The leadership pipeline and compliance

Case example

A mid-sized global manufacturing company with headquarters in Europe hired its first compliance manager to cover the European business. The company, which had a compliance officer in the United States for many years, decided to focus on compliance in the other markets in which it operates.

The appointed compliance manager was an American living in Europe and working in the European headquarters, aged in her late twenties. She was moved from the legal department (where she had worked for many years) into the role of Compliance Manager for Europe. At the time of the move she was an individual contributor, although she was looking to hire a paralegal-type assistant to help in the management of the third party due diligence process.

Challenges of being a newly-appointed head of compliance

The role was not without its challenges. Leaving aside the difficulty of grappling the task at hand, the compliance manager had to engage the European management team. In order to make that easier, she was duly appointed as a member of the team, reporting to legal although supporting the European business. As a young woman in a new role she faced an uphill battle to win the hearts and minds of the business – something which would be critical to her success in the company.

Acceptance by the business

The business, which is, broadly speaking, a manufacturer and seller of equipment across Europe and the Middle East, is in a very competitive market where sales are mostly done through long-standing channel partners and other intermediaries. Helping the business to increase their sales in a compliant manner was key to the new compliance manager’s success. In many growing industries, business is fairly binary: if you show value, you will be listened to and given support; if you don’t, you will probably be left out in the cold.

Cracks appearing in the transition

Cracks started appearing in the transition to the new role as the business teams started to excludethe new compliance manager. She found it very hard to engage with them personally, and they tended to close ranks and discuss matters without including her. It proved tough to even be invited to regional meetings or be on staff calls. Our young new female compliance manager was finding it hard to be considered as a valid member of the executive team and even harder to implement the programmes she was building; she lacked buy-in from the very team that she needed support. In some cases, she received the same feedback that many compliance managers before her had heard from business partners: “You just don’t know how it works here” or “This is not the United States and we have different issues to deal with”. There is no doubt that the members of the management team didn’t seem to value the compliance manager or her role. Of course, to her face they were very nice and always talked about how important compliance was to the business, but she could tell it was hollow.

The leadership pipeline

The problems that this compliance manager faced were coming from a number of places. Firstly, and totally unacceptably, she faced struggles because she was a woman operating in an environment that was dominated by men – every person on the management team was male. She was also much younger than the management team – they were all over 45 and she was only 28. She was at a huge disadvantage because of her age and her gender. She also faced challenges because she was American and her fellow managers were all European. The American approach to compliance is much more heavy-handed than the European approach. This means anyone who is American is looked at as though they are the Department of Justice or the Securities and Exchange Commission and is immediately branded as “foreign” and told that they “just don’t get it”. It was an uphill battle.

The challenges the new compliance manager faced are all actually fairly common issues: being in a new country and in a new role, as well as being a female in a male-dominated field. These are all things that people have been dealing with for years and, with a great deal of patience, the compliance manager could work her way through them with relative ease.

The bigger issue that she needed to get over, however, was the fact that she was a young, relatively inexperienced corporate executive that had been catapulted to the ranks of her 45-plus-year-old colleagues who all had over twenty years’ direct business experience in their respective regions.

To understand and appreciate this issue involves some further analysis on how compliance officers get to their positions compared to how other executives get to theirs. Why is there a disconnect with their business partners, who have often led much larger teams, worked in business far longer and are further along in the leadership pipeline?


Chief compliance officers and the leadership pipeline

Most executives follow the “leadership pipeline”, which was best described by Ram Charan, Stephen Drotter and James Noel in their 2000 book, The Leadership Pipeline: How to Build the Leadership-Powered Company. The book, which is a must-read for any executive, sets out the six different “passages” or types of leadership. Most executives can look at these six levels and decide where they fit in:

  • Level 1: Managing others
  • Level 2: Managing managers
  • Level 3: Function manager
  • Level 4: Business manager
  • Level 5: Group manager
  • Level 6: Enterprise manager.

Almost every manager in a team such as the European management team in our case study is either a Level 4 or a Level 5 leader, meaning they are either a business manager or a group manager. In rare cases, there may be a Level 3 leader who is purely a function manager (e.g. head of human resources or head of sales).

However, generally compliance managers have not even reached Level 1, and are individual contributors or, at the very best, managing one other person. They rarely have a team that is big enough for them to be classified as a Level 1 leader, and will almost never graduate to a Level 2 leader. To be classified as a Level 2 leader the compliance officer would need to be a manager of managers – someone who thinks beyond their own functions and starts to think about more strategic issues that affect the business as a whole.

