How - Dov Seidman [134]
CLOSING GAPS
Streamlining authority and putting information and decision making in the hands of those closest to the challenge make a team nimble and responsive, two qualities critical to thriving in a fast-moving market. More than front-loading decision making, however, self-governance holds the key to the next great leap in corporate efficiency: It closes the gap between the individual and the company.
Businesses do gap analysis of initiatives all the time to discover the difference between expected outcomes, standard outcomes, and the competition. So let’s look at the costs of compliance with the rules and regulations of the U.S. government’s latest attempt to regulate corporate behavior, the Sarbanes-Oxley rules. “Even before the most expensive Sarbanes-Oxley rules take effect,” reports the Wall Street Journal, “companies say their audit costs are increasing by as much as 30 percent or more this year due to tougher audit and accounting standards. . . . Companies also are paying steep fees to fund a new accounting-oversight board—as much as $2 million apiece annually for some large businesses.” 14 A study by Financial Executives International estimated the labor invested in new compliance procedures by small companies with revenues less than $25 million at almost 2,000 man-hours; at $5 billion in revenue the number was 41,000 man-hours.15 What has all this new investment achieved? PricewaterhouseCoopers found that of the 85 percent of multinational corporations that have new compliance controls and procedures, only 4 percent report significant changes in behavior.16 Business has spent madly to close the gap between rules and conduct, instituting new programs and training to raise the level of regulatory compliance. Yet despite these Herculean efforts, there has been little real reduction in regulatory enforcement action and prosecution.17
“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.”18 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