#417 Regulation, leadership and their impact on the organisation - an article by Niels Brabandt

Regulation, leadership and their impact on the organisation

an article by Niels Brabandt

Regulation and compliance have arrived in every organisation.

However, the way they are dealt with often varies. A wide range of implementations can be observed in practice, from helpful guidelines to disruptive or even business-impeding formalisms. Recently, there was much discussion about the case of a politician who accepted a gift to his country. Organisations also often discuss how the guidelines should be implemented.

How can you set up your organisation in the best possible way, and which impact does regulatory leadership have?

Business Cases

All of the cases mentioned here have happened.

Donald Trump accepted the gift of a Boeing 747 from Qatar. Formally, the gift did not go to him directly but to the Department of Defence. Criticism followed promptly and extensively, as Qatar was seen to exert influence.

In one case of a tender in the capital goods sector, the customer rejected the selected accommodation during the on-site visits to negotiate. They wanted the luxury hotel on site, which was clearly outside the usual guidelines.

In the third case, a gold watch is presented as a thank-you gift when the project is handed over after completing all the work. The handover occurs in public and is attended by leading representatives from all sides; even politicians are present. A return on the spot would greatly insult the other side.

How do you deal with these cases?

Consequences

The first case is well-known and publicised. Donald Trump accepted the gift, pointing out that it went to the Department of Defence and not to him personally. This statement immediately gives the impression that leaders are looking for ways to justify gifts and are happy to exploit loopholes in the regulations.

In the second case, the customer's request for the luxury hotel was honoured after ensuring that these requests were made similarly for all comparable offers and vendors.

In the third case, it was discussed with the customer that once the watch had been valued at over 70,000 euros, it would be auctioned off in favour of a charitable foundation. The customer agreed to this action.

Three cases of dealing with regulation need to be discussed. If managers, as in the first case, give the impression that strict rules apply to employees but not to management, then they lose their social legitimacy. Employees will display similar behaviour and a culture determined by being able to justify their actions somehow, and no matter how abstruse the justification is, will quickly become established. Employees will quickly stop following managers and develop their own socially accepted rules within the group. A ticking time bomb in the company that guarantees a scandal in the medium to long term.

In the second case, the reality of the customer's life is considered. If it is clear that these employees will never be able to afford a luxury hotel themselves and that this cannot be justified culturally, then it would be a potential bribe if this accommodation were granted. However, these people were high-ranking members of management, and culturally, they regularly spent the night in such luxury facilities. Reflection on the reality of life is always an important factor.

In the third case, a socially acceptable solution was found as it is evident that refusing the gift on the spot was impossible. Proactively talking to the customer about this is a very good solution, and proactive communication with employees ensures transparency for everyone involved.

More details on all cases can be found in this week's videocast and podcast; see links below.

Implementation

At the beginning of any accepted regulation and compliance, there is always awareness and the creation of an understanding of the topic. Cheaply purchased online courses rarely lead to any success in this area and are only used as a pseudo-measure to provide legal protection. Very good awareness measures involve role situations, discussions and conflicts to resolve them practically and competently. These measures also always ensure greater acceptance.

Once there is an awareness of this importance and correctness, the next step is a regulatory system supported and monitored by compliance. Practical regulation and compliance always take the context into account. A travel policy may have a fixed number as a guideline, which is adjusted, for example, during trade fairs and other major events. Purely rigid figures that are updated and adjusted too rarely are not helpful here, as this reduces the acceptance of those guidelines, particularly because no factual justification can be provided for providing just a single figure in the travel policy.

The most important thing remains that your leaders set a good example. Leadership by example. If this is delivered and practised, your employees will value managers and accept as well as understand regulations. Leadership behaviour has a massive impact on the organisational culture with regard to regulation. Always make sure that your managers act as excellent role models here.

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More on this topic in this week's podcast: Videocast / Apple Podcasts / Spotify

For the videocast’s and podcast’s transcript, read below.

Is excellent leadership important to you?

Let's have a chat: NB@NB-Networks.com

Contact: Niels Brabandt on LinkedIn

Website: www.NB-Networks.biz

Niels Brabandt is an expert in sustainable leadership with more than 20 years of experience in practice and science.

Niels Brabandt: Professional Training, Speaking, Coaching, Consulting, Mentoring, Project & Interim Management. Event host, MC, moderator.

Transcript

Niels Brabandt

Regulatory and compliance. That is usually not the topic where many people say they are too happy to hear about it. Usually, people say it's a bit it's a bit complicated. It's always a bit blocking business. It's always a bit out of touch with reality. And we now have to talk about regulatory leadership, especially as many emails arrived in my inbox, and you can probably assume what happened in the last week. A very well known person worldwide accepted a plane as a gift, and that that caused a lot of discussions.

