Flawless Compliance

When Opportunity Blasts Through

Happy Anniversary, Katrina

Four years ago Hurricane Katrina took a devastating tool on New Orleans. Picture Source

The effects of destruction are largely up to you, not the fates.

On the four year anniversary of hurricane Katrina and encore showing of hurricane Rita just one month later, our fabulous city of New Orleans is still struggling to get back to where it was. My question is, “Is that really what we want, to get it back to where it was?”

There is a lot of negative press circulating around the subject as feelings of fear and despair have been resurrected, prompted by the recent address president Obama released on the topic. Now these feelings are coupled with disappointment, frustration and outrage as we reflect on all the time, money and attention that has been directed at the New Orleans’ revival project, only to put us where we’re at today.

Where are we today? According to the Yahoo News:

“On the fourth anniversary of Katrina, many communities remain broken, littered with boarded-up houses and overgrown vacant lots. Hundreds of projects — including critical needs such as sewer lines, fire stations and a hospital — are entangled in the bureaucracy or federal-local disputes over who should pick up the tab.”

I agree this is tragic. As both an efficiency and project management expert, it really disturbs me to see our nation operate like this. But I’m not at all surprised. At an attempt to cool our nerves, president Obama gave another of is “bright future” speeches on the subject. In his address, president Obama states:

“Our approach is simple: Government must keep its responsibility to the people, so that Americans have the opportunity to take responsibility for their future”

And goes on to say:

“I have also made it clear that we will not tolerate red tape that stands in the way of progress or the waste that can drive up the bill. Government must be a partner — not an opponent — in getting things done."

No real criticism here, but that’s what I would expect him to say, and I’ve heard so many speeches like this in my career that I’ve learned to tune leaders out when they go down this path.

Here’s the most interesting part for me:

“the legacy of a terrible storm is a country that is safer and more prepared for the challenges that may come.”

Here, Obama does two things. First, he draws attention to the fact that a devastating event like a hurricane actually has some opportunities if you look for them. Second, he implies that the country shouldn’t aim to restore things back to where we were, but beyond where we were.

Time ran a terrific article on the topic of Katrina. Instead of focusing on how lamentable it is that bureaucracy has slowed the progress of reconstructing New Orleans, it focused on how Katrina has provided an opportunity for a better New Orleans—and a greener New Orleans.

According to the article, Global Green USA has taken a large part in making the new New Orleans better and greener than it ever was. They’re not only promising on a better future, they’re delivering:

“[It] begins with the Holy Cross project, an entire sustainable village being built in the city's flood-damaged Lower Ninth Ward, with the help of Home Depot's corporate foundation. Eventually the village will include five sustainable homes, along with an 18-unit green apartment building and a community center. Three homes have been completed so far, including one that is serving as a de facto visitor's center.”

And they’re not stopping there. They’re retrofitting the existing schools to be greener, and building new schools from the ground up with solar panels and other energy efficient architecture.
Going green isn’t the only order of the day. They also want to make the city more resilient. As an example, not only will the new schools be built with solar panels, but they will also have wetland habitats and rainwater cisterns. I don’t know what those are, but it sure sounds like the right thing to do!

The point is that disaster is what you make of it. For instance, a failed audit isn’t really all bad. The propensity is to panic and curse, but events like this are a blessing in a horrible disguise. That’s not to say you won’t feel impact. We lost over 1,500 lives in Katrina that we cannot get back, and that hurts. But there’s a real opportunity here to rebuild stronger, if you have the courage to be positive.

Fight or Fold

A Look at GE’s Decision to Settle with the SEC for $50 Million

The GE Building (formerly the RCA Building) located in Rockefeller Center in downtown New York City. Picture Source

General Electric recently settled with the SEC for $50 million after a protracted stance against the government’s allegations of improper accounting. Was this a smart move, or should they have kept fighting? Let’s see.

The SEC accused GE of four separate accounting irregularities in 2002 and 2003 involving among other things, revenue recognition and interest rate swaps.

Almost 3 million pages of documents later and $200 million in accounting and legal fees over the period of more than four years and they finally decide to throw in the towel and settle. For the record, GE does not admit or deny that it violated any accounting rules however it does admit that errors were made.

