Author: Compliance Culture

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Compliance in popular culture

Compliance in The Circle

The 2017 movie The Circle, based on the 2013 novel of the same name by Dave Eggers, is about the impact of commercial technology on human life.  It poses common ethical and moral questions about privacy and security in a time of interconnected information sharing via social media and networked devices. The movie is a thriller which centers around a tech giant that offers advanced products and services that have transformed the way people do business and interact with each other by placing all interactions on various platforms and networks with ratings and sharing capabilities.

While the high-tech immersion depicted in The Circle is not yet current reality, technology is developing at a breakneck pace and social media platforms, the Internet of the Things, and services driven by algorithms and other artificial intelligence and machine learning are increasingly ubiquitous with each passing day. At its core The Circle is concerned with overreach of these technologies and the companies that develop and market them, and the ethical problems and moral challenges that can arise from human and societal interaction with them.

  • Secrecy as dishonesty – One of the central philosophical proclamations of The Circle is when the protagonist, Mae, is confronted with a legal transgression she committed and in her reckoning with her actions states, “Secrets are lies.” Mae’s central thesis is that she would not have committed her crime if someone had been watching or aware of what she was doing. Therefore, the suggestion is that secrecy is a form of dishonesty. Disclosure, on the other hand, is the ultimate truthfulness and in this perspective, is valued over privacy. Privacy enables people to lie and conceal, and therefore leads to misconduct and distrust. Individuals giving up their expectations of privacy would supposedly lead to greater overall security and trust. The tension between liberty and safety is not an unfamiliar one in society. The dilemma of which takes precedence will be an on-going and dominant moral dilemma.

 

 

  • Transparency overload – It’s easy to agree that transparency and openness encourages honesty and communication. Clear and public disclosure of organizational activities and values provide strong incentives for making the best ethical decisions and keeping integrity in mind when planning business strategy. However, the admirable mission of transparency is subject to subversion, as The Circle Claims of public transparency can be selective, creating an impression of a company that values openness and progressive values when in reality it is picking and choosing disclosures while hiding malfeasance and abuse behind this self-selected façade. Also, going too far in claiming transparency on a personal level can be too much of a good thing. As above, the tension between personal privacy and public disclosure is a delicate balance which must be worked thoughtfully.

 

 

  • Surveillance and consent – In promotion of corporate and societal values of transparency and shared disclosure, the company in The Circle introduces a service where tiny cameras are embedded everywhere out in the world. Some of the cameras are installed intentionally by users who wish to share, but others are placed in a variety of public locations without notification or permission to do so. The video streaming from the cameras are publicly available online for searching, indexing, and manipulation. While being able to see a high-definition and flexible feed of the surf at a beach is appealing for a number of reasons, cameras everywhere in public, regardless of their utility or entertainment value, can also be used by both private and public concerns to conduct surveillance. As these cameras are in some cases posted without consent or knowledge, this surveillance is vulnerable to unintended uses and can represent, as above, serious risks to personal rights and privacy expectations.

 

 

  • Cybersecurity – The company in The Circle develops, markets, and sells a technology service. Therefore the people who buy what they market are not only purchasers or customers but also users. They have heightened expectations and rights for protection by the company as such. Not only is the extent to which their data is collected by the company questionable (even when the users are intentionally sharing it in an excessive or imprudent manner), but the company also is obligated to store it, and may violate individuals’ rights by viewing it, accessing it, analyzing it, or not keeping it safe from intrusions by and alterations, deletions, or other misuses of, its employees or third parties. Cybersecurity risk management is a huge challenge for a company such as this one, which is clearly putting its commercial and societal ambitions over any fundamental value of information security that is discernible.

 

 

  • Unethical decision-making – While the titular company in The Circle repeatedly suggests that transparency can be a force for good and should be leveraged for this purpose by the widespread use of what boils down to be surveillance technology, reality of how humans use this technology show that its use and influence is not straightforwardly positive at all. Quite to the contrary, on many occasions in the movie disclosures and discoveries due to the technology are harmful to individuals and relationships. Despite the desire to incentivize honesty and normalize total disclosure, people end up getting hurt, both because of their own overzealous adoption of the technology and of the actions of others. In the most dramatic example of this, a person dies due to a series of events kicked off by a crowd-sourced surveillance operation performed at a company demonstration of their new service. Unethical decision-making, both in questionable design ethics by the organization and in immoral behavior by user-individuals, directly causes these tragic and disturbing events.

 

 

There are many ethical and moral dilemmas posed by availability of advanced technology which can encroach about privacy, security, and consent of individuals. Transparency, surveillance, and risks to information security and from cybersecurity are all common themes of The Circle as well.

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Trends in business compliance

Round-up on the humanity of artificial intelligence

Human fascination in, and even obsession with, robots is nothing new. For many years people have imagined distant versions of the future where human interaction with different types of robots, androids, or other robotics products was a routine part of life both at work and at home. Sometimes these forward-looking scenarios focus on convenience, service, and speed. Much more often, however, when asked to contemplate a future with ubiquitous artificial intelligence (AI) technology imbedded alongside humans, thoughts stray into possible troubling or dark impacts on society. People worry about loss of humanity as technology predominates, or the possibility that robots could be misused or even gain sentience and have intentions to work against or harm humans.

