Revisiting The Raven and Visiting Foreign Subsidiaries

https://tfoxlaw.files.wordpress.com/2015/01/poe-and-raven.jpg?resize=164%2C121On January 19 we celebrated the birth of one of America’s most iconic authors, Edgar Allen Poe, who was born on this day in Boston, Massachusetts. Anyone who reads or watches a mystery show on television owes a debt to Poe for inventing the genre.

Poe flunked out of West Point but later became an editor at the Southern Literary Messenger in Richmond, Virginia.

He wrote the poem The Raven and short stories like The Fall of the House of Usher and The Tell-Tale Heart. In the mid-1830s he began to write mystery stories, including The Murders in the Rue Morgue and The Purloined Letter – works that would earn him a reputation as the father of the modern detective story. He died in 1849.

I thought about his well-known sad tale when I read a recent article in the MIT Sloan Management Review by Cyril Bouquet, Jean-Louis Barsoux and Orly Levy, entitled “The Perils of Attention from Headquarters”. The authors had a very different perspective on what I thought to be a rather mundane issue; that being visits to markets outside the US by senior management from US corporate headquarters. The authors posited, “Operations in growing markets such as China often draw substantial attention from corporate headquarters. Unfortunately, that attention does not always add value — and can even impede performance.” The authors studied this issue in an international workshop they ran for “managers of foreign subsidiaries on how to manage the attention of headquarters staff.” Given the current attention that Chief Compliance Officers (CCOs) and compliance practitioners need to spend on China specifically, and international operations more generally, I thought the article had some excellent insights for the compliance function going forward.

The authors identified four major issues in their workshop. The first was the number of visits, which was articulated as “The overriding complaint from China subsidiary managers concerns the number of visits from head office staff.” I found a related complaint perhaps less self-obvious, “Not only do they come often, but they want to spend more time, and they all come on weekends! For my team, it means that nearly every weekend, there is somebody to entertain.” The second issued raised was the inevitable increased workload after such a visit. The authors wrote, “The visits also generate follow-up work and online meetings that can interfere with running the business. According to the China sales head of a European water utility group: “The local people get frustrated because the global people, after they return, keep asking for more information. … But we don’t have 500 people running around who are able to produce a report overnight.””

The next two concerns were closely related. They involved a lack of understanding and, more importantly, a lack of listening by senior management from western countries such as US, or those in Europe. While this first concern may not be as true in the area of compliance it is certainly worth noting that the authors said, “The third area of frustration had to do with the perceived lack of understanding and realism of headquarters executives. Although headquarters visits to China subsidiaries were intended to build trust and alignment, subsidiary managers reported that the visits often had the opposite effect.” Finally, is the age-old bugaboo of failing to listen. The authors stated, “Frequent visits from headquarters are allegedly driven by a desire to “learn,” “exchange ideas” or “help the local operations,” but that’s not how local managers always perceive these interactions. According to the subsidiary head of a European express delivery group, “The code word for ‘fix’ is ‘help.’ They say ‘we’re coming to help.’ No, they’re not. They’re coming to fix. Trust me.””

But the authors did more than simply list out the problems they observed in their workshop. They provided recommendations for “healthier dynamics between corporate headquarters and affiliates.” I have adapted them for the CCO or compliance practitioner.

  1. Encourage open dialogue. As a precondition for adding compliance value, you, as a compliance practitioner, must work to understand the business of the foreign subsidiary, which requires a willingness to listen and to engage in unstructured interactions. “Where possible, try to spend time with customers and frontline employees, and to travel to places other than Shanghai and Beijing,” advised the China head of a US sanitation technology group.
  2. Play the role of consultant or coach. Certainly in the current anti-corruption enforcement environment, a CCO or compliance function should put a foreign business unit interest in driving compliance at the top of the agenda. They quoted one China country manager of a US consumer goods company for the following, ““In our case, the affiliate is the entrepreneur and the corporate head office staff are the consultants who are here to support us,” he said. “The moment that you get experts coming out from the corporate headquarters telling you what to do, then that would be very frustrating, particularly in a place like China.”” A compliance function must to work not only with but also for an international business unit. Remember you are the compliance professional and expert.
  3. Be a problem solver. The compliance practitioner should not be a problem creator but a problem solver, not Dr. No from the Land of No. So not only should you be challenging subsidiary managers and helping them develop their compliance plans, but you should work to “actually do things for the subsidiary managers. Indeed, rather than organizing their time in China around their own priorities, executives from headquarters should reserve some time to support the subsidiary managers’ priorities.” The authors quoted one Chinese business unit head of government affairs and corporate communications for a US health-care group for the following, ““Sometimes we need to leverage higher people from global to do what we cannot do [with] our own personnel in China.””

But there is also a role for the foreign subsidiary in this process. If something really is ‘mission impossible’ for the compliance function or other function in a foreign business unit, it is the responsibility of that group to raise the concern. Simply smiling and nodding your head will lead to a severe backlash after the corporate executive group leaves and the initiative or project is not met. A second area is that the subsidiary needs to help make the corporate folks understand the culture. Listening by corporate can only be facilitated if someone from the local subsidiary is communicating with them during a visit. The authors end by stating, “Ultimately, subsidiary managers need to move beyond their frustrations with headquarters and take some responsibility for managing the relationship. As a country manager who successfully turned around his corporation’s China operation observed, how a subsidiary manager frames the visits from headquarters executives is key: “If you see the visit as a burden, then it will be a burden for you. But you can also see it as an opportunity to bring across the core messages you want to deliver and to help people understand a specific topic.””

I found this article quite interesting because it tackles an issue from the perspective not often considered in compliance, that of the foreign subsidiary. There are many ways to do business ethically and in compliance. By taking the time to visit a foreign subsidiary and to listen, a CCO or compliance practitioner can go a long way toward communicating a culture of compliance to use going forward.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

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