Category: Compliance and ethics business case studies

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Compliance and ethics business case studies

Patagonia’s social responsibility and targeted political engagement as corporate values

The famous outdoor industry retailer Patagonia has a bold and defining mission statement: “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.” In this, a company which makes its profits off selling products to people who wish to explore and enjoy the outdoors has linked its strategy, growth, and indeed reason for existing, to respecting and protecting that environment. Patagonia’s reputation has been cultivated in the public eye to carefully coincide with this intention.

In recent times, however, Patagonia has grown much more quickly than its previously modest expectations, pursuing revenues wherever consumer demand takes the company and stepping up their competition. This has been driven largely by the fact that consumers who have an affinity for the environment and its protection also, logically, are interested in driving their spending power toward companies that they feel share this value. Millennial customers are highly motivated by companies which model social, cultural, and, especially relevant in the case of Patagonia, environmental values. With the vast array of consumer choices that the retail industry offers, both in products and in outlets to purchase these products, cheapest price or easiest availability is no longer the only or the loudest driver of buying power.

Patagonia has hereby achieved the special mix of corporate ambition and conscience. The company is not just an outdoors products retailer, though it still may be thought of as that by many. Instead, it has grown into a green venture capital fund, a food producer, book and film publisher, and a political activism organization that is willing to take on the US government on environmental protection and conservation causes.

Being a company that believes in something, and being rewarded with consumer loyalty, interest, and purchasing power for it, is a powerful message for compliance programs. Creating a serious, genuine corporate image based on values and then selling that image to customers as much as any other product is a huge ambition and a dynamic identity for the organization. Companies must develop corporate cultures which drive what they do with a specificity beyond pursuing sales and dominating product markets. They must recruit leaders who embody this, reinforce this honestly with their employees, and offer integrity in this message to the consumers who will trust them with their loyalty in return.

Hereby, companies such as Patagonia can become not only revenue leaders in their industries but also corporate role models to their peers and competitors. While seeking to directly motivate positive change at the publicly traded titans of industry may be biting off too much to chew, organizations can grow themselves strategically so that their own corporate impact is bigger and better.

In Patagonia’s case, relying on direct-to-consumer business via their own stores and website means that they can take their growth and values ambitions directly to their customers and feed-forward based upon the reception they receive. This is a powerful engagement opportunity for a brand and building a political and social consciousness that is informed by it means that the company can shape itself into the type of organization its customers admire and with which they want to be associated. While Patagonia cannot force political action or change at the highest level on its own, as a company it can be forward-looking and progressive in a time when its consumers appreciate and desire these values. Hopefully, Patagonia can also be an example to other companies to raise the competitive standard for corporate cultures and relevant, genuine social responsibility as a core business value. If that is effectively accomplished, then productive change for the collective can be well within reach.

For more about the power of Patagonia’s corporate social conscious, check out Abe Streep’s story on Outside Online.

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Compliance and ethics business case studies

Silicon Valley and undoing the normalization of sexism as corporate culture

Much of the attention on Silicon Valley in recent months has been not for new technological innovations or advances in the markets. Unfortunately, the public discussion surrounding the high-tech and start-up world, and the individuals and companies that finance that industry, has been focused on worst practices for corporate cultures. As society at large grapples with gender equity, racial and ethnic representation, generational workstyles, politics in the workplace, and many other diversity challenges, the most frequent conclusion seems to be that the state of things in 2017 is not as progressive or integrated as may have been assumed.

Many high-profile Silicon Valley organizations have coped with this revelation of corporate intolerance very publicly. Among them is Kleiner Perkins Caulfield & Byers, a high-profile venture capital firm. Managing partner John Doerr was an investor in some of the highest profile first generation technology companies to come to market: Intuit, Netscape, Amazon, Google. When he hired Ellen Pao in 2005 as his chief of staff, it seemed like he was assertively signalling that Kleiner Perkins wanted to take the lead on elevating qualified women to visible leadership roles in Silicon Valley, where men have overrepresented women in management, and within the even more traditionally male-focused venture capital domain.

