Yaron Hazan (yarok02@yahoo.com) is a Financial Crimes and Compliance Subject Matter Expert at ThetaRay in Hod HaSharon, Israel.
What defines a “leader”? A leader steps up in times of crisis and is able to think and act creatively in difficult situations. A leader also stands up and speaks, takes responsibility, and is willing to champion new directions.
Leadership involves:
-
establishing a clear vision;
-
sharing that vision with others so that they will follow willingly;
-
providing the information, knowledge, and methods to realize that vision; and
-
coordinating and balancing the conflicting interests of all members and stakeholders.
Why is compliance leadership required?
Compliance is the practice designed to ensure obedience with laws and regulations. Behind each law there is a behavior, norm, and right/wrong language. In order to enable business teams that are not compliance experts to make the right decisions, compliance experts must teach these teams the values and norms behind laws/procedures, the connection between these norms and their activities, and the dilemmas they might face. These communication skills are a top priority; they will convince business leaders why they must conduct certain activities and how to embed them in their business activities.
Vision is part of the message. Business leadership speaks the language of results, achievements, and strategy, and employees will follow a vision if they understand where the vision could take them. For example, implementation of artificial intelligence and machine learning for anti-money laundering transaction monitoring will allow effective detection of financial crimes, help society defend against such crimes, provide efficiency, and reduce costs at the same time. Such a message can be supported by senior management, even if the first phase would mean increased expenses. Compliance leaders must have a vision and look a few years ahead.
Case study: Anti-corruption
As news coverage on large organizations suspected of violating the anti-bribery laws becomes more frequent, it is important to understand the foundations of this phenomena.
Why do regular people attempt to bribe others? Temptation to go the extra mile for the customer in order to beat tough competition can easily drive average people to undertake illegal activities. And although regulators are paying increased attention to business conduct in general — and bribery-related violations in particular — mitigating bribery risk remains a significant challenge, especially in high-risk territories where it is perceived that business will not be established without bribes.
As a result, anti-corruption enforcement is the focus of many institutions; no compliance program is complete without reference to bribery risks.
The corruption triangle: Opportunity/pressure/justification
Corruption risk is one of the emerging challenges for international organizations. The drive for success and the pressure on sales and revenue are creating an environment where one of three key elements for financial crimes is always there: pressure, justification, and opportunity.
Pressure
Besides business pressure, each employee is subject to personal pressure that could be a result of many different variables (e.g., economic, family, health, addictions). We live in an era where everybody is always under some kind of pressure. Pressure is something that can be managed, for example, by a “know your employee” program that helps managers identify and deal with abnormal pressure.
Justification
Justification is the story the employee or team tells themselves: “Our competitors will offer something and win the contract. If we want to compete, we should offer the same,” or “In this country, you cannot open a door without paying something.” In addition, corrupt deeds are also justified with “no victim” stories: “I am doing no harm.”
Unlike other fraud scenarios, when employees are involved in a corrupt deal, they usually believe that they are promoting their organization’s interests. This makes the justification even easier. In such an environment, each tender is an opportunity for a bribe, and the triangle is completed. The solutions for the justification element should include education, training, and a culture-related plan.
Opportunity
Opportunity exists within any deal; all business processes are exposed to corruption. Opportunity is tackled by known and familiar controls. The most effective control is a technology-based system that analyzes data without specific rules and, hence, is able to detect employee activities that are abnormal and may represent attempts to bypass anti-corruption controls.
What measures can an organization apply to prevent/detect and investigate such violations? Is this somehow connected to compliance leadership?
How can vision and strategy serve the compliance officer facing such risks?
The gray zone
The most dangerous situation for corrupt behavior is the “gray zone.” People tend to avoid asking the hard questions. The role of a leader is to encourage asking questions and facing dilemmas, to show the way behavior leads to success, and to teach the alignment between the vision and the norms.
All employees want to succeed, be appreciated, and receive positive feedback for their efforts. Once it is clear that decisions made in the gray zone are not accepted, each employee should then understand exactly what to do and how their actions serve the vision and objectives in the long and short term.
Compliance leadership is valued in this respect if the following parameters are met:
-
The message from the Compliance department is clear rather than vague; the vision is understood and easy to follow.