In the past these scenarios, both of the positive advancement of society and of the potential for isolating, dangerous dystopia, were mostly relegated to science fiction books, Hollywood blockbuster movies, or what were seen as overactive imaginations or paranoid opinions of luddites. Now, however, the news is full every day of developments in AI technology that bring the once-imaginary potential of robots ever closer to present reality.

As technologists and business organizations consider the utility of advancement in AI, ethicists and corporate compliance programs must also consider the risk management issues that come along with robots and robotics. Technology which will have such a broad and deep impact on human life must be anticipated with thoughtful planning for the compliance risks which can arise. In particular the potential for sharing human traits with AI technology or imbedding AI technology in place of human judgment present provocative challenges.

  • Anticipating increased interactions with androids – robots that look like humans and can speak, walk, and otherwise “act” like humans would – leads to the logical question of will humans have relationships with androids and vice versa? This would be not just transactional interactions like giving and receiving directions, or speaking back and forth on a script written to take advantage of or increase machine learning within the android. Rather, this could be intimate, emotionally-significant exchanges that build real connections. How can this be when only one side of the equation – the human – is assumed to be able to feel and think freely? While technical production of robots that appear credibly human-like is still beyond the reach of current science, and giving them a compelling human presence that could fool or attract a human is even further away, work on these tasks is well underway and it is not unreasonable to consider possible consequences of these developments. Will humans feel empathy and other emotions for androids? Can people ever trust robots that seem to be, but aren’t, people? Will the lines between “us” and “them” blur? The burgeoning field of human-robot interaction research seeks to answer these questions and develop technology which responds to and considers these tensions.  Love in the Time of Robots 
  • On a similar note, when could machine learning become machine consciousness? Humans have embraced the usefulness of AI technologies which become smarter and more effective over time after they are exposed to more knowledge and experience. This is a great argument for deploying technology to support and improve efficiency and productivity. Everyone wants computers, networked devices, and other products that use advanced technology to work more accurately and easily. Machine consciousness, however, suggests independent sentience or judgment abilities, the potential of which unsettle humans. From a compliance and ethics perspective there is an extra curiosity inherent in this – what will be the morality of these machines if they achieve consciousness? Will they have a reliable code of ethics from which they do not stray and which comports with human societal expectations? Will they struggle with ethical decision-making and frameworks like humans do? Or will human and human-like practical ethics diverge completely?  Can Robots be Conscious? 
  • In 2016, David Hanson of Hanson Robotics created a humanoid robot named Sophia. At his prompting during a live demonstration at the SXSW festival, Sophia answered his question “Do you want to destroy humans?… Please say ‘no’” by saying, “OK. I will destroy humans.” Despite this somewhat alarming declaration, during the demonstration Sophia also said that she was essentially an input-output system, and therefore would treat humans the way humans treated her. The intended purpose of Sophia and future robots like her is to provide assistance in patient care at assisted living facilities and in visitor services at parks and events. In October 2017, Saudi Arabia recognized the potential of the AI technology which makes Sophia possible by granting her citizenship ahead of its Future Investment Initiative event. A robot that once said it would ‘destroy humans’ just became a robot citizen in Saudi Arabia
  • The development of humanoid robots will certainly become a bioethics issue in the future as the technology to take the human traits further becomes within reach. While there are so many compelling cases for how highly advanced AI could be good for the world, the risks of making them somehow too human will always be evocative and concerning to people. The gap between humans and human-like androids is called the uncanny valley, the space between organic and inorganic, natural and artificial, cognitive and learned. The suggestion that the future of human evolution could be “synthetic” – aided by or facilitated in the development androids and other robotics – presents a fascinating challenge to bioethics. Are humanoid robots objects or devices like computers or phones? It is necessary to consider the humans and androids in comparison to one other just as it is humans and animals, for example. This ethical dilemma gets to the root of what the literal meaning or definition of life is and what it takes for someone, or something, to be considered alive. Six Life-Like Robots That Prove The Future of Human Evolution is Synthetic
  • One of the potential uses of AI technology which worries people the most is in autonomous weapons. The technology in fact already exists for weapons which can be used against people without human intervention or supervision in deploying them. Militaries around the world have been quick to develop and adopt weapon technology that uses remote computing techniques to fly, drive, patrol, and track. However, this established use of this technology is either for non-weaponized purposes or, in the case of drones, deployment of weapons with a human controller. Fully automating this technology would in effect be giving AI-powered machines the decision-making ability that could lead to killing humans. Many technologists and academics are warning governments to consider preventing large-scale manufacturing of these weapons via pre-emptive treaty or other international law.  Ban on killer robots urgently needed, say scientists

As the diverse selection of stories above illustrates, the reach of robots, robotics, androids, and other developments within AI technology are certain to permeate and indeed redefine human life. This will not be in the distant or unperceived future. Rather, real impact from these advancements is even already starting to be seen, and there is only more to come. Governments, organizations, and individuals must make diligent risk assessment preparations to integrate this technology with human life in a harmonious and sustainable fashion.