So if you’re GE four years ago and you have a crystal ball that can look forward to August of 2009, what action do you take? It seems reasonable to settle up front instead of sinking $200 million plus four years of your corporate life into this mess, and still handing over $50 million to settle. I’m not even sure that offer was on the table when the SEC started, but these are the kinds of decisions that need to be made early on in the process.

The decision to fight or fold is a tough one, especially if you feel you’re in the right. Even with all the colorful language when a company settles, it’s hard to shake the image of guilt in the public eye. It’s also hard to anticipate what reverberations are waiting for you after the settlement (i.e. now you’re a target for other attacks). However, what will it cost you to fight? The answer to this question is so elusive that it’s rare to find a company that gets this right.

Instead what typically happens is what just happened to GE. At the moment the allegation is lobbed, the knee-jerk reaction is to defend. Once the defense is in place, it becomes the “status-quo” to keep paying lawyers, accountants, and other consultants to defend the allegations. Fees continue to mount for years, until somebody wakes up and realized the insanity of it all.

Here’s my advice for how to handle the fight or fold decision. If you know you’re guilty, fold fast to get it over with. First of all, it’s the ethical thing to do. And second, holding on to the fantasy that you’ll beat the government by playing the arbitration between reality and evidence is a losing game.

If you know you’re innocent, you need to embark on a very thoughtful exercise. You must assess within a certain degree of confidence, what that cost of proving your innocence will be. Gather all the stakeholders together, and create a detailed plan of what needs to be done, who will do it, and most importantly how much it will all cost. Document your assumptions, and do a thorough risk analysis.

Your plan should be decomposed into areas you can prove that will reduce the settlement amount if it comes to that. The government will probably start with a very high number. In your assessment you will probably find ways to demonstrate to the government that their number is higher than it needs to be. For instance, you might be able to rather easily convince them that you are not trying to defraud anyone, by demonstrating that you have proper policies and procedures in place. You should start there, then continue with other ways you might be able to prove your innocence.

The key is to decide ahead of time, what resource limit (i.e. time, cost, and people) you’re going to put into this defense, and stick to it. Of course, this can be adjusted down over time if the government starts conceding on their settlement amount, but never allow this limit to drift upwards.

If you don’t know whether or not you’re innocent you have a different problem. In this case, organize your defense, but make it a priority to find out the truth for yourself. Don’t assume anything, and certainly don’t try to defend a position you’re not sure of yourself!

In my opinion, it was the right thing for GE to settle but they took way too long. I don’t think they decided four years ago that $200 million was their limit. Regardless, that’s their outcome and they have to deal with it. I hope you never have to make this decision for your company, but if you do I hope you’ll be smart about it.

For the Record

The One-Day Record Retention Policy

For some reason, people obsess over creating their record retention policy. I’ve seen common mistakes made and not so common mistakes made, but in the end it always takes longer than it should. I’ll show you today how to create an email retention policy in just one day—and have fun doing it!

Step 1: Get Everybody’s Attention

One of the key reasons why creating a retention policy takes a long time, is because organizations don’t make it a high enough priority. So the responsibility gets handed to some newbie as a sort of hazing exercise. This newbie now has to corral people from all corners of the organization gathering information from people who would rather be getting their teeth pulled at the dentist than talking to this freshman about policy.

It shouldn’t work this way. As with any policy, record retention policy should be a primary target, and of prime interest to any company’s board and the executive management that services it. It’s very easy to create, and without one you can forget about surviving any sort of litigation. The documents you don’t have on hand will make you look guilty, the documents you do have on hand will incriminate you, and the mere fact that you don’t have a record retention policy will announce to the courts that you’re irresponsible. Let’s see you try to win that case.

So, to get everybody’s attention start with the board and executive management. Once you have their attention, you’ll have everybody else’s attention.

Step 2: Get Clear on What the Policy Will Look Like

Let me give you my best piece of advice when understanding what the final policy will look like—keep it very simple and easy to modify. Your policy shouldn’t be more than some introductory language and a table. Your table is a summary of all the different types of documents you have, and what their retention length should be. In addition, you may want to include some notes and reference information (i.e. what regulation or guideline drives the retention policy).

