Hitting the middle C – cultivating a tone in the middle for compliance and ethics

September 8, 2014 John Law

As important as ‘tone at the top’ is, however, it alone is not sufficient to truly foster a culture of integrity and ethics within a company. Without the commitment and support of middle managers, tone at the top will achieve limited results.

The message at the top must trickle all the way down to every area of the business in order to achieve a well-embedded compliance programme. This is why ‘tone in the middle’ becomes vital when line or departmental managers stand right in the middle of the vertical messaging channels.

WHY MIDDLE MANAGEMENT MUST BE ENGAGED TO CREATE A CULTURE OF ETHICS

Middle management is closer to the employee base

To many lower-level employees, a company’s C-suite will always be an intangible idea in their daily jobs. Their direct managers, however, are their points of contact for on-the-ground business. Often, the most direct way to communicate to employees will be through word of mouth or a written email from their managers. Middle management also exerts far more influence in the field or on a local level as they are the ones who lead and give direct orders. In general, employees tend to follow the lead of their immediate managers, rather than the CEO. And, because most employees take their cues from how middle management respond to certain situations, managers can demonstrate more directly to lower-level employees that their organisation is serious about ethics.

Middle management misconduct is apparent to lower-level employees

Because middle managers are closer to the employee base, their actions and attitudes – whether good or bad – will be seen by the on-the-ground employees. This is especially true with regards to ethics. Middle management is best able to detect and respond should there be a case of non-compliance committed by lower-level employees. They are the compliance sentinels of the company.

Middle management understands local culture

For a multinational corporation, regional or line managers will be the nexus between the headquarters and the national or local cultures in which local offices or subsidiaries operate. The understanding that these managers have of local manners and traditions is essential to ensuring compliance. For example, they will understand the appropriateness of and best timing for certain gift-giving activities during local festivities or, in some cases, which translation would be more appropriate.

It is not unheard of for key translation errors to be spotted on companies’ compliance posters. For example, on a poster regarding anonymous reporting, the slogan ‘Speak Up’ was translated erroneously as its literal meaning: speak louder. Local managers who speak the local language can easily pick up and correct these things errors.

WHAT MIDDLE MANAGEMENT NEEDS TO DO

Be compliance champions

Middle management must be seen to treat compliance seriously so that the message is relayed to their staff. Compliance should be important to them and they must be your compliance champions.

How the middle management get the message of compliance out there depends on each manager’s management style and the company’s business practice. One way is to put compliance into the agendas of periodic staff meetings. Similar to health and safety, compliance topics can be communicated and discussed with every employee. A sales manager, for example, can allocate five to ten minutes of a one-hour team meeting for communicating compliance standards to the sales team and discussing the challenges they face when entertaining customers. Similarly, the sales manager could send every new hire to meet briefly with the company’s compliance officer in person to get an induction into the company’s compliance expectations. While this may not be a standard practice, it helps to show to new staff that ethics and compliance are just as important as business targets.

Spend more time listening than talking

Those in middle management must be approachable. Even though middle management may not effect a direct change, employees need to have an outlet to express their concerns. Effective managers are all skilled listeners; through active listening, managers can demonstrate to their subordinates that their views and concerns are heard and valued. It is also not enough to just listen; managers should be seen to be listening. This is important to compliance because reporting channels have to be kept as open and easily accessible as possible. With the passage of the Dodd-Frank Act, its whistleblower bounty programme, and the United States Security and Exchange Commission’s adoption of whistleblower regulations that encourage reporting outside of organisations with sizable bounties, the creation of an environment where employees will report issues internally is one of the few defence measures left to organisations. Studies have shown that most employees who are reporting misconduct do so to their supervisors and managers. It is therefore important that supervisors foster a work environment where staff are not afraid of reprisal if they dissent or raise concerns.

Watch their actions

A key concept for middle management is not just to talk the talk, but also to walk the walk. It must be able to justify its actions from an ethical standpoint. In other words, managers simply cannot cut corners. For instance, a manager in sales should not for the sake of convenience ignore approval requests from the sales team for gifts and entertainment, nor should they disregard the need to document all receipts and invoices in that process. Sales managers should also understand the paramount rubric of not participating in discussions that stir up antitrust suspicion. By walking the walk, middle management will send out a strong message to lower-level employees that compliance and ethics are non-negotiable. As the saying goes, actions speak louder than words.

Act swiftly

Walking the walk also means that when those in middle management see an issue, or an issue is reported to them, they treat it appropriately. This means acting swiftly when there is an alleged breach and investigating (or organising an investigation) impartially and thoroughly. Managers must understand that it is necessary to react promptly in order to reduce the risks posed by certain incidents and that they are the sentinels of the company. They are on the level where they have significant oversight of the on-the-ground operations and are given a certain amount of power to react. Managers must also understand that they are under an obligation to maintain confidentiality when issues are reported to them. It is vital that they do not disclose or discuss issues with anyone who is not related to the allegations. Matters or issues related to the allegations should only be discussed with someone on a need-to-know basis – in general, this means legal or human resources.

