Hui Chen, Walmart and the Radical Transformation of Compliance?
Friday, May 27, 2016 at 7:12AM
Michael Scher in Hui Chen, Maritza Munich, Mexico, New York Times, Walmart

Blue Marble Photo of EarthIn my last post I discovered the power of images to make a point, like the ribbons of marble floating on air. The Blue Marble, NASA”s image of earth from space, changed how we see the planet, our home.

The radical transformation of compliance in the last four years is hard to grasp. There is astonishing momentum since the Walmart story broke in 2012. However, the upcoming DOJ settlement with Walmart (if there is one) will test that momentum. With a dubious DOJ leak and successful delays in the courts, is this the end of the transformation?

Consider two images:

 The one on the right is Hui Chen, the DOJ’s first-time, in-house expert on compliance officers and programs.

On the left is an empty picture frame. You should see Maritza Munich, but you cannot. That’s the image of the old way, the silenced invisible CO.

Munich is the famous general counsel and compliance officer who reportedly lost her career at Walmart in 2006 for doing her job. Based on her publicly released memos, she follows up on a whistleblower and protests the shut-down of her bribery investigation fearing a whitewash at the top. Her files are turned over to the suspected executives and they report back to top management and the Board there’s no bribery. The deceptive
whistleblower embezzled the funds instead of paying bribes. Munich’s investigators ask why the secret $23 million fund was set up in the first place. She is out but suspected executives are promoted.

(The company and its officers are presumed innocent until trial or settlement of multiple ongoing investigations.)

Silence reigned from 2006 until 2012 when the press broke the story. What happened inside the company or to financial statements with allegedly bribe-tainted profits is still unknown.

Munich has never been permitted to speak freely in public about her memos (released by a Congressional Committee) and the events. But, she talks about professional pride versus personal risk, in words COs recognize: “I like to sleep at night. I want my daughter … and my 91-year old father always to be proud of me.”

In 2003, bribery is a tax-deductible business expense extorted by the ”locals.” COs are annoying pinheads from the Department of NO, the Anti-Sales Force.

Back then, doing your job by calling out misconduct invites reprisals. You investigate and realize the company has already engaged in conduct that prosecutors will treat as an alleged criminal conspiracy. In isolation, you suffer the moment of “compliance shock.” The head of legal and compliance says: “YOU really have a problem there, don’t YOU.”

You don’t think about going over the head of top management to the board or outside the company. You have zero sense of a compliance community backing you up for whistleblowing. You either duck, stick a memo in the file, and get back to work -- or you are out in the cold. You think about your kids and your safety. It’s a personal and professional crisis to do your job.

Before 2012 Walmart had a good reputation for compliance. The momentum favors cutting back FCPA enforcement to stop wasting management time. The Walmart headlines reversed everything.  The 2012 Pulitzer Prize winning reporting paints a detailed picture of an “aggressive and creative corrupter” by the largest retail company in the world to get whatever it wanted, despite local laws and opposition. It’s un-American.

COs are puzzled: Clearly something is very wrong in existing compliance programs and in the C-Suite, a “crucible for misconduct”.

Fast forward to 2016.

Hui Chen’s picture stands for what happened after the momentum shifted to pro-compliance. They are all radically transformed: Walmart, compliance and the DOJ.

Chen’s mission, discussed in a long interview, is to raise corporate compliance to a new level. A former compliance officer, Chen’s full time job is studying all kinds of compliance programs. She’s in constant dialog with global corporate leaders and top prosecutors about what works and what’s reasonable to expect. When Chen speaks, she is talking compliance -- not only law. Best of all, she speaks for the DOJ. The Chief of the DOJ Criminal Section says connecting to Chen is like “manna from heaven.”

The new Walmart is a global leader in a new structure created by COs called Compliance 2.0

The combination of public opinion and pressure from the whole Compliance System (like prosecutors and global social media) persuaded the company to transform. The shift was a lucky investment. Other companies face larger, tougher prosecutions and fines. While they catch up, Walmart’s annual reports discuss advances using C2.0 management tools.

Chen’s metrics for compliance companies read like a brief for Compliance 2.0. Companies must hire and train experts to establish a  “culture of compliance,” pay them well, promote them fairly, assure “independence” within the “reporting structure of the company,” support CCO’s strategic risk assessments, and empower imposing discipline when officers fail to supervise. Chen says to expect ongoing updates and asks COs for input.

If imitation is a high form of compliment, COs are welcome in the C-Suite. Thanks to the C2.O, management tools exist to stop “burning the house down”.

Walmart, the trillion-dollar healthcare industry and the DOJ  are saying thanks to COs for C2.0, after twenty years in the trenches figuring out what works. Thanks for your insights about responding to a whistleblower. Thanks for inventing a new kind of executive with exciting subject matter expertise. COs know how to roll out training for a global workforce, how to reward and discipline officers for non-compliance and how much to spend vetting third parties and business partners.

Let’s hope Chen weights in hard on any Walmart settlement. The settlement, if there is one, will change the momentum of compliance, so I have argued in letters to the DOJ for years.

Now there is Hui Chen, a compliance advocate sitting at the table.

If a settlement ducks big issues, some will spin it to stop the momentum. But if, for example, it closes a glaring gap in the DOJ Guidance about protecting compliance officers like Munich, it cements the changes.

Moreover, it’s a signal that it’s time to move forward to a new compliance agenda. For example, how Boards should question a CCO to discover retaliation, how the Board-approved Code of Ethics is the only basis to stop “lawful but awful” proposals and how companies that “hang together” can take back corrupted markets. (respectively, here, here and here)

If Munich wasn’t heard, Chen surely will be.

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Michael Scher is a senior editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He'll be a speaker at the FCPA Blog NYC Conference 2016.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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