Compliance is a Race Car.

DEDICATION

To my wife Claudia, who supported me with the Spanish translation of several articles based on this book.

CONTENTS

Introduction, SECOND EDITION

THE IDEA OF THIS BOOK is to go further than being a manual for Compliance, as it should work on different levels. Newcomers and experts can learn about the different parts of an effective Ethics & Compliance program. The toolbox questions support the reader to understand if the own program is adequate or requires optimization. Furthermore, the book demonstrates that all parts of the program interact with each other, and the whole is more than the pure addition of the single items.

Only if the Compliance Officer creates actively, or at least is involved, the guidelines and processes, he or she can feel comfortable; similar to a successful race driver, who becomes one with the car.

The book invites the reader to a time travel, as it goes to the past to analyze what Compliance can learn from the structures of a traditional Mafia organization (always keeping in mind that Compliance and Mafia stand on opposite sides). Then it brings us back to the creation of a successful race car, to blast off and take a look into the near future to present the new challenges based on robotics and Artificial Intelligence.

The different trips not only underline that travelling educates and due to this, Compliance is not a function to stay behind a desk, but furthermore Ethics & Compliance is a task, which can be interpreted based on the own character and offers the required space and flexibility to climb up Maslow’s Pyramids.

INTRODUCTION

A COMPLIANCE PROGRAM has been implemented, but what to do next? In many companies and organizations today, Ethics & Compliance is an established function. A good time to conduct a benchmark to understand the next required steps to bring on the system to the next level. Such a comparison can be done with similar functions, but the most interesting results come from comparisons to complete different processes. Combining unusual organizations and ideas is the source of inspiration and out-of-the-box-thinking.

Business is often compared to competition, and really, analyzing a Compliance program in relation to a race car shows amazing similarities and brings out fresh ideas. Changing the setting, Compliance is like Mafia is not a comment by employees, who are suffering from a change of corporate culture, it is a true statement about two efficient organizations. Compliance is not only a science, but furthermore an art. Due to this, an impressionist painter as Vincent van Gogh offers precious lessons. The last chapter of book offers a vision of the future and presents the potential tasks in the year 2025, where the Ethics & Compliance Officer is not only responsible for the human individuals, but also Artificial Intelligences and the Cloud.

Ethics and Compliance should be what it is today or can and should be something more? A question to be answered by the reader.

1 Compliance is a Race Car

1.1 - PREPARATION

Often business is compared to war, companies are fighting each other, this with the goal to destroy each another. Such a strategy would present the monopoly as the final goal, giving the weaker opponent the possibility to join the stronger company, get out of its way or get destroyed. To achieve prosper and growing markets, this is not a desirable goal. For this, most of the countries have implemented anti-monopoly laws, which should protect and support smaller companies and competition. Business is less comparable to war, but to a race. If the competitors like their opponents or not, they have to admit that they need them. This for several reasons:

Motivation: Only the continuous pressure to be better than the competitor, or at least keep up with them, motivates the employees to give their best and develop ideal solutions.

Inspiration: A product is inspired by its processor, but also competitors. Developers take the parts they like and add additional ones, so that at the end they created a new product.

Development of Markets: Especially if the type of products are new, one company alone may not be enough to create sufficient interest. A similar effect can be watched for retailers. Several times, a number of retailers are in the same street or region. Of course, this means more competition, but on the other hand, the place gets more attractive for the consumers, as they can find all different solutions together. This is especially important, if they have to invest time (private or public transportation) to go there.

Further, war means killing, definitely in business this is not the case. An important message, also to foster the employee’s values and attitudes, how internal and external stakeholders should be treated. Similar to the different seasons of a Championship, employees change from time to time their team and company.

Similar to a racing event, there are rules to be obeyed, as without them the controlling of the competition is not possible. To ensure the right to start in the race, the company or organization has decided to implement an ethics system and appointed you to the Ethics & Compliance Officer. The scope of such a program includes mandatory compliance with internal guidelines and external laws, but can and should go further than that. Ethics and values include the fair treatment of internal sources and external partners. The goal is sustainability, or in other words the maximization of long-term profits, in other words to win the championship not only single races.

Your first step will be to ensure your independence and ability to take decisions. As for a motorsports team manager it is imperative to have the sole authority to make sports related decisions and demand that the company’s CEO not interfere, also the Compliance Officer needs this independence. To be truly independent, Compliance should report directly to the CEO, if they are part of a global organization, Local Compliance Officers should not report to local management, but the Global Compliance Officer. If such or similar independence is not granted, the Compliance Officer should considerate to decline this responsibility.

Today many companies have already an implemented effective system, an analysis of these examples are a good starting point. As for all business decisions, make or buy is a relevant strategy. A complete Compliance program cannot be bought or outsourced, but nevertheless tools, for example for the management of the whistleblower hotline, external partners or risk-assessment, can be bought or leased.

With a lot of white surfaces on their race car and powered by a Ferrari engine, the 2016 Haas Formula One car reminded the spectators to the famous North American Racing Team, founded in 1958 by Enzo Ferrari’s friend and business partner Luigi Chinetti. Nevertheless there is no direct relation. Team owner Gene Haas explained his entry strategy for the 2016 season, after he observed the championship for several years. In opposite to many other teams, Haas F1 tries to buy as many parts as possible and manufacture as less as possible. For this, the team does not only buy the engine from Ferrari, but also the transmission, suspension and shock absorbers.[1] Additional to this, the team took its time to actively enter the Championship. 2015 they learnt from the Scuderia Ferrari as their mentor, not for free, as the sponsor logo on the 2015 SF15-T showed. But it seems that this upfront-investment paid out.