Make sure your policy system is flexible enough to make changes at will with little or no pain. You will need a good change management system in place that can document changes as your policy evolves over time. Instead of obsessing over getting everything perfect the first time, just make sure it’s good enough and easily adjustable as you find ways to make improvements. I suggest you involve your IT department to help setup a policy management database.

Step 3: Go Away For the Day

Get all the key people together, and go away for the day. You will need representation from legal, finance, IT, the business units, and most importantly executive management. Once executive management is involved, all the right people will want to be there. Don’t settle for middle managers that just want to brown-nose. Get the right people, no matter where they are in the organization. The right people are the people that know the regulations, standards, and how the business runs.

Organize a one-day offsite that will be fun for everyone. There’s work to do, but that doesn’t mean it needs to be arduous. Have it in a nice place with great food and scenery. Here’s how the schedule will look.

The schedule for the day can be light. The actual work to be done won’t take a full 8 or 10 hours. Start the day with a light breakfast combined with a vision session. Explain to everybody what needs to be accomplished, and why it’s important to the company. Take a short break, then open things up for an uninhibited brainstorm / data dump. Have several recorders on hand, and just let everybody fire away with what’s in their head. Focus the session purely on different types of documents that are produced. Consider not only typed documents, but email, instant messages, anything that could be considered a record. Don’t try to solve or adjust anything, and don’t try to create systems at this point, just let the information flow freely from people’s heads to the board (I prefer using large sticky-pads). The brainstorming session should go a good 2-3 hours with one or two breaks in between. After that, take a long and enjoyable lunch break.

After lunch, bring everybody together to assemble the information. All this data needs to be organized into document types. Don’t worry about retention guidelines at this point, just try to logically organize all the different documents into groups. A company typically has a lot of different documents, so this exercise may take a while. Once a first pass at organization is complete, make a second pass with the retention lens on. Think about how long each document group needs to be retained at different stages of its retention period (e.g. readily available, onsite, archived offsite, destroyed). When considering retention periods, consider regulations, standards, guidelines, and also availability for good business operation. The key is not to over-think this, just get it most of the way there. Remember, you can always come back to adjust it when you need to. Take another break, we’re almost done.

Back from break, we just need to have a short agreement session. There will undoubtedly be some disagreement between groups of document types and retention periods. That’s very normal; however, the outcome of this session is a consensus on the contents of the policy. It’s good if everybody agrees, but if they don’t that’s okay also. We just need everybody to concede that this is a policy that’s good enough for now. The hard work is done, enjoy the rest of the day.

Step 4: Create the Policy

As a final last step, just record the policy that everyone has agreed to and publish it as record. Do not entertain adjustments in any way, shape or form. You may have a stroke of brilliance after the offsite, or you may have people still trying to sell their point privately after consensus was reached. Forget it, you’ll just go backwards. Create the policy and publish it—that’s it.

Creating policy is easy and can be fun when you take the right approach. If you don’t have a record retention policy in place, start planning a fun offsite today. You’ll be surprised how quickly things will come together.

Switzerland Exits Tax Evasion Business

US Cracks Down on Swiss Bank Accounts

Former UBS bank manager Hansruedi Schumacher and Swiss attorney Matthias Rickenbach are in the erbsen cremesuppe this month. According to the New York Post the two were charged with helping Americans evade taxes on UBS accounts.

Just when you thought it was safe to hide money in a Swiss bank account, America starts cracking down on the time honored practice of using Switzerland as a tax avoidance strategy.

It’s no surprise this is coming at a time when the country is facing the biggest recession since the Great Depression. Like everybody else, the IRS needs money and this would seem to be a perfect target!

Schumacher, Rickenbach, and 150 fellow Americans are now under the IRS’s microscope for criminal activity. So, watch your step Mr. Moneybags! Switzerland may still be good for skiing and chocolate, but it looks like they’re out of the tax evasion business.

A Warning You Can’t Ignore

How to Send a Clear Message

Here’s a different approach for communicating a message:

Communicating policy with creative language is a good way get people’s attention. Think about how you can rearrange the wording of your directives so that people get the point.