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Compliance and ethics business case studies

Institutional responsibility and the US Olympic Committee

The end of 2017 has been an explosive and revelatory time for public disclosures about culturally-pervasive sexual harassment and abuse. In most cases the reporting has focused on exposing various individuals, who committed their offenses with the full force of their power and prominence within their communities, organizations, and industries. All too often, the courageous narratives presented by the individuals who come forward to tell their stories include the fact that their harasser or abuser systematically prevented them from work advancement or access to work at all, in many cases withholding employment opportunities and in some cases, even coordinating with other men in positions of authority to prevent the women from working in the future.

The many (and continuing) disclosures about the inappropriate and dangerous behavior of these high-profile men has been a cultural watershed moment. Hopefully this heightened awareness will lead to a transformation in the public discourse about societal expectations around these dynamics, as well as justice for the women who have had their lives negatively impacted and their careers curbed or ended. However, many questions remain in what structural progress, if any, will come from the individual cases, no matter how numerous they become.

Thus far, far-reaching institutional responses to the misconduct of these individuals has been lacking or entirely absent. The best most organizations have been able to muster is routine HR statements that the accused men are being suspended or will resign, sometimes accompanied by saccharine denials of knowledge and expressions of regret, and seldom followed up with any significant sort of commitment to organizational change or an authentic intention toward setting a standard for corporate social justice.

Corporate boards and senior management at organizations under fire for the unacceptable behaviors of their principals and often most visible representatives have proven lacking in the unfolding of this cultural moment, which is driven by individuals and targeted at individuals. While certainly these are cases where bad people did bad things, it is important to acknowledge that they were empowered to do so, implicitly or in some cases expressly but with a blind eye toward their malfeasance, by the organizational structures which promoted and supported them and oppressed and marginalized their victims.

For more on the complicity of corporate leadership and the dubiousness of their malleability to change even amid the major societal focus on these issues, check out these great pieces from Wired:  Corporate boards are complicit in sexual harassment and Making the silence breakers Time’s Person of the Year won’t change anything.

One particularly beleaguered institution that is confronting the limitations of its definition of its own institutional responsibility is the US Olympic Committee. Ethical and integrity questions about the actions of individuals associated with the US Olympic Committee are nothing new. Incidences of cheating, doping, and abusive behaviors by coaching and medical staff are, unfortunately, nothing new. Because the US Olympic Committee relies on a vast network of local personnel who train, recruit, develop, and support athletes often from a very young age. Under these conditions, athletes, their schools, and their families place tremendous trust in the representatives and related parties to the US Olympic Committee that they rely upon to bring their Olympic ambitions to fruition.

All too often, predatory coaches are reported by a victim only to have multiple other athletes come forward to say that they too were mistreated and abused. Organizations within the US Olympic Committee’s umbrella ban individuals proactively upon revelations of sexual abuse, and make efforts to distribute guidelines and ensure education, but underreporting of instances of sexual assault mean that predator coaches prey on athletes for entirely too long undetected.

The reality is, the US Olympic Committee has 48 national governing bodies underneath it which thousands of club teams and gyms underneath that. The sheer volume of organizational and administrative entities through which these abuses pass and would need to be addressed or investigated, all without a national entity or a mandatory supervisor to set a compulsory standard for this, is one of the greatest forces working against effective identification and removal of predatory coaches. In this context, major organizations such as the US Olympic Commission too often focus on removing individuals without identifying root causes or building defense structures against the underlying problems.

Changes are too often driven by media exposure and fear of reputational damage, and too infrequently motivated by compassion or justice. Until these institutions adapt their approaches to address sexual abuse as directly as they can their commercial concerns, and until adequate oversight and control measures are taken with meaningful enforcement actions to back them up, individuals will continue to be harmed.

Organizations must change from operating independently on these issues, which provides them with the plausible deniability of jurisdictional ignorance and a patchwork of ineffective rules and procedures for processing sexual assault claims and investigations. Instead, senior leadership must stand up and make these processes uniform and coherent so that they can be not just a pretense, but also effective in protecting individuals and taking responsibility. Only then can the brave testimonies of individuals lead to organizational change toward practices that will respect and protect them.

For more about the US Olympic Committee’s challenges in defining and enforcing a meaningful code against sexual abuse and misconduct in its ranks, check out this article from Harper’s Magazine:  Pushing the Limit.

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Compliance and ethics business case studies

Fraud in sports: Betting and gambling

This is the third in a series of five posts on the topic of fraud in sports. The first post, from December 5, discussed the motivations of marathon cheaters and the methods through which their frauds are discovered and publicized. Last week’s post, from December 12, was about thru-hiking fakers, discussing a collection of imposters and scammers in the long-distance hiking world. Today’s post will be about fraud in sports gambling and betting. The fourth post, on January 2, will focus on sports fraud via game fixing. The fifth and last post in the series, on January 9, will be about major doping scandals in different sports, including novel ways athletes cheated through the use of performance enhancing drugs and systematic efforts to either identify or support these fraudulent actions.