Pao’s experiences throughout her tenure at Kleiner Perkins, capped off with her 2015 gender discrimination lawsuit and her firing before that lawsuit came to trial, indicate a different environment. Rather than being valued for her contributions and promoted on her merits, Pao alleges that she was harassed after a workplace romance went bad and that she was often marginalized in her role, expected to take on essentially personal assistant type duties while investing or higher level tasks went to male colleagues. Instead of contributing to a gender-integrated workplace where individuals were elevated for their accomplishments, insights, and commitment to their jobs, Pao paints the picture of a dysfunctional and increasingly hostile environment.

Kleiner Perkins did not have policies or training against sexual harassment at the time Pao worked there. A control framework to identify, prevent, and address these corporate culture issues is imperative. Any company that does not set a tone on these matters and take the time to thoughtfully and proactively set expectations for an integrated, balanced organizational culture demonstrates no credible commitment to workplace equality and the merits of the diversity of viewpoints this brings with it.

Many cultural changes have been underway for so long that they are taken for granted or even pushed against by now as creating an undue burden in the other direction. The truth, however, is that these movements toward a more balanced, integrated workplace are still stymied by a lack of genuine commitment. Ideally the office would looks much more the best version of the world, where people are elevated for their merits and not their demographic traits, and are not kept from even getting on the road to success because of someone else’s decisions about their right to work because of a trait like gender. In order for this to really develop, though, leaders in business (both established ones like Kleiner Perkins and start-ups who are defining their corporate values for the first time) need to take ethical stock of where they stand and if they can commit to creating a culture where all people are accepted and utilized for their merits, then they need to do so visibly and meaningfully. The time of tokenism or promises without true intention needs to be past so that people of all kinds can get into legitimate leadership positions and then pay it forward to the next generation behind them.

Pao did not prevail in her lawsuit, but perhaps it will endure anyway as a test case. While it did not result in a guilty verdict, cases like this one can be a cultural watershed for policy and enforcement standards in companies to mitigate legal risk. Perhaps also other women working in, or fired from, Silicon Valley under similar circumstances can see where Pao succeeded and failed in her legal strategy and take up the cause on their own behalves. Bringing these issues into the public light can certainly drive change in creating a cultural imperative for women in tech to speak up and out.

For more insight on Pao’s experiences in Silicon Valley and happened with her lawsuit against her former employer, see this excerpt from her book on The Cut, originally from New York Magazine.

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Compliance and ethics business case studies

THINX, Miki Agrawal, and the immature leadership of a visionary entrepreneur

THINX was founded by Miki Agrawal with the ambition of disrupting the feminine hygiene industry. The company makes underwear specially designed to be worn by women on their menstrual periods. In line with this female-centered product and its revolutionary approach to a timeless need, THINX has a mission to re-center the public discussion about periods and women’s bodies. The company has become known for its provocative, bold advertising campaigns on the internet and in the New York City subway.

However, the company has also become known for something less progressive: allegations that its founder-CEO Agrawal created a hostile work environment with inappropriate behaviour and insufficient management controls.

THINX started with the objective to normalize the way people talk about periods, making it no longer a taboo topic. This societal change is an admirable goal, but at THINX it was undermined by an immature compliance culture that perverted this openness into permissiveness for mistreatment and poor conduct. It may be a positive societal change to open and encourage dialogs about feminine hygiene practices and women’s bodies, but the standards for treatment of others and respect for people’s personal boundaries, everywhere in life but especially in the work place, should not be subverted in interests of promoting this message. Empowering women does not stop at the office door, especially in a company with this ambition as its supposed core value.

Agrawal, who has successfully started several businesses, has not been so successful in taking a professional approach to ongoing operations at those organizations. Her ideas and approaches to entrepreneurship may be disruptive in a good way – novel, unique, bold – but her management style appears disruptive in a bad way – immature, overly casual, confrontational. Personal conduct and character ethic should distinguish the profile of a CEO, not tarnish it. A true leader should focus his or her philosophy into appropriate behaviour and interactions with employees and a tone at the top of professional integrity.