Another similarity between N.A.R.T. and Haas, both trust in Mexican drivers; N.A.R.T. had Pedro and Ricardo Rodríguez, Haas Esteban Gutiérrez. Both Rodríguez brothers could score victories for the N.A.R.T.-Ferrari, including the 1000km of Paris, 2000km of Daytona or the 12 Hours of Reims. Due to their achievement, the Mexico City race track got its name: Autodromo Hermanos Rodriguez A good omen for Haas, not only for the 2016 Mexican Formula One-Grand Prix!

For Compliance is Mexico not only a country with a higher perceived corruption index, but on the other hand also motivated and skilled Compliance experts. A group of them met in the Ethics & Compliance Forum Mexico and used this as a base to create the Mexican Ethics and Compliance Manual[2]. A free source, which could be used by everyone who is Spanish-speaking.

If there is time, before starting the implementation of an Ethics & Compliance program, a detailed risk assessment should be conducted. There is no one fit for all-Compliance system and a big difference if you want to participate in Formula One, 24 Hours Endurance, Touring Car or Rally Championship! Each business has its particular risks and possibilities, what requires a specific tailor-made Compliance system.

An interesting aspect for the creation of a Compliance system is the local situation. Some examples:

Corruption is a learnt behavior. Individuals who learnt corruption from early age on and how this lead to the wished results, for example avoiding of a speeding-ticket, likely would use this strategy also as a company employee.

Now with an implemented Compliance system, they would have to use two different behaviors, which can, sooner or later, bring them into problems. To reduce this risk, ethics trainings should not be limited to inform the employees about external laws and internal processes, but further inspire and motivate them to apply the learnt not only inside the company, but also in their private environment. To do so, the Compliance Officer has to present the relations between corruption and its cost for society and every single citizen. Besides this, it should provide skills and knowledge how corruption can be detected and give examples how a citizen can react adequately. Doing so, a positive value based corporate culture can be reached even in a hostile environment. The employees estimate and protect this, as they know other working conditions from their earlier jobs or told by their friends and family.

Even if employees work , first of all, to receive a salary, they feel an inner need for a positive self-perception (to be proud of their-selves), which includes the company that they are working for, as they spend a relevant time of the day there. Proud to work for this company is a non-tangible part of the salary. An important factor, especially for employees, which are already on a higher level onMaslow’s pyramid. If this motivational factor is not available, the company has to substitute it with higher salaries.

To maximize economic rent-seeking, employees in a corrupt company do not spend anymore their work time for their official tasks, but to pay and hide the bribery. As this is against personal values and interests, their level of motivation goes down and the company’s sick leave and rotation level up.

If corruption is wide-spread in a society and employees do not have the possibility to change to a transparent company, they stay where they are, but mentally quit. The company loses potential, especially on the global market, where they compete against transparent companies.

Further this means a deviation to company’s core values and code of conduct, as most entities define here their sustainability vision and the wish to be perceived as a good global citizen. If the company does not consequently protects its values, this can be the start of a lingering corrosion.

If we say that Compliance is a race car, a private person is a street car. Sufficient for the less risky decisions of daily-life. But in a high risk country, even private life brings contact with corruption, as in form of facilitation payments or the consume of product piracy. To resist these temptations, the street car must be strong and similar to the company’s race car.

In general there are two options for a manufacturer to participate in car races:

They use its existing street car and professionally tunes it up to a competitive race car. An example for this are the Touring Car Championships.

They develop directly a race car without technical relations to existing street cars. After this step has been done, they derive a tuned down street compatible version of this race car. An example are Rally Championships.

For the book, we concentrate on these two options. Of course there are also other possibilities, as there will be no technical derivation of the race car, but only an emotional image transfer. Example for this is the Formula One Championship.

Due to the second option and based on the race car, the manufacturer produces an additional version as street car. A known concept from the rally sports, where the manufacturers have to present a small number production of the car to achieve the license that this car can get used for the tournament.

Lancia presented 1971 the first car, which was directly designed to participate and win the World Rally Championship, the Stratos HF (High Fidelity). But there was one problem at this point, the FIA (Fédération Internationale de l’Automobile, French for International Automobile Federation) not allowed pure prototypes to participate, but demanded a small production of at least 500 units. After negotiations, in the next year this got reduced to 400 cars, so Lancia produced this number of the Stratos Stradale. This civil version of the original race car had been similar to the original, only included some changes to receive the local permissions that the clients could use the car on public roads and the daily traffic. As in this picture, if a Compliance system in a higher risk country should be sustainable, employees should show the same behavior inside as outside the organization. Due to local impunity, it may be common to use facilitation payments to speed up processes or bribe the police to avoid a speeding ticket. Inside a company such behavior is not tolerable as it would mean not only to violate local, but also global anti-corruption laws. To avoid risks, employees should work and life based on the same values; each street car (employee) must be as strong as the company race car.

If the company is based in a low risk region, the other way can be used. A newly implemented Compliance system can be based on values and the knowledge of local law. But corruption and also the according behavior to avoid it, are learnt processes, such employees would have to be prepared, if they travel to high risk regions.

In Touring Car championships the manufacturers typically take their street car as base and update this to a race car. Alfa Romeo presented 1992 its mid-size sedan, the 155. Right from the beginning this car should continue the company’s success in touring car sports, so the Alfa racing department presented the same year the race version, the 155 GTA, which won the