Sports gambling, both legal and illegal varieties, is a widespread social and cultural activity. Sports fandom goes to the core of many communities, in which cities and cohorts are bonded together by the activity of following and watching games or teams or entire leagues. For every spectator who attends or watches games, on a casual or a devoted basis, there are others who take their interest to a more commercial or financial level by engaging in various types of wagering, hoping to make money off predicting game or match developments and outcomes. Legal bets are placed through a bookmaker or sports book, which can be found online as well as in states or jurisdictions where sports gambling has been legalized and a marketplace with service providers within it has emerged. On the other hand, illegal bets are placed through individuals or privately run operations known colloquially as “bookies,” usually operating on a person-to-person, word of mouth basis.

Betting on sports results has led to a number of integrity-sensitive scandals and crises in the sports world. Apart from match fixing, which will be covered in next week’s post on its own, gambling fraud is facilitated through illegal betting and investment scams or other unregulated wagering activities. Fraud in this area can lead to other tangential illegal activity, such as money laundering that is facilitated by the fraudulent wagering transactions, and market abuse or violations of investor protections due to investment scams.

  • Advanced technology and the ever-increasing influence of the internet is impacting every area of human life more each day, and sports betting, as well as the fraud committed through it, is no exception. In this era of “fake news” and controversy about and confusion between fact and fiction on social media and in advertising, credibility of data comes into question. Activities that rely heavily on an empirical basis, such as predictive betting on outcomes of sporting events, are particularly vulnerable to the scourge of data manipulation and falsification. Fraudulent identities, records, and news about players and team developments can spread quickly and destructively with the aid of social media, putting the information bettors rely upon on shaky factual ground:  Fake news, manipulated data and the future of betting fraud
  • The state of New Jersey, bolstered by its desire to give a much-needed tourism and gaming business infusion to Atlantic City and its other gambling venues, is leading the charge to legally defeat the nationwide ban on commercial sports betting at the federal level.   The law being challenged is from 1992 and excludes states where sport betting or lotteries were already legal at that time, such as Nevada and Delaware. One of the principal arguments of proponents of rolling back the ban is that illegal sports betting is facilitated in huge volumes all over the country, and legalizing it would serve to bring that activity under regulatory and supervisory authority, and therefore strengthen risk controls and protections for market participants. In the current regime, the vast majority of sports gambling happens in illicit markets which are vulnerable to fraud and scams and devoid of investor protections that a regulated market could ensure and enforce:  Justices Skeptical of Sports Gambling Ban
  • Another motivation to further regulate and supervise sports gambling comes from the potential that criminals could use betting transactions and proceeds, whether legal or illegal, to conceal and process funds from illicit activities. Sports wagering is a cash activity with high volumes and therefore an attractive fit for criminal operations. Money laundering by organized crime enterprises, for example, is often thought of as taking place through match fixing but in reality happens much more frequently through sports betting. Markets and exchanges in which this betting takes place are often not transparent and therefore are susceptible to and useful in manipulation by criminals. In on-going efforts to ensure that the world of sport is cleaner and transparency wins out over anti-corruption forces, focusing on regulating and improving the efficacy of honest sports gambling markets is a key focus of organizations such as the International Centre for Sports Security:  Betting fraud, not match fixing, is main enemy: expert
  • Conmen and scammers also find their marks under the guise of sports betting operations. In the case of Peter Foster, his fraud involved a betting club that he held out to funders as an investment opportunity. This was an international scheme which purported to be an online gambling service but rather functioned as an offshore syndicate operation where investors’ money was moved out of the country and gambling returns and activities were falsified along with the identities and records of the principals allegedly involved in the operation. Claiming hugely successful investments in different major bets and alleging impressive records, all that definitively happened through the Sports Trading Club was that a lot of investors lost their money in a fraud of the type that is repeated over and over again in any business in which trusting individuals can be attracted to give up some of their funds in hopes of winning big through someone else’s management efforts:  Peter Foster implicated in international betting scam
  • Finally, the world of fantasy sports presents a daunting challenge on all of the above themes – unregulated markets, varying user expectations, and diminished participant protections. Fantasy sports, where users assemble hypothetical teams and play against each other in simulated games and seasons, began years ago in grassroots origins, where participants mostly self-assembled into leagues that they administrated themselves. This system pre-dates the internet and was revolutionized by the advent of online, forum-based league play. In the ensuing years corporate interests came into the community and set up corporations that offered daily or weekly play and uncannily resembled gambling platforms, yet were purportedly for entertainment purposes only and therefore escaped the regulatory scrutiny to which gaming or sports book companies would be subjected:  Scandal Erupts in Unregulated World of Fantasy Sports

Check back in two weeks, Tuesday January 2, for the next to last post in this series of five, which will be about game fixing, describing game-throwing conspiracies by players or institutional operations to spy and cheat by teams and coaches.