Despite Agrawal’s own behaviour that crossed the line, she could have made up for her managerial shortcomings by placing people around her whose leadership could contribute to a more acceptable corporate tone for the employees while still servicing the cultural change Agrawal wanted to encourage in the world at large. Adequate management controls such as a formal, experienced HR department and written employee policies and procedures would have helped to set a standard towards which the company could mature.

THINX replaced Agrawal as CEO with Maria Molland Selby, a more traditional leader who was worked in a variety of established companies included Thomas Reuters and Dow Jones. Selby also is a passionate about the THINX product from a personal perspective, hopefully she can value the people working at THINX as individuals by treating them positively and focus on a corporate culture that will support the company’s goals of destigmatizing feminine and changing the product market to make it better. As for Agrawal, she has rebranded herself as a SHE-eo and a disrupt-“her,” indicating that her interest is really on focusing on her perceived positive accomplishments and the future, rather than learning from the criticisms of the past, which she perceives as obstacles or tests rather than self-created challenges or failures to mature.

For more detail on THINX and Miki Agrawal, read Noreen Malone’s story on The Cut.

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Compliance and ethics business case studies

Wells Fargo’s culture of non-compliance

Wells Fargo is embroiled in an ongoing crisis regarding fraudulent business practices in many areas of its banking enterprise. The scandal continues to unfold and touch different areas of Wells Fargo’s operations, from unwanted credit card accounts to unauthorized auto insurance products to excessive fees for merchant banking.

So far the only tangible outcome of congressional investigations, endless scrutiny by the press, and a supervisory board shake-up has been continued discovery of further misleading and dishonest conduct at the expense of the bank’s customers. It remains to be seen whether Wells Fargo can rehabilitate itself and regain the trust of the public and its many stakeholders in government and the financial services industry.

Clearly, however, such a pervasive fraud as this one indicates that Wells Fargo is afflicted with a culture of non-compliance. Rather than valuing ethical and sustainable approaches to commercial interests and putting duty of care to the client first, Wells Fargo chased profits via volume and local management encouraged unethical decision-making to enable bankers to pad the bottom line for themselves and the bank.

This conduct appears to have been only worsened by the financial crisis of 2008, when employees drove themselves to hit increasing sales quotas by engaging in gaming, which is opening accounts only to close them shortly thereafter and then open new accounts. Unethical practices, such as these unauthorized account openings and use of false identifications on accounts, at local branches were openly known as business as usual during this period. Wells Fargo appears to have incentivized this conduct in order to meet financial goals during a complicated, depressed market. Employees questioned the practices but ultimately acquiesced because jobs were hard to come by in the business and the income was precious.

A deeper look into Wells Fargo’s corporate culture in these years reveals a cutthroat, competitive environment where sales principles were constantly reinforced and valued over all others. Demands for profits and achievements in opening new accounts and selling products to generate fees were never tempered by encouragement to remember that treating the customer with honesty and respect was the most important business principle of all. Branch managers allowed and encouraged fraudulent conduct by their employees in order to meet regional and head office standards and appear successful. In this culture, worsened by the overall pressure of the Great Recession in general and the financial services industry specifically, good people did many bad things.

The only choice for Wells Fargo going forward in order to restore their credibility is to cultivate a bank-wide culture of compliance. Employee awareness of integrity, fiduciary duties, and obligations to ethical and honest decision-making must be instilled and reinforced regularly. Management, both locally and at the top, must set a rigorous tone of devotion to compliance practices. Sales quota directives should always be accompanied by moral warnings and should be set at a level where cheating is not the inevitable method for success. Sustainability of business practices, over time, should be expressed as the way to make money and service clients: quality, not quantity. Single-minded competitive pressure may be inherent to the sales business, but this needs to be tempered by having compliance and ethics as a core goal and performance metric.

