Compliance officers love to clip stories from newspapers and send links to articles about compliance lapses at other companies to remind executives of the risks that lurk below the surface.
There's been no shortage of examples of compliance problems at companies large and small lately, but there's another source of cases of compelling compliance failures that could provide lots of lessons for management: those in the sports world.
The events of the Penn State abuse scandal, the New Orleans Saints' “bountygate,” allegations against Lance Armstrong of using performance-enhancing drugs, and many others are fraught with dos and don'ts on how to handle wrongdoing. Indeed, it could be that since compliance problems are handled poorly so often in the sports world that they make great case studies on how quickly a compliance blunder can turn into a disaster.
Consider how beleaguered baseball fans in Boston recently saw their team “blown up” with an unprecedented trade of star players to the Los Angeles Dodgers that dumped a quarter-of-a-billion dollars in salary.
Leading up to the move, a common refrain among talk radio hosts and the fans has been lamenting the poor “clubhouse culture” that led to the team's disarray and losing ways. The organization's owners, manager, and coaches failed to set a proper “tone at the top,” they whined.
Such talk calls to mind the Holy Grail for many companies, establishing “a culture of compliance,” a system-wide commitment to success rooted in ethical, legal, and sustainable behaviors—from the C-suite to the factory floor.
The failures of sports teams that ignore the compliance fundamentals and best practices found in the business arena are plentiful and dramatic.
Had potential whistleblowers not feared either retribution or on-field losses, and if their superiors had heeded those complaints, the Penn State sex abuse scandal might never have reached the absurd, gut-wrenching level it did.
Best Buy and Hewlett Packard dismissed their CEOs, Brian Dunn and Mark Hurd, for inappropriate relationships with female subordinates. Arkansas Razorbacks Coach Bobby Petrino was similarly removed from running his college football team once a motorcycle accident made it impossible for school officials to look the other way regarding the hiring of his 25-year-old mistress.
How about the steroid crisis in baseball that was fueled, in part, by leadership that didn't want to stop the gravy train that resulted from sold-out stadiums rooting on several different players' assaults on the record books? How Lance Armstong and his team handled doping charges and the resulting hit to his legacy and his reputation will be studied for years and could indeed drag on for several more.
The New Orleans's Saints saw several players and head coach Sean Payton suspended for offering bounties to defensive players who intentionally hurt opponents. Jim Tressel, coach for 10 years of Ohio State's football program, was kicked to the curb for covering up for players who were trading school memorabilia for tattoos.
A good compliance program might not have prevented these messy situations, but it might have kept them from spiraling out of control. A close examination of how they did unwind could help compliance departments keep similar problems from unfolding at their organizations.
“I think the corporate world is leaps and bounds ahead of the athletic world,” says Scott Preston, shareholder with law firm Littler Mendelson. “If you were to conduct a poll of all professional sports teams to see how many have a chief compliance officer or somebody who is in charge of compliance, you would find very few that do.”
There are plenty of compliance positions within the NCAA and individual schools. They have often been criticized for focusing more on rules pertaining to uniforms and meal money, than big-picture cultural failures.
“If you were to conduct a poll of all professional sports teams to see how many have a chief compliance officer or somebody who is in charge of compliance, you would find very few that do.”
—Scott Preston,
Shareholder,
Littler Mendelson
Preston sees signs that it's changing, especially in ongoing comments by NCAA President Mark Emmert that coaches and administrators have ethical obligations to not only follow the rules, but also to act morally.
“There is a real sea change going on in athletics about responsibility,” Preston says. “Before, if you had a coach at Ohio State who beat Michigan five times out of 10, that guy was not getting fired. It was not going to happen.”
“I think there has been a lack of accountability and that has gotten us to this traumatic position of Penn State, and other scenarios like that, where schools have lost control over the athletic department and there has been very little internal restraints placed on the growth of a coach's power or ego,” says Warren Zola, assistant dean, graduate programs, at Boston College's Carroll School of Management.
Under Pressure
Zola compares high-profile coaches and their overseeing trustees to high-priced CEOs and boards that have lost a sense of ethics and morality in pursuit of profits.
“You see examples over and over again of the pressure to generate revenue,” he says. “The way to do that is to win, to make it to the playoffs or bowls. Coaches are under such pressure to retain their jobs that they will make decisions that are not in the best interest of the institution.”
Even worse, a coach who is fired as fallout from a win-at-any-cost philosophy nearly always finds other suitors following the scandal and can expect to be paid well. For example, when the NCAA announced sanctions against the football team at the University of Southern California for “lack of institutional control” related to some players accepting money and gifts, coach Pete Carroll had already left to take a head coaching job in the National Football League, even though it was widely known his former team was under investigation for major rules violations.
“The institution itself is left to pick up the blame,” Zola says. “You see that in the corporate world as well, where the CEO will leave disgraced with a huge buyout and get another fantastic job somewhere else.”
COMPLIANCE RECOMMENDATIONS
The following are among the governance and compliance related recommendations from an Independent report on the abuses at Penn State by Louis Freeh and the law firm Freeh Sporkin & Sullivan.
