRMA Code.

On the other hand, it may simply show that advertising works.

So to me, the more interesting news in this research is the different reaction of students in the two schools studied (all the more interesting to me because I went to the law schools of both of these universities!).  At U of M, where the trinkets favorably disposed the med students to Lipitor, there was no school policy about students receiving promotional items from drug companies.  But at Penn, there is a policy banning promotional items — and it was at Penn that the give-aways wound up making med students feel less favorable towards Lipitor.

This is one of the neatest pieces of evidence I have seen to prove that an institution’s policies don’t just establish “the law of the land,” something that could be the basis for employee discipline. The policies do more: they establish an ethical norm, they help create the culture of the institution.

What becomes a CEO most?

May 24, 2009

There is so much about corporate leadership that is, and is not, in David Brooks‘ New York Times column this week, “In Praise of Dullness” (and in the research he cites), that it may take me a few posts to react.

Here is the thesis:

[W]arm, flexible, team-oriented and empathetic people are less likely to thrive as C.E.O.’s. Organized, dogged, anal-retentive and slightly boring people are more likely to thrive.

Brooks cites a study by Steven Kaplan, Mark Klebanov and Morten Sorensen called “Which C.E.O. Characteristics and Abilities Matter?” Brooks says they relied on detailed personality assessments of 316 C.E.O.’s and measured their companies’ performances. According to Brooks, they found that strong people skills, enthusiasm, and strong communications do not correlate with being a good C.E.O. Rather, “The traits that correlated most powerfully with success were attention to detail, persistence, efficiency, analytic thoroughness and the ability to work long hours.”

Agreed, and maybe, obvious. But dissing enthusiasm and communications would seem to run counter with one of my basic premises, that solid and repeated communications from leadership about mission, vision, values and culture can help a business do better in both the ethical and the economic sense.

Well, let me deal with Brooks’ view first, in this post, and later turn to the research itself. I think Brooks – with whom I frequently agree, much to my surprise — gets a little lost in the midst of trying to relate to this research.

Says Brooks:

The market seems to want C.E.O.’s to offer a clear direction for their companies. There’s a tension between being resolute and being flexible. The research suggests it’s more important to be resolute, even at the cost of some flexibility.

OK, number 1, how does the market, much less your employees, know your clear direction if you cannot articulate what that direction is and why it’s worth following. And like any other important message you have to market, you have to sell it like soap — believability and memory go up with repetition. And then believability and memory go up with repetition. Score one for communication skills.

Number 2, did Brooks miss every other business writer since, I dunno, 1980, talk about the need for business leadership to remain nimble in the face of accelerating change. Or what we call, “flexibility.”

So the good business leadership formula here is being resolute and flexible: resolute on your goals, resolute on the vision, AND resolute about getting there ethically — and then be flexible about strategy and tactics.

Says Brooks:

The second thing the market seems to want from leaders is a relentless and somewhat mind-numbing commitment to incremental efficiency gains…. The methodical executives at successful companies just make the same old four-door sedan, but they make it better and better.

Sometimes. But that “incremental improvement” strategy worked out great for GM and Chrysler.  And at the moment, it is also going great guns for the newspaper business. Not.

Says Brooks:

The C.E.O.’s that are most likely to succeed are humble, diffident, relentless and a bit unidimensional. They are often not the most exciting people to be around.

So explain Warren Buffet, Jack Welch, Lee Iacocca (who saved Chrysler’s bacon last bailout), and a lot of dynamic men and women I have known who have led fast growth companies. And BTW, Iacocca’s list of 9 valued leadership traits — which I admit is hindered by his requirement that they all being with the letter “c” — includes “communications” and “charisma.”  (C is also for cookie, and that’s good enough for me.)

In summary, this column points us to some very interesting research, but it’s not one of Brooks’ best efforts.

More to the point, I think we need to conclude that dynamic, communicating, exciting leadership can’t be all bad. Granted, you need to walk the walk as well as talk the talk. And maybe if you have to choose one, choose the walk.

But myself, I think if you want your teams to walk in the same direction as you, you’d better show them the way and invite them along. More than once. Audibly.

Nice to be noticed

May 23, 2009

Thanks to Rees Morrison, for mentioning this blog is his long-running blog on law department management.  He has compiled a very interesting list of blogs on corporate ethics and compliance.