Many people said, is that what we actually can do? Is that what's acceptable? Is that what's giving a good example? What is the impact of regulatory leadership done well or done not so well on the organization. And that is what we're going to talk about today. When we talk about regulatory leadership, very important here, if you are here on Apple Podcasts and Spotify, welcome. And you're always welcome here.

When you are here at my YouTube channel, feel free to join here as well for the ones who are listening to the podcast at the moment. When you are on my YouTube channel, I'm going to show you a press article. Very important here. This is only to quote and prove the fact, so this is why we have a disclaimer here. We are allowed to, show sources. We're gonna show you a Reuters press source, which is one of the most neutral press outlets you can have. And, when you when we now talk about regulatory leadership, it always means that something is not allowed, which might have been allowed before.

And people often say, do you have real world cases? And, yes, I do. All the cases I discuss here happened in reality. So case number one is about the plane, and the plane is what you probably heard. Often people said or often even press outlets said, Donald Trump received a gift and it is a plane. And that is factually not quite correct. It is close to that, but the plane was not gifted to Donald j Trump himself.

It was donated no. Not gifted. It was not it's not a donation, surprisingly. And the plane was given to the Department of Defense. So when Reuters put out the article, you see immediately, Democrats said you shouldn't accept the gift. It's it's influence in our government. It it is a foreign force having influence on you.

And, of course, also people said that even when you accept the gift, it costs more than $1,000,000,000 to to to create that kind of plane or to rebuild it or to sort of change it that it can become Air Force One. So it's still 1,000,000,000 on the bill because, of course, when you get a plane, this is usually a passenger plane and most likely you will change a couple of things here. When we now talk about the plane, that is not the only case we have. I give you another case, and that's let's just assume you're a project leader. You're a project leader in a town. It's a mid sized town, and you invite clients over because they are investing a multiple digit amount of millions in your business, or maybe they do because they have a public tender. And it's a private business.

They are comparing different vendors. And as soon as you said, hey, we're gonna arrive at this city, and we're gonna put you in the city hotel, etcetera, etcetera. And suddenly the client says, no. We do not want to be somewhere in this smaller place even when that's where even when this is where your business is. We want to have the London hotel. We want to have, a very prestigious London hotel. We wanna have a London hotel at the XO Tower where we can have a view on River Thames.

It's it's a thousand pound a night, and we want to have that. By the way, the the company complied with that. So the question is now, is that bribery? Is that regulatory and compliance relevant? Is that regulatory compliant? Is it compliance okay ish or not? So let's just think about that case.

You are the project leader, and the client demands from you, put me in this really expensive hotel. I don't wanna stay in your small city. And, of course, you need drivers to get them back and forth every day, and they want a bit of program in London, etcetera, etcetera, etcetera. Another third example. The third example is after a project is completed. So you pass over the multimillion dollar item that people purchased with you. It's a huge item.

Politicians are there. It's a public event in the client's country. So press is there, it's a huge public event. And at the end, as a thank you, they give you a small box and you say thank you, you open the box and inside there is a golden watch. So now you think, what to do with the golden watch? So what what would you do?

What would you do? And by the way, this is given to you while politicians and press, anyone is around you. So probably the option that you might think of, just giving it straight back is not really feasible because that would be a public insult on the other side. So think of what would you do in that moment being fully aware that you need to take this watch with you. Very important. You need to take this watch with you. And when you now have these cases, every single decision has consequences and significant consequences, very significant consequences.

So now let's look into this in detail. So first, of course, we all know how the plane went.

The plane was accepted. Donald Trump said, I'm gonna accept the plane. And, of course, Democrats said he shouldn't have accepted that. Such a gift is problematic due to one reason. We can, of course, have the political side here, but that's a completely different game. We're not gonna talk about that right here. The the point here is that people say, okay. The plane was not gifted to you, but to the department of defense.

However, it's becoming the next air force one. So pretty much only you is you are the only one using it. You're the only one that is able to actually command where it goes. You're the only one flying in it. So you had a Boeing seven three seven. Now you have a Boeing seven four seven. Your local vendor was late on delivery, which is embarrassing enough. However, is it then acceptable from a foreign force to accept this?

And for leadership, it is not. Because people will now say, ah, okay. This is how it goes. You just find a gap in the system. You say, the plane wasn't gifted to me. The plane was gifted the plane was gifted to my department. Oh, no. Sorry. To the Department of Defense.