HOW TO ENGAGE MIDDLE MANAGEMENT TO EFFECTIVELY CREATE TONE IN THE MIDDLE

Know your own needs

You should always start by understanding your own situation and needs. Before carving out your strategies and designing a communication plan, you may want to:

  • assess the compliance-related risks associated with each of your business units or regional entities
  • ascertain actual employee awareness and understanding of the company’s compliance expectations (and hence the requirements of internal compliance policies)
  • identify the current gaps in your communication channels, and what middle management can do to close those gaps and ensure communication is effective.

Example: A premium car manufacturer conducted a compliance culture survey with its managers and associates in China in the form of a short online multiple-choice questionnaire, asking them about their awareness of the company’s code of conduct and about whether they feel pressure to compromise the code or other policies to achieve business goals. This data was then provided to the company headquarters so that they could better plan for their compliance programme by knowing the pain areas.

Maintain your tone at the top

Top-level managers should not only continuously talk about their own commitment to compliance (creating tone from the top), but they should also recognise that their commitments include ensuring that the middle managers under them understand that they are expected to create a tone in the middle for compliance. Top-level management should also inform the middle managers that compliance is a topic the board discusses regularly, and something that senior management takes seriously. Not all managers may know, for example, that their compliance team regularly reports to the board on the status of the compliance programme. Senior management must also be available to middle managers to discuss, coach or resolve the hardest cases, providing them with available channels to report and give feedback to keep them engaged in the programme.

Example: A global life science company wrote its expectation on managers into its code of conduct. It stipulated that managers have a special responsibility to ensure that the employees they supervise understand and follow the policy, and that managers should act promptly when facing a suspected violation of law. This message in the code was also communicated to managers in compliance trainings.

Motivate your managers

Middle managers can be difficult to motivate. Since they are often given financial targets, they are more likely to focus on the business goals rather than the softer ethical goals. Sales numbers directly affect their quarterly performance review and, more importantly, their annual remuneration and bonuses. To ensure their managers are paying due attention to compliance, the company should make it meaningful to them. Tying compliance objectives and ethical commitment to managers’ performance reviews is a common way to achieve this. Top executives may set out a list of compliance targets and then make it clear to the middle managers that these targets are being watched as closely as their financial performance. Internally, companies should also give due recognition to the managers who embrace and practise compliance. On the other hand, companies could set penalties to discourage non-compliant actions. For instance, managers may be held responsible for the actions of their staff – if one of their staff has been found committing or committed to an improper act, their reputation as well as opportunities to advance will likely be damaged.

Example: A global consultancy firm ensures that at each quarter of its calendar year it presents company-wide awards, not only to employees or managers who exceed financial targets but also to staff who have constantly acted with integrity by putting the ‘we’ in front of ‘me’. By doing this, it ensures that the same weight of compliment and recognition are given to those who achieved the ‘softer’ targets.

Equip your managers

The importance of targeted trainings can never be underestimated in the compliance context. Training sessions must be active to be effective and managers must be adequately equipped. Companies with a huge employee base will find it difficult to deliver live training to every associate, so specialised training given to middle management may be extremely useful, as middle management can then train the rest of the organisation. Companies should also involve its managers in designing course materials, because they know better than executive regarding which ethical challenges there really are on the ground. Train-the-trainer sessions will give departmental or regional managers understanding of the basic compliance principles and relevant company policies. This means that when those managers conduct training sessions for their teams they will be given freedom to tailor the course according to their own needs and special circumstances. Compliance officers may hold or facilitate knowledge sharing or discussion groups with middle management to discuss real-life scenarios each department or team faces. Sometimes a sales manager will be in a better position to make the training easier to relate to for sales associates. While one-off intensive face-to-face training may be ideal, hosting shorter, more succinct webinars with a remote audience may be desirable, depending on the company’s need and situation.

Example: While one global distributing company decided to conduct face-to-face compliance trainings to all of its associates (mainly sales) across a country within a two-month timeframe, another decided that it should focus on training its managers according to their business groups by hosting some 45-minute webinar sessions throughout the year addressing their different needs. The second company’s approach saved time and travel costs.

 

Creating tone in the middle for compliance while maintaining tone at the top is crucial for ensuring an effective compliance programme. Middle management must be involved, engaged, equipped and supported when companies act to ramp up their compliance efforts. This is a step that companies must consider taking if they truly believe in their compliance commitment. While laws and regulations are rigid (and sometimes dull), compliance with them often demands much more creativity. Companies can be groundbreaking in this space. Just as how innovation can help the creation or selling of a product, creative ways to generate tone in the middle ensure that middle management, and thus lower-level employees, buy into compliance.

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