Reduce conduct risk
The topic of conduct risk came to mind today, as regulators give heightened attention to issues that move beyond checklists. More than ever before regulators are looking at intangibles, such as behaviors, incentives, and culture. Unethical conduct, unreasonable risk tolerance and other motivations are being examined – anything that drives mistrust in the financial markets. They’re also using terms like imprisonment and personal liability as consequences of poor risk tolerance, FINRA and fiduciary are adding these qualities and attributes to their audit checklists as well.
“Fraud is a heart condition, compliance is a heart condition and integrity is a heart condition.”
All this reminded me of a recent interview that Nicole Rose with Expert Corner did with me a few months ago. The following were excerpts taken from that interview:
Nicole: Bob how did you go from working as an Internal Auditor and then Chief Compliance Officer to transforming entire organizations into compliance through group coaching?
Bob: My goal as Chief Compliance Officer was to influence ethics and integrity into business, government and education. However, I noticed legislation was not really getting to the heart of the problem and people were still making bad decisions, so I put together a team of people to study what was missing. I found 5 unique differentiators that cut to the heart of integrity. These are group coaching, with content, in a peer learning environment, with at work application and reportable improvements. Heart is our total being and the core of who we are, which is integrity. Integrity is so much bigger than honesty. Integrity attracts integrity and can actually be behaviors that can be cultivated in every person. When we build up these qualities in people we have proven that it reduces risk in a very tangible way.
Nicole: I read your article How to get to the Heart of Corporate Governance? and fell in love with your work. Can you tell us a little more about what you mean by ‘Heart of Corporate Governance?’
Bob: Firstly, people have to be ready to co-operate with compliance. But just throwing compliance rules and legal agreements at people does not often work to stimulate ‘true compliance’. By ‘true compliance’ I mean heartfelt compliance; compliance that people really believe in. Fraud is a heart condition, compliance is a heart condition and integrity is a heart condition.
Basically, all of our actions (good and bad) come from our feelings about the activities. If it’s Christmas Eve and we’re stuck in the middle of nowhere trying to get a flight home to see our family, we will do everything we can to get home. That’s our heart speaking. If we are in a foreign country and we think we need to get a deal done any way we can (and no one will know if we slip them a few thousand dollars) that’s a heart condition. In each case we are motivated by our feelings and emotions.
Nicole: What do you consider is at the root of all non-compliant activities? What do you see really being the driving force behind people either intentionally breaching the law or even just the ones that don’t care enough to carry out the compliance checks and procedures?
Bob: I work on the basis that there is one primary force that leads to compliance: the force of integrity.
“Integrity is not an on/off switch; it’s a thermometer that can go up and down depending on the conditions in your environment.”
Each individual is responsible to keep their integrity high (or adjust their own thermostat) regardless of the temperature. So if you create a condition of integrity into your environment, you can help strengthen the chance that the integrity temperature will be high.
Integrity is much bigger than honesty. For instance, people of integrity deliver on time, every time, exactly as promised. They’re committed, fully engaged, relational, truthful in sales, diligent, dependable, transparent. They follow through, are attentive to detail and produce quality work. The cool thing is that we’re able to build up integrity muscle in an entire workforce, measure it, and watch the company excel. We call it a return on transformation and project that at the outset. You will note that these include all the facets that make up good business rather than just good compliance. And that’s critical for an environment of compliance.
Nicole: Do you believe you can coach everyone into compliance? Do you have any examples of instances where you have coached someone who had previously been non-compliant?
Bob: Compliance is a choice and every person makes their own decisions. What we do is paint a clear picture of what happens to those who live within the freedom of the law and those who don’t. Our content is based on solid research, pulls out individual blind spots and gets to the heart of where good and bad decisions are made. Our job is to win them over to a better way, with applied actions and some accountability.
For instance, one person we coached had a tendency to take short cuts (regulatory violations).
“Through working with us, he saw, perhaps for the first time, how big an impact that this habit had on his health, career, finances, fellow workers, and family.”
The content and accountability environment helped him see his own careless behavior and chose to be more responsible. It went deep, he chose to change, and experienced the benefit. It was pretty powerful for a one-hour meeting for him. Imagine this happening in every person, each person with a different issue, each week. And the same things with a different topic the following week. A culture of integrity, profitability and compliance.
Integrity coaching works with non-compliant types: fraudsters, rebels and arrogant lawbreakers, and in a measurable way. But we’re less about reactive and individual restoration than about proactive and group prevention.
Group coaching character and integrity, up front, is one of the most difficult things to do, but that’s what our Certified PowerRound Group Coaches are experts at. They are trained and certified in keeping people in the integrity game. It’s one of the hardest and most rewarding jobs on the planet! And they love it, because they are special people who get a charge out of adding value to someone else’s life.
Nicole: Are there any measurable results? Can you give an example?
Bob: It’s a proprietary process we developed that that captures hard measurements of core competencies (like integrity, trust, motives) at both the individual and organizational level. At the individual level, it links intentions to actions to measurable outcomes. We quantify increases in focused attributes based on specific actions taken, and create reports that can be presented to individuals, management, teams and boards or directors.
“You can audit the results.”
By way of example at the organizational level, this publicly traded company needed to meet the Ethics and Compliance requirements of America’s Sarbanes-Oxley Act. After the integrity coaching, for all of its non-production workforce, they saw vast improvements in Ethics, Planning and Team Culture, that were measured. But the unexpected consequence, which we see often, was the stunning increase in bottom line profits.
“Net income moved from $20 million the year before to $67 million at the end of the first year PowerRound was implemented, to $89 million the following year… with no change to non-production headcount. Share price increased by 49%, and they just sold the company for half a billion dollars.”
Take action to reduce conduct risk.