How (41 page)

“We have great training, great systems, and great policies and controls,” Douglas Lankler, chief compliance officer, senior vice president, and associate general counsel of the pharmaceutical company Pfizer told me when we met at Pfizer’s New York headquarters, “and yet we still end up with compliance problems.”
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Lankler is the son of an assistant district attorney. He grew up listening to and idolizing the stories his father told him about putting bad guys in jail. They so impressed him that he went on to become an assistant U.S. attorney so he could do the same. Pfizer, one of the largest health companies in the world, has a best-practice, state-of-the-art commitment to compliance and achieving higher standards of conduct and corporate responsibility, and yet even Lankler recognizes the challenges posed by rules-based compliance. “People are giving a lot more attention in the year 2007 to compliance issues and understanding of their importance and the real exposures that exist than they did in 2001, and yet the hotline is still ringing at about the same pace that it was ringing in 2001. And it is not just that people feel more comfortable talking about it, we’re still hearing about things you would think we would be able to move on from. And I think unequivocally that every company does the same; Pfizer is not unique in this.”

It has been said that insanity is doing the same thing over and over again and expecting different results. This is the trap in which business finds itself with regard to compliance. How much falls through the gap between the ways people conduct themselves and the rules? How much time and confusion does the need for external regulation by a management-oriented bureaucracy create around every decision or initiative? Organizations spend 98 percent of their time and enforcement resources on the 2 percent of their employees responsible for compliance failures, and still have not substantially reduced those failures. Herein lies the essential flaw in informed acquiescence cultures: the gap between people and what’s expected of them, people and the rules, and people and what their boss wants. Gaps are the inevitable end result of external governance. “It’s like an arms race,” said Lankler. “You can keep tightening the controls, but businesses will get more aggressive and try to figure out a way around them; then you tighten the controls more and hire more people to enforce them, and they get even more aggressive, and it never ends.”

Self-governance closes the gap. It puts 100 percent of your resources into 98 percent of your organization, giving them the inspiration, trust, and opportunity to achieve at their highest level. Why will employees do the right thing? They will do the right thing because in self-governing cultures, not to do the right thing no longer betrays just the company; it betrays the individual’s own values. Rules control and limit how we do what we do; only values-based self-governance can simultaneously control behavior and inspire us to do more. When companies and workers align on values, workers then act on their own beliefs. Nothing is more powerful than that. Betraying oneself brings distraction, those pesky little voices in your head that cause friction and diminish your productivity and effectiveness. (We’ll discuss the non-compliance percent in a few pages.) Values-based self-governance creates a culture of consonance.

Imagine how much can be gained by eliminating dissonance at the very core of corporate governance and creating a culture of consonance. The time, energy, and expense formerly dedicated to closing the gap between the individual and the corporation disappears. “To me,” said Lankler, “what I want to be saying to our sales force is, ‘I’m not interested in rules and policies and procedures and restrictions anymore. I’m not interested in bounds, what you can do, what you can’t do. You people get it, you are big boys and girls, you have integrity, you understand that we expect you to do the right thing. We don’t have to have these artificial restrictions; we can trust you.’ If we can get the culture right so this is what we reward every day at Pfizer and this is what we look most highly upon, we can operate with even more freedom and be even more aggressive. That, to me, is the holy grail.”

When you introduce more self-governance into a culture, you diminish the need for rules and procedures and policies. You also diminish the need for carrots and sticks to motivate compliance (another efficiency; carrots and sticks are expensive). In their place, you get alignment to values, more inspiration, and less time and effort lost down the rabbit hole gap between people and rules. Self-governance is the most efficient way to get everyone on the same page, aligned to organizational values and goals, and doing the right thing to achieve them. Compliance is about surviving; self-governance is about thriving.

Michael Monts is vice president, business practices, at United Technologies Corporation (UTC) and a thoughtful and respected leader within the defense industry. UTC was an early leader in trying to create a values-based governance culture, and Michael helped the company see the limits of compliance-based solutions to corporate behavior. He brought this point home to me forcefully. “Creating a compliance program—the external structure, rules, and what have you—will definitely improve your overall compliance results, but ultimately you reach a plateau. Values-based programs take things to the next level. First, they help people get away from loophole hunting. More importantly, if you look at it from the vantage point of leadership, values-based approaches inspire people to accomplish great things. It’s not fear that moves people; it’s the aspiration toward accomplishing something wonderful. When you combine your vision, values, mission, and leadership, you can capture the imaginations of your employees and harness their power in a collaborative effort. It’s what you want, and it’s exactly what they want. At bottom, it’s not just a cost-benefit equation. They want to feel like they are a part of something that is big.”
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VALUES IN ACTION

Values-based self-governance begins, of course, with values, a clearly articulated set of principles that define the nature and purpose of an organization in human terms. At GE/Durham, they use the phrase “Guiding Principles,” and it titles a document they consider their constitution.
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In it, they articulate values of diversity and respect, a commitment to a learning and teaching culture, a dedication to keeping promises, responsibility for the environment, and an attitude toward resolving conflict in a way that corrects and not punishes unacceptable behavior. At Sewell Automotive, they have their “guiding spirits”: Act Professionally in Everything You Do, Be Genuinely Caring, and Maintain the Highest Ethical Standard. These values form the basis for its entire culture. Every structure, process, and decision in both these groups flows from their commitment to a set of HOWs.

