I am attending the SCCE Utilities and Energy Conference in Houston this week. As usual, the SCCE has put on a great event for the compliance practitioner. This year there is live blogging by Kortney Nordum so there should be much about the conference up on the SCCE blogsite, this week and into the future. Lizza Catalano has put together a first rate program for compliance practitioners of many stripes. As an added benefit, SCCE Chief Executive Officer (CEO) Roy Snell has brought some cold weather down to Houston for the event for our late February enjoyment. While it was 80 on Saturday, today is was a balmy 36 courtesy of our Minnesotan guests.
As you might guess the current economic downturn is on everyone’s mind and a subject of much conversation. Last week I wrote a post about the depression of oil and gas prices in the energy space and some of the increased Foreign Corrupt Practices Act (FCPA) or other anti-corruption risks that might well arise from this economic downturn. Over the next couple of days, I want to explore how a Chief Compliance Officer (CCO) or compliance practitioner might think through responses to this increased compliance risk. Today I will focus on doing less with less. Tomorrow I will suggest some technological solutions.
I have been around long enough to see more than one of these economic events in the energy space. While not suggesting that we Texans never learn not to repeat our mistakes, they do seem to have a pattern. Prices drop precipitously, companies who are overstocked, over-leverage or generally over-panic; over-react and cut head count and spending dramatically to some level that is not based on rational economic analysis. Then they get some handle on where the numbers might be heading and the cuts start to flatten out and some type of equilibrium is reached.
Right now, in the energy space, we are in the cutting phase. That means loss of personnel (head count) and loss of resources even if it was calculated last year based on a summer or fall 2014 economic projection in your annual budgeting process. This means one thing you will need get for a quarter or two will be financial resources to place the personnel your compliance function may have lost. This means that you will have to figure out a way to accomplish more with fewer resources. While I often advocate that the compliance function can and should draw on other disciplines such as Human Resources (HR), IT, Internal Audit and Marketing for support; those functions have most probably been ‘right-sized’ as well so they may not be able to assist the compliance function as much they could have previously.
Now would be a very good time to put into practice what Dresser-Rand CCO Jan Farley often says, “Don’t sweat the small (compliance) stuff.” Farley often speaks about the need not to waste your scarce compliance resources on areas or matters that are low compliance risks. But to do this, you need to understand what are your highest compliance risks. Since you will not have additional resources to perform such an analysis, I would suggest now would be a very good time for you to assess your compliance program and your business model to see what are your highest risks. If you believe there are several, you can fprioritize them. This exercise will give you the basis to deliver your ever-scarcer compliance resources to your highest risk areas.
While I do not believe the Department of Justice (DOJ) or Securities and Exchange Commission (SEC) will be sympathetic to some unsubstantiated claim along the lines of ‘I did my best with what I had’; they also made clear in the FCPA Guidance that “An effective compliance program promotes “an organizational culture that encourages ethical conduct and a commitment to compliance with the law.” Such a program protects a company’s reputation, ensures investor value and confidence, reduces uncertainty in business transactions, and secures a company’s assets. A well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations.” (emphasis supplied)
So while the DOJ and SEC will not accept you bald-faced claims that our company simply did not have the money to spend on compliance, they will most-probably consider a compliance program where you have looked at your risks, in the context of this economic downturn, and delivered the compliance resources you do have to those risks. But the key is Document, Document, and Document your decision-making calculus and your implementation. (Stephen Martin would probably add here that if your annual spend on Yellow Post-It Notes is a factor of 10X your compliance spend, this approach would not be deemed credible.)
In her On work column in the Financial Times (FT), Lucy Kellaway wrote about this the concept of doing less with less for the corporate executive personally, in an article entitled, “No need to ‘lean in’ when laziness can be just as effective”. She cited to the Prussian General Helmuth von Moltke for “devising one of the world’s fist management matrices” when he assessed his officers on two scales: “clever v. dim and lazy v. energetic.” From this he came up with four permutations:
- Dim and lazy – Good at executing orders.
- Dim and energetic – Very dangerous, as they take the wrong decisions.
- Clever and energetic – Excellent staff officers.
- Clever and lazy – Top field commanders as they get results.
The point of Kellaway’s article has direct implications for the CCO or compliance practitioner currently facing an economic downturn, “It is only by being lazy that we become truly efficient, and come to see what is important and what is not.” Kellaway cautioned “the sort of laziness to encourage is not the slobbish variety that means you do bad work. That is not laziness: it is stupidity. Instead, we need the clever version that comes from knowing there is an opportunity cost to every minute we spend working, so we must use our time wisely.”
From the compliance perspective, this translates directly into using your compliance resources wisely. So whether you want to cite the Prussian general who unified Germany, columnist Kellaway, Dresser-Rand CCO Farley or this article’s theme of doing less with less, I would suggest to you there is a manner to maintain “A well-constructed, thoughtfully implemented, and consistently enforced compliance and ethics program helps prevent, detect, remediate, and report misconduct, including FCPA violations” even in an economic downturn.
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