The challenge with most compliance officers is that their roles almost never involve managing other managers and, although they look at issues right across the business, they very rarely look beyond their functional roles (i.e. compliance). Even making it to a Level 3 functional manager would require a compliance officer to be a team player with other functional managers and understand all business strategies, not just their functional strategy. In order to do this, an officer would need to delegate all their functional responsibility to direct reports. Many compliance people are hands-on managers and individual performers; they often lack a team underneath them, so making the leap up to a Level 3 manager would obviously be difficult.

Along with the challenges identified above, the chance of a Level 1 or a Level 2 leader being disrespected by a Level 4 or Level 5 leader is not something to be disregarded. The Level 4 leader believes that an individual contributor or Level 1 leader like a compliance officer has not had any business expertise, they have not “carried a bag”, not worked in sales, not managed a country and are not worthy to be a senior member of the executive team. It doesn’t matter that the compliance officer may be an intelligent, trained, motivated and respected professional that in many cases holds a law degree or some postgraduate experience. It is very hard for a compliance manager in this situation to be respected by the team that they are supporting (and be a part of it) when they simply don’t have the experience in business that is required. No matter how experienced they are as a compliance officer it can be hard for them to bridge the gap in respect that comes about due to the nature of the leadership pipeline.


Addressing the challenge

In addition to addressing any gender gaps, age gaps and gaps in understanding the compliance risks as they apply to that business in that region, new compliance officers must also try to bridge the gap that arises in the leadership pipeline. It is unreasonable to think that the compliance manager is able to simply jump up multiple levels in the leadership pipeline (indeed, the authors of The Leadership Pipeline indicate that no one can move swiftly through the leadership pipeline – it requires time to master each level before moving forward). That being the case, the compliance officer needs to respect where they are in the leadership pipeline and take steps to try and bridge the gap.


Ten things for compliance officers to consider to help bridge the leadership pipeline gap

1.      Don’t talk, just listen

It is a habit of compliance people to sometimes talk too much about compliance, about regulators and about the crisis that could exist without a strong compliance programme. While everything you say may be true, the best model to build trust with the other executives is to listen and absorb as much as possible about their business, the objectives, the strategy in certain markets, and, of course, the products.

2.      Build business knowledge

Similar to the above, build your knowledge of business outside of the actual business. This might be in the form of a business course, a leadership course or even a product-based course. Any of these will build your business acumen and help enable conversations with the business.

3.      Build relationships with sales and functional managers and be a business partner

No matter how smart you are, you will fail if there is not a set of key relationships with the other managers. Some of the best relationships are built in the countries where the business teams are located, in places such as Saudi Arabia, Russia or China. Visit the business teams as much as possible and get to know them in their home settings.

4.      Get kudos for a business strategy development

One thing that you should consider is building a business strategy for a product, region or country. You can gain the full support of the business teams by taking on an additional project that falls outside of your direct responsibilities.

5.      Show value through connections and introductions

Each of us has connections and friends that we can draw on for the benefit of the business. Use these connections to help the business and the sales teams as much as possible.

6.      Study an MBA and gain business credentials

Some may argue that being on the ground in a country is better business experience than learning in a school; however, a good MBA from a prestigious school goes a long way towards teaching you the basics of business. The business teams will hopefully be impressed and respect you more if you hold an Ivy League MBA.

7.      Work in another country, preferably in a business role

If your company allows, work on a project overseas, preferably in a short-term business role. Fill in for someone on maternity leave or put your hand up if you think there is a gap in leadership. While it may only be three months working in Russia or China, the experience will be exceptionally valuable and the teams will see the value in that experience.

8.      Manage a cross-functional team

Look for a compliance project that involves other teams from the business and manage that project. Involve the business and executive management. Lead that team and have a great time doing it. Of course, this is an opportunity for you to shine, so you must ensure that the project is successful.

9.      Mentor others

One way to build relationships is through mentoring others in the business. If the company has a mentoring programme, use it; if not, set up your own mentoring programme with one of the business executives. They will probably be quite proud that you have reached out to them and it will be a good chance to get to know them. Start with a three-month mentoring programme with key objectives and meetings.

10. Learn local languages and practices

If you are working in a situation such as that of the compliance manager in our case study, learning local languages is key. This will show that you are interested in the region that you are working in and you are interested in your colleagues, and will go a long way towards bridging any cultural gaps that arise.

Being lower in the leadership pipeline means that it is hard for a compliance manager to build the respect and trust of business teams. Taking some of the above steps will build that trust and build compliance into the team.

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