Enhancing Trust to Compliance: 3 Powerful Concepts, Part I/III

Recently I read a book “Speed of Trust: The One Thing that Changes Everything” by Stephen M.R. Covey. Amazingly, the book won my heart from early pages and I became passionate to apply its concepts. Basically, the book proves that trust is a paramount leadership competency. The author asserts, "The ability to establish, extend, and restore trust with all stakeholders – customers, business partners, investors and coworkers – is the key leadership competency of the new, global economy.

Not only that I agree with the quote, but specifically, I think that establishing, extending and restoring trust is particularly important for compliance function in any organization. If you were a top or a middle level manager in a company, would you proactively disclose information with a compliance officer who yet did not built credibility as business helper? If you were a whistleblower and your career was at stake, would you report to anyone you do not trust? If you were an investor, would you share your concerns with a newly hired compliance officer who may immediately report externally seeking a lottery win from Dodd Frank? Probably not. And vise versa, if you were a compliance officer, would you swallow pride and not quit or report externally if you could not trust the majority of top and middle level managers due to their behavior? If you discovered unethical conduct and no one is to take it seriously while you were treated as an enemy and not shared any information? Probably the answer would be the same.

Before we proceed with the actual concepts I would like to state that without trust to compliance function by the business and by compliance function to the business, compliance does not work at all. Its efficiency becomes diminished. Here I am not denying that trust is important for other functions as well, let us say for marketing and sales, when winning new clients or retaining the existing ones. For legal and finance trust is crucially important. But for compliance it is of a paramount importance as there can hardly be any ethics without trust.

Concept 1.  Low-trust taxes and high-trust dividends.

According to Stephen Covey since all functions in any organization are interconnected, in case of low trust the organization pays “low trust taxes”: (1) Bureaucracy, (2) Unnecessary duplication, (3) Office politics, (4) Disengagement, (5) Employee turnover, (6) Customer, supplier, investor turnover (7) Fraud.

And this all is particularly applicable to compliance function. For example, if compliance function does not trust some other function, the bureaucratic overcomplicated compliance program will be created for the latter. Further, double or triple check may be prescribed by legal, finance and compliance altogether. For any straightforward matters this will mean an unnecessary duplication. Alternatively, if management does not trust compliance for doing their job well multiple audits may take place both internal and external, and this is another example of unnecessary duplication. Office politics sounds similar to a situation when a board member or a manager informally communicated to his subordinates that code of conduct is a formality only, just to tick the box. Such behavior may result in sabotaging compliance initiatives and relationships by such function and leading to absence of efficiency. And vise versa, when compliance does not trust the management and considers the culture as poisoned, external reporting may occur leading to poor compliance or penalties. Disengagement occurs when employees do not consult with compliance and try to hide information to foster the business. Then, what happens is that compliance is there but cannot help to mitigate the risks due to non-disclosure. For another example we will have a look to the code of ethics of compliance specialists of one reputable association. It says that compliance officer shall consider quitting. So, distrust by compliance officer shall result in his attrition/turnover which is a lose for the company. Customer, supplier, investor turnover is a straightforward argument which states that the stakeholders might leave you if they suspect you in doing something fishy. Finally, when compliance is not trusted by the management and necessary controls are not established, fraud may takes place and will take place, particularly, when compliance is not believed to properly investigate the wrongdoing. 

To conclude, low trust taxes are the low efficiency diseases originating from low level of trust to and by compliance function.

In contrast to the above said, on the positive side there are “high-trust dividends”. In organizational dimension these are: (1) Increased value, (2) Accelerated growth, (3) Enhanced innovation, (4) Improved collaboration, (5) Stronger partnering, (6) Better execution, and (7) Heightened loyalty.

And again, watching these from the prism of compliance we can discuss a few examples. Firstly, compliance is proven to increase shareholders’ value. Secondly, trusty compliance helps sustainable development. It is a platform on which you can accelerate growth. If your platform is full of non-compliant activities you cannot build on it. Sooner or later your platform may corrode in criminal proceedings which are the pitfalls for the business. Enhanced innovation is only possible in high trust environment. Improved collaboration and teamwork are required for success in the new global economy. Without trust collaboration becomes overcomplicated and unreliable. Stronger partnering takes place based on sharing same ethical principles. Long term relationship deliver value for the parties thereof. Further, a company which neither has to pay huge fines nor undergoes internal investigations executes better: no external interruptions and no out of pocket expenses for paying of the fines. Ultimately, high-trust companies enjoy far greater loyalty from their primary stakeholders. Not only they are engaged with the company on a longer term basis, but also statistically, they report lesser both internally and externally. Stakeholders rather spend their talents and efforts on company’s prosperity.

To conclude, high trust dividends are high efficiency vitamins for company’s growth and prosperity originating from high level of trust to and by compliance function.

Finishing this post I would like to reiterate that without trust by the business to compliance function and by compliance function to the business, compliance does not work at all. This is a two way road which has to be build both sides.

Well, this is all for now. In the next parts of my post, I will tell you (1) how to build and retain trust and (2) how to avoid blind trust. These will be spoken in Concept 2 - Dimensions of trust, and Concept 3 - Trust matrix.

“Trust is like air we breathe. When it’s present, nobody really notices. But when it’s absent everybody notices” Warren Buffett