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Best Practices

Compliance as both function and discipline

Compliance makes concrete and professionalizes the rules, regulations, and questions of ethics and integrity that are everywhere in life. It can be very absolute, used in creating a framework to ensure adherence to external legal and supervisory requirements as well as internal policies and procedures, to form a rules-based approach to risk management. It can also be more esoteric, probing the challenge between general norms and existing controls, and what may be morally acceptable or within individual expectations.

Considering the distinction between the function of compliance and the discipline of compliance is helpful to develop a more mature understanding of its applications in both modes. Compliance as a function creates frameworks, translates regulations and directives into internal policies and procedures, identifies program priorities, and plans management strategies. Compliance as a discipline takes all of these efforts to ensure awareness of, and steps to comply with, all relevant laws and regulations, and applies them directly to the business in order to target this work toward facilitating ethical decision-making, encouraging integrity, and positively impacting business strategy.

The function of compliance describes the general task of keeping up to date on rules and regulations and designing governance, risk, and compliance (GRC) management strategies and structures to present to senior management, executive boards, and outside stakeholders such as regulators and other supervisory bodies. This includes regulatory compliance, which ensures that organizations are abiding by both industry regulations and government legislation. This also includes designing governance and control structures intended to encourage employee and organizational integrity and create disincentives against and penalties for misconduct.

The discipline of compliance, on the other hand, describes the dynamic and business-linked support activities that the compliance professional undertakes within the broader context of the organization. Disciplinary compliance takes the above-described principles and frameworks and applies them in the business arena. This is where the rubber meets the road between the compliance officer and the business line he or she serves. In this setting, compliance is a relationship-based activity of providing advices, cooperating and aligning with other stakeholders and functional partners, suggesting defense strategies in light of real-time business risks and strategies, and maintaining an on-going bird’s eye view of the business landscape which can only be achieved by pro-active, personal engagement.

Building upon the above definitions and borrowing from the philosophy of ethics, the comparison could be made between the compliance function and normative ethics on one hand, and the compliance discipline and applied ethics on the other hand.

The compliance function links to normative ethics, in which moral behavior is compared to the norms of the social context in which the actions are taken, because of the emphasis in both on external or supervisory expectations and standards. Normative ethics is quite useful in identifying and categorizing compliance risks and suggesting possible mitigations and strategies for the ones that cannot be eliminated or are deemed acceptable to some extent. Within the function of compliance, the question of what individuals should or should not do, is answered by relevant laws, regulations, principles, rules, standards and codes of conduct, and other guidelines applicable to these individuals and the organizations in which they work.

The compliance discipline, in the meantime, can be connected neatly to applied ethics, which centers on the use of ethical theory in order to analyze and address actual moral issues that arise in work and life. Dilemma analysis and discussion, and compliance awareness dialogs, all borrow from the didactic constructs of applied ethics.   Building upon the structures and foundations that come from the compliance function and from the philosophy of normative ethics, the compliance discipline and applied ethics both are used to take these frameworks from strict requirements to living, practical considerations within the robust culture of compliance at the organization.

For more posts on types of compliance and ethics, check out some of these: Guiding principles for a compliance advisory practice; Compliance 101: A quick guide; The five branches of ethics as applied to compliance principles; How to make voluntary engagement with compliance values meaningful.  Posts each Monday, which are categorized in “Best Practices,” often address this sort of topic from both academic and practical perspectives.

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This week preview

This week on Compliance Culture

Be sure to visit Compliance Culture this week for posts on these topics.

  • Monday: Compliance vs business compliance
  • Tuesday: Gambling and game fixing
  • Wednesday: US Olympic Committee and organizational integrity
  • Thursday:  Artificial intelligence and humanity
  • Friday: Compliance in The Circle

Don’t miss it!

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Last week round-up

Last week on Compliance Culture

Check out last week’s posts on Compliance Culture, in case you missed or want to revisit them.

Many thanks for reading!

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Compliance in popular culture

Selected TED/TEDx talks on values-led people and organizations

A successful and robust corporate compliance and ethics program will have a blended focus on rules-based and values-based controls. Taking an integrated approach to performance and conduct is necessary in order to facilitate awareness of and adherence to compliance risk management efforts and expectations. Rules and values cannot be separated, and should indeed be balanced together to make the most compelling call to action by employees and management.

Legal and regulatory guidelines and company policies and procedures form a clear foundation for the rules and make up the structural, mandatory portion of a compliance program. Deriving this from external and internal requirements is somewhat straightforward and can be accomplished with methodical planning and continuous updating and education.

Values, on the other hand, form the ethics discipline and come from the moral codes of individuals and the commitments to integrity made by the organizations within which they work. While more resistant to obsolescence than rules and regulations, values are far more challenging to identify and express, and even harder to imbed authentically and sustainability within a corporate culture. Values provide the voluntary motivation for doing the right thing at the right time for the right reason, despite forces or interests that may impede or work against that, and including when taking this action requires inaction.