Not even my department. I'm actually only using it. You're pretending you're doing something which has a legacy for decades. However, what you really did was accepting a gift and finding a loophole to be able to accept a gift, which many people will consider a bribe. Many people will see you in the light of being bribed right now. The second aspect, the hotel aspect. When the client demands that you should put them in a luxury hotel and you know they're comparing different vendors, You're not the only one.

The first thing you should do, and that's what they did, they said, do you do the same standard with any vendor? And they said, yes. With any vendor, we go to the next largest city. We want to have a very good hotel, want to have a good view, all of that with every single vendor. And that's why they complied. And that is why regulatory and compliance, they weren't happy with it. But at the end, they were overruled, and they said, we we are gonna do that.

Because you want to be part of the tender, and it can't be bribery. It cannot be bribery or unacceptable gifting or against the travel regulation or whatever. It cannot be bribery when every single vendor does the same. However, of course, that cannot be the reason that you suddenly say, okay. Look. Every vendor puts £1,000,000 in small bills into their hotel room in a suitcase, and they can take it with them. Anyone does that, so it's the same on all sides. No. That's, of course, not acceptable.

This is a temporary benefit in a hotel where people probably spend less than eight hours a day because the rest of the day is program and and mostly of a most of the day is negotiation, negotiation, negotiation. So it's 90% work during the day, and the rest is either bit of sleep, bit of hotel. So here, I see something which is less problematic. At least it can be justified, and people will understand why you do that because all of these businesses create and sustain jobs in your organization. So when you say, no. We turn it down, it might be that you have to cut jobs due to not accepting it. The last bit, the watch.

Someone gives you golden watch. Of course, you the the really first issue is you need to have very good contacts to customers because as soon as you travel back to your country with a £70,000 watch, because that's what kind of came out of it, when they said, okay. Golden watch, is that really relevant? Is that really that because you you often think golden watches, maybe. What can a golden watch be? Paulie, you think 3,000, 4 thousand, 5 thousand, then and and they gave it somewhere to get evaluation. It turned out at 70,000.

They informed customs about that that there is going to be an item where there will be future discussions who owns this item because so far they did not claim ownership formally, although, of course, someone has it in their possession. But between possession and ownership, there's a difference, of course.

Hello, legal people in the room. Now you can we're not gonna discuss that for an hour right now. So very important is what they did is they looked at the watch. The valuation was beyond £70,000, and they said, what should we do right now? And that watch then and that was fully discussed with the client. They said, look. We cannot accept that because and that is very important here.

You could, of course, say, hey. The business is done.

The item is delivered. The project's over.

So it can't be bribery. Well, when you have an investment item, you know that any kind of maintenance is gonna happen for the next ten, twenty, thirty, forty years with you. And, of course, when you, let's say, make a nice gift to the person in charge, which are the service hours you have to pay for, which are the service hours you get for free, With a golden watch on your arm, you probably think, yeah, maybe a bit more free hours is totally acceptable, and then, of course, the organization takes harm from that. So they decided to make an auction, and the auction the the watch was, auctioned off for 85,000 at the end, and the money was donated to a charity. And that's what they discussed with the that's what they discussed with the client as well. And the the client was was absolutely happy with it. In all of these cases, the most important question always is, what is the impact on leadership?

When you, for example, say, hey. This this whole plane story, when you say you you accept the plane because formerly it was given to the Department of Defense, people will very quickly think your leadership is about finding the hole in the system. You try to find a gap in the regulation and you use it brutally, and no one else would get away with it except you. And then people will say there is one rule for you and another rule for other employees. And that will make your social legitimation diminish or disappear. Probably more the second one than the first one. The hotel aspect, when you accept the hotel and exactly when you communicate it well.

So when you say, hey. This this creates jobs. It's the same with every vendor. It's the same absolutely anywhere.

And the difference is millions. It's a couple of thousand. Then people will understand that you have to comply with the client's demands, and then they will be okay with that. As long as you communicate it proactively, when people get a hold of it afterwards and they say, oh, you didn't say anything? Did you try to get away with it with us telling us? Then there's no chance you're gonna save the situation. So very important is you need to be proactive on the matter.

The whole aspect with the watch, very important here, people cannot get the impression that after a project was delivered, that suddenly people can buy free service hours, which, of course, always would will will end up with a denial of salary raises towards your staff because you have less income than expected due to more free service hours, more free maintenance. And then you need to bring the money back in by preventing salary raises. And, of course, that's not acceptable. So the whole watch thing was handled well. However, it was communicated proactively, and this is why it works. If you miss out on any of what I said right now, the impact will always be massive on your organization because people will say, the organization here is not about justice. The organization here is about trying to get away with it.