-
Training is provided to all employees in accordance with their role/location and risks.
-
The compliance team understands the business, the risks, the opportunities, and the challenges.
-
The compliance function is open and accessible for all employees.
-
Dilemmas are discussed, business leaders know where there could be a conflict of interest, and they share the right-versus-wrong approach with all their employees.
In order to minimize gray zone–related risks, leaders must share a clear vision, with tools necessary to realize that vision and manage conflicts.
The main hurdle preventing compliance professionals from becoming leaders is their lack of understanding of the organization’s business activities. This means that the need to understand and learn is not a one-way road. As compliance professionals expect the business to understand values, procedures, and responsibility, so must compliance professionals understand the business environment.
In cases where compliance professionals understand the business, a few additional tools can help to create an effective compliance environment:
-
Compliance leaders understand the gray zones and guide relevant staff in an efficient manner.
-
Compliance leaders are able to suggest alternatives to risky deeds. For example, if the sales team has the capacity to focus on several targets, compliance leaders may suggest which targets to prioritize.
-
Compliance leaders won’t say no to all initiatives. This will gain trust among business leaders that the recommendations are professional rather than hysterical.
-
Compliance leaders will seek advanced tools and solutions to create an efficient compliance program, even as competitors are growing their compliance teams. Sometimes technology is cheaper than additional labor costs.
A compliant organization is more effective
If business processes are clear and corporate strategy is based on objectives and values, they will drive success, enable good decision making, and put compliance on the front line of setting the organization’s values. Successful organizations should have a sustainable business model where employees engage with the organization’s values and business objectives. These descriptions may sound utopian, but they represent achievable objectives and key performance indicators.
How can we measure these things? How can leadership assess the level of engagement by employees? The following could be a good starting point.
-
Surveys to confirm employee understanding;
-
Mid-management reports to evaluate a manager’s perception of their team’s knowledge;
-
Roundtables to discuss values with the CEO or senior managers;
-
Behavioral analysis to show statistics and big-data analytics on achievements and costs between similar teams in various territories; and
-
Workshops to talk through requirements and dilemmas using real-life cases, with or without an external moderator.
How to maximize compliance in business processes
In order for compliance leaders to become more valuable, and to be acknowledged as valuable to their organization, they should be involved in new business initiatives at an early stage. Early involvement will ensure a clear understanding of business initiatives and provide the opportunity for a transparent SWOT analysis: strengths, weaknesses, opportunities, and threats.
The potential business value is tremendous. Business teams will know what is right and wrong in the way they imagine business growth. Compliance will understand business activity and dilemmas, and the CEO and board of directors will feel comfortable engaging in a new initiative if the analysis was done by both the business and the risk functions.
Compliance professionals that understand the business environment will naturally become a leader exactly as the business terminology defines one. A true leader sees the full picture — not only the immediate need.
Leadership self-assessment
In order to understand their leadership level, compliance leaders need to ask themselves the following questions:
-
Do we, business leaders and compliance leaders, understand each other?
-
Do we agree on the values and reasons for complying?
-
Will business teams act differently if I am with them?
-
Will teams follow me in times of crisis and trust my judgment?
-
Do I trust their judgment?
-
Can we replace each other for one day?
-
Do we understand how compliance promotes business values? The vision?
Summary
Compliance leadership is crucial for a successful organization. Compliance leaders are those who understand the business and are able to communicate values/procedures and expected behavior in a clear manner. Each individual performing as head of compliance should self-examine the leadership level, understand business activities, and cooperate with business leaders.
Compliance leaders need to understand the pressure on business teams, analyze risks, and show teams the compliant path forward. Compliance officers that demonstrate these leadership skills will add maximum value to their organizations and will gain cooperation and appreciation from senior management.
Takeaways
-
Compliance leadership is based on excellent communication with business leaders. Messages should include vision and objectives, adjusted to the leaders’ language.
-
Leadership enables achievement when using new methods and techniques.
-
Violations are committed by regular employees due to pressure, opportunity, and justification. There is no “gray zone.”
-
An effective compliance culture improves business results.
-
Compliance leaders with a deep understanding of the business and the business needs will be able to lead in times of dilemmas and crisis.