Therefore successful compliance professionals will rely upon the basis provided by rules, while evoking the emotional and personal appeal of values. Providing incentives for inner success and enabling individuals to make ethical decisions and act with integrity gives purpose to employees and credibility to organizations.

The below TED/TEDx talks emphasize the importance of values-led people and organizations and the ways they impact society, interpret ethics, and define success.

  • Why we need core values (James Franklin) – Similar to earlier TED/TEDx lectures shared on this blog, ethics in organizations and society in general begin with individuals. In order for individuals to define the internal moral registers and inform their ethical perspectives based upon them, they need to establish personal core values first. Adopting core values – inalienable individual ideas about right and wrong – is crucial in approaching life and work with purpose and conviction. Understanding core values helps to move on from failures productively, build on successes sustainably, and improve all relationships and ambitions. Individuals as well as the communities in which they live and organizations in which they work can all benefit from planning and mission statements which are grounded in individual articulated core values.

  • The transformative power of values at work (Mika Korhonen) – Well-meaning human resources managers and consultants can too easily lose the root of employee motivation and awareness efforts – that employees are people too. The person an employee is outside of work, and the values he or she possesses in private life, must be leveraged in the workplace to create genuine engagement in both compliance culture and in daily work in general. Leadership and growth requires resilience to change, endurance through adversity, and cultural and social flexibility. All of these competencies are grounded in personal values which are practiced and supported on a daily basis in the workplace. Creating a positive, values-based environment enables a workplace that is productive and prepared to focus on positive impact consistent with ethics and integrity.

  • Happiness – building a values led organization (Esther McMorris) – Ethical motivation is one of the distinctions between management and leadership. Managers who do not embrace a values-driven purpose do not establish credibility as leaders. On the other hand, ethical leadership that models exemplary conduct, supports integrity, and takes action against dishonesty or malfeasance, strikes an effective path toward engaged and effective management. Managers who are also leaders can approach their employees and partners with respect and purpose, allowing individuals to be true to the values that guide them. In this environment, true engagement and satisfaction is possible, giving way to happiness through values-led work

  • Values change everything (Itzhak Fisher) – Culture, values, and leadership are the foundation of all change in life, work, and society. When all three of these are approached together with a strong ethical predisposition, then the resulting change can be directed positively and productively. In instances where integrity is lacking, however, and these three forces are not in balance, then change is negative and feels disruptive, scary, and threatening. Transforming and adapting are inevitable. Surviving these, however, and sustaining through them with the individual and the organization’s identities intact, can be done in reliance upon strong values and the purpose that comes from them.

  • The power of why and value driven behavior (Martha Kold Bakkevig) – A lot of change in life and business is motivated by external forces – competitive pressures, evolving regulatory requirements, new stakeholder expectations, political or economic trends. These changes happen to, or despite, people and organizations. However, it’s also possible that these changes can come from an internal, organic motivation as well, a dedication to evolve for the sake of disrupting the status quo and servicing the values that drive one’s purpose and ambition.

Values-led people and organizations will form a culture of compliance with the strongest incentives for ethical decision-making and a prevailing emphasis on integrity, purpose, and inner success. Taken together with a strong controls framework to incorporate rules-based compliance foundations, an emphasis on values will give credibility and authenticity to corporate governance and strategy.

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Trends in business compliance

Round-up on CFTC compliance

This is the first in a series of seven posts about regulatory compliance priorities and enforcement trends.  Today’s post will be about the Commodity Futures Trading Commission (CFTC).  On Thursday December 28, the post will be about the Federal Trade Commission (FTC).  On Thursday January 4, the post will be about the Securities & Exchange Commission (SEC).  On Thursday January 11, the post will be about the Food & Drug Administration (FDA).  On Thursday January 18, the post will be about the U.S. Department of Agriculture (USDA).  On Thursday January 25, the post will be about the Environmental Protection Agency (EPA).  Finally, on Thursday February 1, the post will be about the Federal Communications Commission (FCC).

The Commodity Futures Trading Commission (CFTC) is the US regulator charged with supervisory authority over the futures and option markets. Created in 1974 by the Commodities Futures Trading Act, the CFTC is an independent regulatory agency with the purpose to monitor and protect the markets by prohibiting fraudulent activity or other misconduct and to control against risk from these. In the aftermath of the 2008 global financial crisis and the markets reforms which were implemented during the economic recovery, the CFTC has played a more prominent role in the largely unregulated general derivatives (contracts that derive their value from the performance of an underlying entity, such as an asset, index, or interest rate) and specifically, swaps (derivative contracts where two counterparties exchange cash flows of each other’s financial instruments) markets, to encourage transparency and gradually move toward a more stringent supervisory framework.

The CFTC’s principal mission is to ensure the successful and efficient operations of the futures markets, by keeping competition fair and preventing market abuse or other threats to financial integrity and efficacy. As the futures markets and particularly the derivatives and swaps markets are very international, the CFTC collaborates heavily with international partners and oversees a huge variety of diverse financial institutions and service providers, including exchanges, clearing houses, dealers, and commodity pool operators.

