Compliance Culture

Practical insights for compliance and ethics professionals and commentary on the intersection of compliance and culture.

The Office and culture of non-compliance

The Office is a very popular US television comedy series, based on a UK series of the same name. It follows the daily lives of the employees working in the Scranton branch office of a paper company. Filmed as a “mockumentary,” to imitate the style of a documentary, the show features many “interviews” with the employees and management. While it does address things in their private lives and personal relationships between the characters, most of the action of the show occurs in the workplace and is based around the dynamic of the characters as colleagues and employees.

In this light, the show offers many interesting insights and tropes about the experiences of working in a small or branch office, with an eccentric boss and idiosyncratic colleagues, dealing with policies from head office and the challenges of working together effectively. Scenarios relevant to compliance are touched upon often in the series, frequently showing examples of very poor management practices or problematic cultural values.

  • “Sexual Harassment” (Season 2, Episode 2): In this episode, the office’s HR personnel are providing sexual harassment refresher training and reviewing policies after an incident at corporate headquarters. Instead of setting a tone at the top to reinforce how important a respectful and safe working environment should be, and how inappropriate harassing behavior of any kind is, the manager Michael Scott has a tantrum and makes light of the importance of the policies. He never embraces his duty as a leader to model positive behavior; even when he defends one of his staff against the rude joke of another, it is accompanied by an improper comment of his own, as he misses the opportunity to step up and reinforce a culture of compliance.

 

  • “WUPHF.com” (Season 7, Episode 9): In the cold open of this episode, the power goes out in the office and the server goes down. Instead of having reliable disaster recovery procedures on hand or a controls framework that would enable business continuity in this sort of situation, the staff must resort to guessing the password as a group. Obviously this is not advisable in light of critical cybersecurity concerns which face all businesses today, especially small offices such as this one which might be assumed to have weaker controls and be targeted by intruders hoping to gain access to the larger company network.

 

Actually, the “WUPHF.com” episode, in its entirety, is another good example of poor compliance practices. Ryan Howard, with Michael’s encouragement and financial backing, claims that he has devised a web-based messaging system called WUPHF.com. In reality, Ryan is committing a fraud, in that the website does not function (despite his attempts to advertise to the contrary) and the only purpose for it is to try to sell off the domain name. Instead of uncovering and disclosing this fraud, and protecting the other investors, Michael backs Ryan. Though he later withdraws his support for Ryan, the fraud is allowed to continue because Michael does not step up and see beyond the conflict of interest posed by his personal relationship with Ryan in order to act on behalf of the investors as he could do.

 

  • Scott’s Tots (Season 6, Episode 12): In surely one of the more cringe-worthy moments for Michael Scott – that’s saying a lot – he fails to keep the promise he made years before to pay college tuition for a group of lower-income children. Upon their high school graduation, he must confess that he has not upheld the duty to them that he created with his promise. Instead, he apologies and tries to give them batteries as a conciliatory gesture. Apart from the terrible awkwardness of the concept itself (this episode aired in December 2009, deep within the global financial crisis, an uncomfortable time to try to address financial fraud humorously), it’s unfortunate, and a sign of weak leadership, that Michael doesn’t seem to acknowledge at all the reliance upon his integrity he created by making that commitment.

 

  • The Incentive (Season 8, Episode 2): In the absence of Michael Scott, his former employee and now new office branch manager Andy Bernard is proving that the apple doesn’t fall far from the tree when it comes to insufficiently ethical leadership. Andy finds himself at a loss for how to motivate his employees and decides to create a points-based incentive system to encourage their performance. Rather than appealing to their values or accepting lower performance in exchange for more sustainable and strategic efforts, Andy chooses a management method which will yield only short-term, temporary improvement or engagement.

From the above it is abundantly clear that The Office does not depict a corporate culture of compliance or a values-based approach to business strategy. Rather, it shows a company that is run, at least in the Scranton branch, with an ethos of non-compliance in the workplace.

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Key compliance culture values for promoting employee integrity

Employee integrity is the cornerstone value for establishing organizational integrity, and therefore for the success of any compliance program. As fundamental as employee integrity is, it is also complex, elusive, and affected by a huge array of factors and influences. Perceptions and biases can defeat individual intentions for ethical behavior. External forces on the decision-making process and the impact of management in a complicated organizational structure and business world can defeat incentives for integrity and honesty.

What can a compliance program do to address the need for employee integrity in a world which presents so many obstacles and hindrances to developing and maintaining this trait? Compliance professionals should be the organizational standard bearers for encouraging good people to do good things and limiting access of the occasional bad people to do bad things. This message can be very simple and should focus on reinforcing positive perceptions of corporate values and leadership expectations so that employees aspire to model their own character within this.

  • Openness: Transparency and honest, active communication are crucial to the success of a compliance program. Employees must see that openness of communication and transparent reporting and sharing are highly valued. Open communication is directly linked to reduction of reputational risk and perceptions of greater honesty. Establishing a culture where employees feel it is encouraged or expected to speak up and speak out requires management to be meaningfully open, accessible, and relatable. In an environment where employees feel that all behavior and performance can be discussed openly, they will also be aware that it will all be noticed, and therefore will feel positive pressure to meet best expectations for integrity.
  • Clarity: Clarity of expectations and perceptions is essential for a culture of integrity. As with all objectives for compliance culture at an organization, norms and values must be clear and consistent across all employee populations. Communicating different or confusing messages, or giving information that impacts everyone to only some and leaving others out to hear it indirectly, is disastrous for imbedding ethical traits in an organization. Clarity promotes understanding and discussion, both of which are necessary for employees to take up the cultural objectives of the organization as their own.
  • Leadership: Tone at the top is just the first step. Leadership should be encouraged as a professional competency at all levels in the organizations, so that advocacy for the compliance culture can take root everywhere. Employees need to see leaders speaking up about the importance of integrity, but they individually also need to feel they are in the position to speak up themselves, and will be looked upon as vested with responsibility for their own integrity and choices in everyday ethical dilemmas.
  • Trust: Trust is the most simple factor for encouraging integrity in organizations, and indeed in all interactions and relationships, and it is also one of the most difficult and fraught qualities to meaningfully establish and maintain. Trust is constantly threatened and questioned. It cannot be given automatically and still have meaning, but it must be given confidently and with expectation that it will be received in return. Investments in mutual trust cannot be forced or demanded. The pain of having colleagues or managers who are not trustworthy can cause deep damage in teams and organizations and impede individual development. The only solution to this is to see trust as a reward and an ongoing evaluation, and to embrace frank and open dialogs which can help to resolve prior mistrust and discourage future violations.
  • Engagement: Engagement discussions usually focus on employees, but the quest for achieving it starts with management. Employees should see that management follows up, takes integrity seriously by individually espousing all the values, responds visibly to problems and complaints, and confronts issues boldly and confidently. Management engagement in the compliance culture should embrace professional skepticism and pursue public accountability. When employees see this, then they are empowered in turn to engage with their direct managers, peers, and direct reports to have discussions about integrity matters and to demonstrate all the traits that support ethical decision-making.

Modelling the key values of a compliance culture to create strong organizational drivers for integrity should be the focus of the conduct objectives of every compliance program. The fundamental message should be that performance and behavior linked to demonstrating integrity will be encouraged and appreciated.

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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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