For a more detailed look into the conduct causes behind Wells Fargo’s financial fraud scandals, read Bethany McLean’s story for Vanity Fair.

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Compliance and ethics business case studies

Tinder and the role of compliance in fostering professionalism in start-ups

Tinder is a well-known dating app which matches users based on location and social media profile compatibility. It is infamous for its “swipe” interface where users register their reaction to potential matches by swiping right on the screen to register an interest in connecting or swiping left to dismiss.

Tinder was founded by a group of childhood and university friends, most prominent among them Sean Rad. The spirit during the early days of Tinder is presented as rowdy, social, creative, and disruptive – a start-up with a millennial energy where the fun and approachability embodied in its product was inspired by its corporate identity.

Eventually, however, friendships began to sour, the novelty started to wear off, and controversy began to take seed. One of the co-founders, Whitney Wolfe, fell out with Rad and another co-founder, Justin Mateen and filed a lawsuit alleging discrimination, sexual harassment, and retaliation. Wolfe has gone on to found a competitor dating app, Bumble, in which only women can initiate communicate with their male matches. Gender imbalance, public health, personal security, and data privacy are all major concerns which have been raised against Tinder’s operating model.

In all cases, Tinder has only been able to be reactive to these issues, not to preventively address them. This goes down directly to the fact that Tinder has no native culture of compliance. Tinder has a start-up culture as described above – entrepreneurial, excitable, informal, and innovation-focused. In these dynamic cultures there is a tendency to eschew traditional foundations as staid, too likely to impose restrictions or rules that will stunt growth and prevent transformative achievements. All the focus goes on being fast-moving.

Indeed, the image of the plucky entrepreneur starting a business by maxing out personal credit cards and taking customer calls from the garage at home is an endearing and enduring one. However, when this start-up gets some cash and energy and scales up, often the investment is concentrated on people who will bring the product to market – engineers, designers, marketing and sales staff.   The below the line functions – HR, operations, finance, and indeed compliance – often stay with the principals or outside vendors for as long as possible, to the detriment of the development of compliance values at the core of the organization. This may be practical to achieve profit objectives, but it’s not professional.

A forced culture of compliance will never be a natural one. In the complex business and regulatory environment today, it would be wise to include among the early employees someone who can set the stage for a genuine culture of compliance from the beginning. A company that grows up aware of compliance and ethics obligations and has an authentic, competent champion for employee integrity will not have to try to develop this later on when it may be too late for it to take genuine hold.

For a deeper look into Tinder’s roots and Rad’s growing pains, check out this story by Nellie Bowles for The California Sunday Magazine.

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Compliance and ethics business case studies

Zappos and the ethics of change management

Zappos is a leading online retailer and presents an interesting ethics case as it copes with the challenges of remaining competitive. A remaining pioneer of the dot-com boom and now a subsidiary of Amazon, Zappos has thrived and innovated under the leadership of Tony Hsieh, known not only for the selection of products it offers, but also for its customer services standards and social media engagement.

Like all enduring enterprises, Zappos faces the challenge of reinventing itself to strive for longevity and sustainability. Paradoxically, one way leaders try to retain relevance and stay appealing to both customers and employees is to embrace change. The thinking often goes that fixing things before they are broken is better than turning up one day and realizing suddenly nothing works. This self-inflicted evolution can lead to positive growth and a more forward-facing structure that is built for the future, but it can also be destructive to a corporate culture that people rely on for consistency and security. In these times of change, ethical considerations taking a backseat to a lean business model is not a sustainable approach.

The 2008 financial crisis has seemingly convinced an entire generation of leaders that business has entered new, uncharted territory and leaders must continually attempt novel structural disruptions to their organizations as a response. Established companies seek to retain their footing or get a leg up on their competitors, both for customers and for employees, by reimagining management in unusual and often highly-conceptualized ways. This took shape at Zappos in 2015 via a new management structure called Holacracy. This abstract system eliminates managers and much of the corporate hierarchy in favour of esoteric, philosophical concepts and flat, self-directed leadership.