The organization here is only about, let's find out how we can get around the regulation. The organization here is only about getting the best out of it for you. And, of course, people will often say, when you do it as an employee, you will be fired. When you do it as a leader, you stay. And then people will not believe anything you say. The question now is, when you wanna do it right, how do you implement a culture and also how do you implement any kind of aspect of regulatory leadership which is sustainably successful? Because many people say they struggle with it.

People often think it's just a burden, all of these sessions. And, of course, when I start with awareness, many people say, oh, the awareness training. Yeah. I know the online stuff. And that is one of the big problems. When you, for example, did the world famous money laundry training that many people had to do in their organizations, where you sit there and you think, okay, here's another example of a client walks in with a suitcase with 50,000,000 in it. What should I do?

So one tick always goes to tell compliance, and the other one always is don't accept the cash. And my my business thinks, my organization, my employer thinks I need training for this. Wow. They knew it. They they they really need to think I'm not too smart. And that's exactly the problem. Many of these awareness trainings are far away from reality.

They are they are dramatically under complex. They are only there to tick a box. They are only there to make make executives go on the safe side legally or to fulfill regulatory and compliance, often delivered online with extremely poor PowerPoint slides that are simply read out to you, and then you have to tick boxes for 10 questions, then you get the certificate, and then you can go on with your work. Professional awareness training is more. Professional awareness training goes into situations, role play, really tricky situations where they really check what is your value system here, and what is it that you actually want to do, what is it that you actually would do in that situation. And that's where you really have big learning. So you need to have professional awareness training.

The $49 online class is not gonna make the cut. It's not gonna it's not gonna solve anything. It's and it makes people more frustrated, and it makes people saying more often that you have no people development in your organization. After the awareness is then, the awareness is always step one. Step two is compliance and regulatory. Regulatory now puts a framework together often and ends up with the compliance department, and they give you guidelines. And very important here, the guidelines need to reflect on the reality they happen in.

I give you a very simple example. With a golden watch, you're not gonna bribe a Saudi Arabian shite because probably they have 10 of these in the cupboard next to their bed, at least the the the the wealthy leading ones. And as soon as you have that, you always have to see what is the context in which it happens. And, yes, we have to see one aspect here. A £70,000 watch is not gonna bribe a billionaire, but it's gonna bribe an employee that is probably on 3,001 some or probably even less when when things go bad. Very important is that the context has to be communicated proactively. When you say we're going to the luxury hotel, we're gonna allow that people have the big tour of the city.

We're gonna have the five star hotel. We're gonna have all of that, including a luxury dinner because every single vendor does it, and that's how we need to comply with the demands of the client side. Very important here. The compliance and regulatory needs to reflect on the context in which it happens. And, yes, there might be situations where leaders with clients, important clients who probably want to place business, are going to fly business or first class, and they probably have a driver, not a taxi, but a driver, a limousine that go that gets them from from a to b, not constantly, but in that situation. And, yes, probably employees will not have that because the reality between a leadership and executive position compared to an employee is a different one. However, it needs to be communicated proactively.

We do not need the times where you have drivers for board level members who are obviously, I don't know, either too lazy or too cool or too important to drive their own car. So even within the city they live, there's money for a driver driving your board level members back and forth while they're doing nothing else than sitting in the back of their car. They're they're not gonna do, research. They're not gonna be online writing emails. They're they're not gonna have 10 phone calls. Of course, they say they do, but often they do not. And when you say we have money for these drivers and in the next breath you have, you say we don't have money for salary raises, then you lose social legitimation and then no one will follow you.

Compliance and regulatory means the reality and the context is crucial for what happens. There's a difference of the most important expo of the year. I I just give you an example from my business here. We have a travel guideline. Usually, we say this amount can be spent on hotels. And when there is the most important expo of the year, suddenly people can spend triple the amount of that for a very simple reason. I, unlike other businesses, do not want my employees to travel an hour and a half away from the expo ground every morning, travel back and every evening, or as we know with the expo parties, every night, travel back and come back with no sleep.

So, of course, they can spend more money because in that context, it is needed. The context is important, and compliance and regulatory need to take care that this is considered. The most important aspect is leadership by example. When you show that you have a feeling for the context, that you communicate proactively, that you know how to apply the rules in reality, and when you communicate proactively, people will always understand what you do there, and they will follow you because they think you're a good example. However, when you say I'm gonna find the gap for me in the system, and I am going to praise myself for things that are not allowed for others, I'm gonna criticize employees for certain steps I did myself, but because I'm a leader, it's something different, but I don't tell you why. That is where leadership credibility gets lost and where you lose it constantly most likely. Leadership by example means you are able to proactively communicate the right framework and the right context, And then people will understand and follow you, and you also will have a great organizational culture where anyone knows what we do is safe and sound on all sides.

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