Athletic Department: Integration and Compliance
“For the past several decades, the University's Athletic Department was permitted to become a closed community,” the report says. “There was little personnel turnover or hiring from outside the university, and strong internal loyalty. The football program, in particular, opted out of most of the University's Clery Act, sexual abuse awareness, and summer camp training procedures. The Athletic Department was perceived by many in the Penn State community as “an island,” where staff members lived by their own rules.
Among the recommendations:
Revise the organizational structure of the Athletic Department to clearly define lines of authority, responsibilities, and reporting relationships.
Provide the University's Athletic Compliance Office with additional staff and adequate resources to meet its many responsibilities.
Benchmark against peer institutions to determine an appropriate staffing level for the office.
Establish an effective reporting relationship with the University Compliance Officer.
Realign the compliance-related responsibilities of Athletic Department staff members to ensure that the Athletic Compliance Office has oversight of the entire program.
Board of Trustees: Responsibilities and Operations
The Board should consider taking the following actions to increase public confidence and transparency, realign and refocus responsibilities and operations, improve internal and external communications, and strengthen its practices and procedures:
Review the administrative and governance issues raised in this report, particularly with regard to the structure, composition, eligibility requirements and term limits of the Board, the need to include more members who are not associated with the University, and the role of Emeriti.
Review, develop and adopt an ethics/conflict of interest policy for the Board that includes guidelines for conflict management and a commitment to transparency regarding significant issues.
Include training on ethics and oversight responsibilities in the current regulatory environment in Board member orientation.
Require full and public disclosures by Board members of financial relationships between themselves and their businesses and the University.
Rotate Committee Chairs every five years or sooner.
Increase and improve channels of communication between the Board and University Administrators.
Require regular Risk Management, Compliance and Internal Audit reports to the Board on assessment of risks, pending investigations, compliance with federal and state regulations, as well as on measures in place to mitigate those risks.
Establish and enforce rules regarding public and press statements made by Board members and Emeriti regarding confidential University matters.
Provide Board members with individual University e-mail addresses and make them known to the public.
Develop a critical incident management plan, including training and exercises, for the Board and University administrators.
Source: Freeh Sporkin & Sullivan.
Chuck Smrt, who worked for the NCAA's Enforcement Staff for 17 years, now runs his own business, The Compliance Group, that offers institutions a two-fold service of internal investigations (prior to an incident being self-reported to the NCAA) and compliance program reviews.
Those reviews typically focus on “institutional control” and cover three key areas: reviewing training and education programs; assessing what monitoring exists; and confirming that procedures that are in place are being followed.
“You can never eliminate the possibility of a violation, but by doing compliance reviews you reduce the likelihood of the fallout from an investigation,” he says.
Michael Peregrine, a partner in the law firm McDermott Will & Emery, says that corporate boards have shaped compliance programs using the U.S. Sentencing Guidelines. Their counterparts at pro and college teams would do well to follow that template.
“Teams like the New Orleans Saints can no longer take on what the guidelines refer to as a ‘willful blindness' perspective,” he says. Looking the other way when faced with infractions does nothing to protect their public and internal image.
“Reputation is an asset,” says Peregrine. “That is becoming increasingly apparent in enterprise risk management functions. You have an obligation to protect the reputation of your organization, especially if it is a non-profit or philanthropic organization or higher education. Let's not do something that will cause the mission to be diminished because of something we did—or more likely, didn't do.”
When problems are found, trustees, like a corporate board, need to avoid the tendency “to squeeze the little guy.” Coaches need to be held just as accountable as their staffs, Peregrine says, and there is “an obligation to go after the right person, rather than letting a peon take the fall.”
“When it comes to ethical compliance and why college athletic departments lag behind the corporate world, it is really because there is no equivalent of the Dodd-Frank Act or the Sarbanes-Oxley Act governing what is going on,” Preston says.
That too is changing, notably as schools take a page from both of those legislative packages and get more serious about whistleblower programs and other internal methods for finding wrongdoing. Big jury verdicts are drawing attention to retribution against those who went public with Title IX violations.
In college athletics there is also the Clery Act, which establishes reporting obligations that force administrators and coaches to disclose campus crime. In 2008, that act was amended by another law, the Higher Education Opportunity Act, to protect whistleblowers from retaliation. The impact has been an uptick now in Clery Act enforcement by the Department of Education.
In the big picture, college athletic departments are really savvy in drafting policies to appease the alumni base.
“Where they fall short is taking those core values and mission statements and turning them into an ethics policy that governs the internal conduct within the department,” Peterson says. “This is where I think the corporate world and athletics come together and they are the same. How do you enact a compliance program that's meaningful?”
It is also important to ensure that the compliance program has support at the highest levels.
“People are far less likely to report misconduct if they think their supervisors don't care or aren't that ethical,” Peterson says. “If their supervisors value ethical conduct, they will report it. You try to cure bad decisions, and you do that by making people aware and accountable. You make sure they know that we are here to win, but we are going to win the right way.”
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