These modern visions of management seek to enfranchise the individual. However, if not carefully implemented, they can have the opposite effect. Instead, they create a leadership vacuum and a change process where no one is in charge because everyone is, at least in theory, empowered. The efforts of Zappos to reinvent itself as a flatter, evolved organization with far-out corporate-speak structures, ambitious manifestos, and abstract solutions to common sources of modern employee dissatisfaction are interesting to study but challenging to implement. At their worst, they can lead to employee disengagement and a company that proceeds rudderless, having been stripped of its long-tenured employees via voluntary leave packages and its conventions through generic, buzzword-driven processes that have no intrinsic meaning or applicability to the specific needs of that business.

Change management is a delicate process which must be grounded in a sensitivity for the humans experiencing the change and concretely connected to real considerations like individual development, pay, and productivity. Making choices about the direction of a business which affect people’s livelihoods directly cannot be done ethically if it is done experimentally. Prepared, careful communication and incremental change with absolute transparency and clarity, especially toward the way people will work and be trained and paid, is imperative to maintain integrity.

For a comprehensive look at the radical corporate reorganization efforts at Zappos and their effects on employees, Roger D. Hodge’s 2015 story for New Republic is a great read.

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Compliance and ethics business case studies

Theranos and the clash of financing emerging high-tech enterprises and regulatory compliance

The mysterious corporate life of Theranos illustrates many of the challenges that a disruptive business model faces when competitive ambitions take precedence over business foundations. A corporate environment that tolerates, or indeed relies, on a lack of ethical controls develops a culture where misleading and non-compliant conduct becomes the unsustainable norm.

Theranos is a technology company in the health care industry. It has become well-known for its eccentric, charismatic founder Elizabeth Holmes, a precocious and provocative entrepreneur who began developing the blood testing technology Theranos purports to be producing while she was a student at Stanford University. Theranos received tremendous attention from the media, undertaking several successful fundraising rounds and winning prized corporate partnerships and awards for its innovations on the basis of this publicity, all before any of its devices were ever proven effective.

Typical of many high-tech startups, Theranos operated in secrecy, with Holmes acting as its chief evangelist and marketer but speaking always in aspirational terms. Confidentiality, of course, has its place in launching new products to market – especially in the highly competitive and fast-changing technology industry. Beating other firms developing in the same space can make or break disruptive products and the companies that market them. However, these companies and their products have to be real, and an overemphasis on secrecy can also be a red flag for a pervasive fraud.

Unfortunately, all that glitters does not seem to be gold with Theranos. Despite huge valuations and capital raises, the blood testing technology has been criticized for lack of peer-review and has failed to stand up to validation studies. FDA inspection reports necessary before the devices could be sold on the commercial market indicated that the devices were not validated or approved. The media and scientific community turned skeptical of Theranos as time went on, and corporate partners have suspended or cancelled their engagements with the company, which is under criminal investigation by the U.S. government. Laboratories have failed inspections, lost their licenses and certificates to operate, and been closed. A whistleblower came forward regarding design defects in the blood testing technology, leading to a storm of negative publicity and investigations. The future viability of Theranos, and possible liability of Holmes herself for potential wrongdoing, remains uncertain.

Theranos and Holmes, who created a cult of personality around herself which even if briefly convinced the media, investors, the board, and the employees of Theranos to accept her at her word, perfectly illustrate the integrity pitfalls of financing a new company about which the investors are only allowed to know what they are told. Traditional critical review and the studied analysis of outside observers shouldn’t be abandoned in the heat of the venture capital moment due to the persuasion of a person who seems ambitious and charismatic. To do so could be as serious as enabling fraud at the expense of due diligence.

For more insight on the case of Theranos, Nick Bilton’s investigative report for Vanity Fair is an excellent resource.