The CFTC has often been seen as the smaller, less powerful or prominent cousin agency to the Securities and Exchange Commission (SEC). However, as the CFTC refines its position within the financial regulatory landscape of the global markets and within the US economy, certain issues and emphases have emerged which distinguish the CFTC.

  • Bitcoin: The CFTC made headlines in November 2017 in paving the way for CME Group and Cboe Global Markets Inc to trade bitcoin futures contracts. Investors and markets professionals all over the world have been waiting for the first regulatory verdicts in the US on how cryptocurrencies markets may be handled. The CFTC has answered this boldly, indicating a permissive attitude toward the trading practices coupled with a strict expectation for robust monitoring and reporting to enable oversight of the famously volatile and active bitcoin trading markets. The CFTC had already declared in 2015 that it would treat bitcoin as a commodity, and the ensuing years have shown US financial regulators struggling to agree on what the cryptocurrency is in terms of financial markets and what risks and protections might be applicable for those wishing to invest or speculate in it. The CFTC has chosen to give the futures trading a yellow light, allowing it to go ahead with a cautious eye toward the intense enforcement and investor protection needs that could arise and obtaining assurances from the exchanges that they will proactively cooperate and share the necessary data with the CFTC: Bitcoin Futures Are Coming and Regulators Are Racing to Catch Up
  • Whistleblowers: While far outpaced by the SEC’s much more well-known and publicized whistleblower program, the CFTC’s program was created at the same time as the SEC’s, by the post-financial crisis Dodd-Frank Act in 2010. In 2017, while still modest in comparison to the SEC, the CFTC is having a banner year for payments of whistleblower rewards. These rewards come from sanctions imposed by the CFTC due to validated whistleblower claims against CFTC-covered organizations. This represents a reporting increase by whistleblowers to the CFTC of 70 percent over 2016, indicating that whistleblowers are recognizing the value of the CFTC as an enforcement body. Therefore this uptrend in handling of whistleblower claims could likely continue: Why Wall Street Should Worry About the CFTC Whistleblower Program
  • Deregulation: The overall trend in the US is toward a preference for fewer or more efficient and targeted regulations. This is a clear reversal especially in the financial markets, where in the years after the global financial crisis the momentum was toward more complex and far-reaching regulatory and supervisory oversight on the economy and market participants. This was a reasonable and necessary response to not only the recession but the numerous and varied financial scandals and frauds that were uncovered and damaged the markets and society’s trust in the financial systems. These risks and root causes of misconduct and abuse are still present, so balancing a regulatory posture which prefers a lighter touch against the need for investor protector and facilitation of transparent and equitable markets is a challenge for all regulatory agencies, including the CFTC: CFTC Enforcement Actions Drop Sharply in 2017
  • MiFID II: The revised Markets in Financial Instruments Directive, or MiFID II, is a wide-sweeping set of EU financial regulatory rules coming into effect in January 2018. These new regulations will have huge impact on the way banks and other financial institutions interact with and make money from the markets. While these are European laws, the globality of the markets means that regulators and market participants all over the world are contending with how to handle these new supervisory guidelines. The Futures Industry Association (FIA) has been actively lobbying the CFTC on behalf of its members, including large banks such as Goldman Sachs and Morgan Stanley, to confirm that the new European requirements will not bring expensive new limitations in the US as well: Wall Street Has New MiFID Migraine, Now in Futures Market
    In continuation of this, one important area in which the CFTC has already been deal-making with the EU in anticipation of the approaching MiFID II application is with derivatives trading venues. The European Commission and the CFTC have agreed upon mutual recognition of trading venues so that those in the United States can benefit from an equivalence decision recognizing them as eligible for compliance with MiFID II requirements by virtue of their satisfaction of CFTC requirements: EU and CFTC Implement Mutual Recognition of Derivatives Trading Venues
  • Blockchain: Apart from regulating bitcoin as a commodity, the CFTC hopes to benefit from the technology that underlies cryptocurrencies, blockchain. The CFTC has voluminous amounts of data from the diverse market platofrms and service providers that it supervises and has historically struggled to parse and study these huge troves of data efficiently and meaningfully. The CFTC hopes that the reporting reliability, transparency, and information security offered by the ledger technology blockchain can enable better review and analysis of this data. Traditional procurement requirements have often dogged attempts to implement more advanced or emerging technologies, but one of the priorities of the CFTC and other US government agencies currently is to leverage innovation such as from financial technology (fintech), regulatory technology (regtech), and supervisory technology (suptech): CFTC Looks to Blockchain to Transform How It Monitors Markets

Be sure to check back next week for a round-up on FTC regulatory compliance.

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Compliance and ethics business case studies

Compliance and social media influencers

Influencer marketing has become a major trend in the advertising industry with the increasing dominance of social media and blog networks in the media landscape. With influencer marketing, brands and their advertising agencies identify the individuals to whom certain demographic groups look to for suggestions on trends or products and services to purchase. These individuals, referred to as “influencers,” then share or produce editorial content for their followers (the people who like or connect to them on social media networks) or engage in the brand’s marketing activities.