Sewell and GE/Durham are relatively small enterprises, so a natural question to ask is: “How can this work for a big corporation?” Luckily, we have examples around us both old and new. Johnson & Johnson has long been a leader in integrating values into its corporate culture. Robert Wood Johnson, the son of the founder, who later became known as General Johnson after his service as a brigadier general in World War II, took over direction of the company in 1932 and 10 years later wrote a one-page document that came to be known as the Credo. It codified the company’s socially responsible approach to conducting business.
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The Credo states that the company’s first responsibility is to the people who use its products and services; the second responsibility is to its employees; the third is to the community and environment; and the fourth is to the stockholders. This revolutionary document upended the traditionally held view that a company’s first responsibility is to its shareholders. General Johnson and his successors in managing the business have believed that if the Credo’s first three responsibilities are met, the stockholders should be well served.

Since the day it was written, the Credo has become a living, breathing part of everything J&J does, not because it sits framed on the wall of every office, but because it sits enshrined in the day-to-day discussions of everyone at the company. “We don’t talk about the Credo for five minutes in every meeting,” Roger Fine of J&J told me. “We have no such rule. The way I first heard about the Credo when I joined the company in 1974 is more typical. I was in a meeting with about 8 or 10 executives and all of the sudden somebody said, ‘That’s a Credo issue.’ That’s a classic line at J&J, and it acts like a trump card. When somebody says, ‘That’s a Credo issue,’ the conversation stops, whatever the business subject is, and the entire conversation turns to ‘Okay, let’s talk about the Credo issue. What is the issue? What are the pros and cons? What’s the dilemma?’ if there is an initial dilemma. Then we try to resolve it.”
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When Roger first told me this, it sounded like the Credo was a burden, an extra tax on the system that needed to be periodically paid. I pointed out to him that business moves quickly, and no one wants to be encumbered by the albatross of having to stop a meeting to discuss this extra thing. “I travel around the world each year speaking to dozens of groups about the Credo,” he explained to me. “When I do, I usually talk about four or five misconceptions people have about it, and I save this one for last. This is the craziest fallacy of them all. We want to be real hard competitors, and we want to compete, and that’s what everybody at J&J should do. But they need to do it informed and inspired by the Credo. The last sentence of the Credo, you see, is the most important sentence of the Credo. It says, ‘When we operate according to these principles, the stockholders
should
realize a fair return.’ What that means is that the Credo is not a brake on our success; it’s the engine of our success. Everything in J&J’s history proves the General right.”

More recently, Xerox Corporation made “Living our values” one of its five central performance objectives, and chairman and CEO Anne Mulcahy credits it as part of the company’s remarkable turnaround. “Corporate values helped save Xerox during the worst crisis in our history,” Mulcahy said at the Annual Conference of Business for Corporate Social Responsibility in 2004. Xerox went far beyond a vague statement of purpose and infused its central values into every facet of the organization, with a high level of accountability and vigilance. “Far from words on a piece of paper,” she said, “[our values] are accompanied by specific objectives and hard measures.”
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Clearly articulated values keep everyone on the same course.
Values place governance within each person rather than in persons or rule sets external to them, establishing the conditions for a very different type of culture to grow
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A JOURNEY TO CULTURE

How does a culture become more self-governing? Methodist Hospital System in Houston tackled that challenge in a very systematic way. In 1998, the board came to the conclusion that the nonprofit hospital chain had become too much like a for-profit enterprise, managing to the bottom line, and had lost touch with its values-based roots. To rectify this drift, they embarked on a major effort to change the nature of HOW they do WHAT they do. Rather than institute new rules, policies, and procedures or simply plaster the walls with inspirational posters, they chose to approach the challenge from the inside out, to govern through culture.
Workforce Management
magazine reported their compelling story in early 2005.
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They began their process where it counted the most, with the 8,600 employees who would live and breathe it every day. Through ongoing workshops, they developed three documents: a vision statement, a belief statement, and a new mission statement, all based on the idea of integrating spiritual values—broadly and inclusively defined—throughout the workplace. The core values they came up with made an appropriate acronym for a hospital, ICARE: integrity, compassion, accountability, respect, and excellence.

Values-based self-governing cultures, as we have discussed, require dedication to education and vigilance, so Methodist’s next step was to develop a system that built an understanding of these new values in meaningful ways. They polled their employees extensively and developed a clear baseline matrix against which to measure their progress toward their goal of values integration. This matrix later became a powerful HR educational tool used throughout the organization.

Most important to increasing self-governance around these values was helping each group of employees translate ICARE into daily behaviors and decision making, in a sense marrying a HOW to every WHAT. Putting values into action, after all, is the core effort of self-governing cultures. They asked each employee work group to interpret and apply each value to their specific discipline. What does compassion look like? How do we express respect every day? Every discipline came up with its own answers. Nurses internalized accountability with, “Don’t ask why; ask why not. Follow though and correct mistakes,” while the information technology (IT) department forwarded, “If I do not understand, I will ask questions.” Pharmacy workers tackled integrity by vowing, “We will always do our best whether the boss is here or not,” while no less than the CEOs of the five-hospital system dared themselves to “challenge each other with respect.” This process helped to turn values into self-governable behaviors that could be embraced and applied by each worker on a daily basis.

Given how difficult it sometimes seems to quantify the results of attempting to govern through cultural change, some might be tempted to say that Methodist’s initiative was a leap of faith. Even Tom Daugherty, who directed the initiative, admitted skepticism. “You can’t always identify a clear line of sight between cultural change and operational performance,” he said. But at Methodist, the results speak for themselves. Employee turnover dropped 38 percent, from 24 percent to 15 percent, in less than two years. Vacancy rates fell by half. Satisfaction levels for patients, doctors, and staff hit all-time highs.
U.S. News & World Report
named Methodist one of the top 100 hospitals in the country and, in 2007,
Fortune
magazine ranked them number nine on their list of the 100 Best Companies to Work For.
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