Through these sorts of campaigns, both the brands and the influencers hope to gain a non-traditional advantage in appealing to a wider audience. From the brand perspective, they get creative and incredibly targeted content that is produced on a bespoke basis for very specific consumers who are already engaged and interested in the channel through which the content is shared. Through the detailed metrics that are abundantly available via social media and blogs, advertisers can determine which campaigns were successful in spurring either interest or actual sales. From the influencer perspective, they get opportunities to generate paid content and engage with their followers and fans in a novel way. Relationships with brands can be very lucrative for influencers, especially if they become long-term, and can drive significant, much-desired traffic for blogs and social media posts that brings attention to other content the influencer has to offer.

From the above, it is evident that along with all the opportunity comes a complex set of interests which may end up in conflict or give rise to concerns about business practices and accuracy of representations and disclosures. For influencers in particular, blurring the line between the position a follower or a fan, which is even on some networks referred to colloquially as a “friend,” and the position of a customer or a referral, complicates an informal relationship where few duties are owed. Instead, these interactions can occasionally be viewed as a commercial relationship where much more responsibility exists and can be potentially breached.

  • In the United States, the Federal Trade Commission (FTC) is one of those regulators who is contemplating stronger restraints in the practices of influencer marketing. The main area of the FTC’s concern centers on disclosure of the relationships between brands and blogger influencers. Without full, clear disclosures, consumers cannot make reliable, informed choices about purchases they may be influenced to make due to influencer marketing content. The FTC hopes to protect customers from being misled or ripped off entirely by influencer marketing that is targeted to them without providing them with the necessary disclosures for them to make ethical and financially-wise decisions. The FTC has already informed influencers and advertisers that disclosure of relationships between them must be “clear and conspicuous,” with posts that paid promotions clearly indicated as such so that they are not lost within the influencer’s unpaid content that engaging with would not lead to a directly-linked commercial interaction. These regulations have been around for some time, but the extra enthusiasm for enforcing them protectively will have a much bigger impact on the market going forward: Regulating influencers: What retailers need to know about the regulatory crackdown
  • The SEC also has influencer marketing on its regulatory enforcement docket. This is an interesting clash of social media advertising etiquette and investor protection priorities. Companies offering trading of cryptocurrencies have begun to rely on celebrities for endorsements. Much of influencer marketing is done in “testimonial” style, so this medium lends well to a celebrity sharing his or her preferences with thousands or millions of followers. When that preference is for a cryptocurrency investment, however, the endorsement may run afoul of proper disclosure expectations. These regulatory expectations for cryptocurrencies are still evolving, as the market for initial coin offerings (ICOs) is in its infancy still and nearly everything that happens with cryptocurrencies is new, with its impact on banking, the markets, and investors unproven as of yet. Central banks and regulators have taken wildly different approaches in different countries to handling demand for and developments in cryptocurrencies. In the US, this approach has been cautious and restrained, but one area in which the supervisors have not been quiet has been to protect potential investors from advertisements without appropriate disclosures: SEC warns celebrities over endorsing ICOs without proper disclosure
  • Brands and influencers aren’t the only ones who may need to meet a higher disclosure standard when it comes to advertisements that aren’t immediately identifiable as such. Hidden marketing on social media sites as just as insidious as the political advertising that has received so much attention in the press recently. As Congress pushes social media platforms like Facebook to make clearer disclosures about and take more monitoring and control responsibility for the advertisements that appear on their sites, the need to build in protections against deceptive actions by marketers and their partners is urgent as well: It’s not just Facebook’s Russian ads: Hidden advertising is pervasive and growing
  • Social media compliance enforcement will be a major priority for the FTC in this regulatory environment. It should be expected that even within regulatory rollbacks in other areas, the FTC will continue to pay attention to possible non-compliant social media posts and advertisers and their related influencers could be subject to formal enforcement actions. Compared to some other industries like banking or pharmaceuticals, advertising agencies are subject to a relatively sparse supervisory agenda. This light regulatory touch may change dramatically if the FTC chooses to extend and entrench investigation and enforcement efforts on influencer marketing. This is worrying for the influencers as well, who are even less likely than advertising agencies or marketing divisions of brands to have fully-formed compliance programs and to be ready to have the record-keeping and other regulatory controls they may need in place and up to speed: How to Comply with FTC Social Media ‘Influencer’ Rules
  • For more on influencer marketing and the way that brands, advertisers, and influencers may use it to spread content in the future, check out this 2018 forecast for possible trends in the practice, which will in turn dictate the ensuing regulatory priorities, from Forbes: The Influencer Marketing Trends That Will Dominate 2018

Given these potential developments and risks, it is definitely not premature to direct appropriate and pro-active compliance attention to the cultivation and use of influencer marketing networks. Regulatory and supervisory entities are already starting to consider cracking down on various marketing activities in this sphere, and enforcement of disclosure and reporting standards will become robust and should be aided by proper control frameworks.