CROSS-CULTURE: What finance can learn about compliance culture from Volkswagen, Novartis & Tenneco

NEW YORK(Thomson Reuters Regulatory Intelligence) - Prompt acknowledgement of internal wrongdoing and transparency over the lessons learned from conduct failures were just some of the keys to a strong corporate culture cited in a recent wide-ranging discussion on what financial firms can learn from corporations in other sectors. The need for compliance to deepen its partnering role with employees, as well as the drawbacks of excessive rules, were also highlighted in an event sponsored by Thomson Reuters Regulatory Intelligence.

(left-right: Stein Berre, senior vice president for supervision Federal Reserve Bank of New York; Kim Yapchai, CCO at Tenneco; Klaus Moosmayer, CCO at Novartis; Kurt Michels, CCO at Volkswagen)

Chief compliance officers from the world’s largest carmaker, Volkswagen AG, Swiss pharmaceutical giant Novartis, and U.S.-based auto parts manufacturer, Tenneco, took part in the fourth such annual series on conduct and culture, moderated by Stein Berre, senior vice president for supervision at the Federal Reserve Bank of New York.

(To see a video recording of the event and obtain additional material on financial services culture reforms, please click here)

This time, the focus was to examine what the financial sector might learn from companies outside the industry, all of whom have endured their own share of past problems, and who are working to find innovative ways of limiting bad behavior while also giving employees a sense of purpose in their companies.

Among the insights and themes that resonated for the audience, comprised largely of financial compliance and risk professionals, was the necessity for senior management to admit when failure occurs – a trait that even after numerous scandals is rarely seen today among leaders of global financial firms.

“I believe it`s important to start by acknowledging that we have not lived up to the expectations of society and that is simply a fact,” said Klaus Moosmayer, chief compliance officer at Novartis, a company with nearly 130,00 thousand employees, and products sold in 155 countries, according to its 2018 annual report.

“You can debate over whether it’s perceived correctly or not, but you have to acknowledge that there is a trust issue,” he added. “This acknowledgement has to be there first. If you are only in a defensive position, that is not a good start.”

The willingness to acknowledge wrongdoing or misconduct when things go wrong is a problem that has plagued many large financial firms since the crisis. The tendency among executives is still to characterize such behavior as one-off occurrences, often driven by “rogue” employees in remote corners of the institution. The typical public message is that we want to “get the matter behind us” as quickly as possible.


In banking, rules and regulations have become increasingly pervasive, and at times intrusive. But in large part the rules emanating from the crisis reflected problems found at many organizations. With cultural reform, however, a rules-based approach is something that U.S. regulators, such as former New York Fed president, William Dudley, have warned against, believing that each organization has a unique culture and must find its own way towards enhancing ethical behavior.

Kurt Michels, chief compliance officer at Volkswagen, stressed that rules have a role to play, but the overriding objective should be to give employees guidance and certainty.

“It’s important that the rules are not very extensive and complex but are made in a way that the one knows what is being asked of you. And then rules also need to give people guidance and certainty,” said Michels, who joined Volkswagen in 2017 after the firm reached a $4.3 billion deal to settle civil penalties and a criminal probe into allegations it cheated on emissions tests for its diesel vehicles.

“Rules should not be created to put a burden on people, but rather they should establish the framework and give guidance for people in making their lives and decisions easier,” he added.

Still, employee adherence to rules remains important, as well as the consequences for those find ways around them. What steps management takes in the aftermath of an employee problem is equally critical.

“What’s also important in cultural change is the management of consequences. If you are issuing rules and there are no consequences if someone is not abiding by the rules, then that is not effective,” said Michels.

Being consistent in the application of rules and having transparency over why certain individuals might be let go because of bad behavior, is another important aspect of managing cultural change.

“Research shows that organizational justice is the biggest driver of your culture,” said Kim Yapchai, chief compliance officer at Tenneco.


The part that compliance plays in cultural change, however, should ideally go beyond the typical “policing” role often seen in banking. All the panelists supported a move towards a more employee-centric function, where compliance works alongside business heads to help them achieve their objectives and empower staff to carry out their responsibilities.

“We live in highly regulated industries and at times I have the impression that we have become so rules-based because of regulation, and compliance has become this bureaucratic monster; the approver, the controller. This can lead to different aspirations of what the compliance function should be in a company,” said Moosmayer. Novartis was the target of a Greek investigation into whistleblower charges it had bribed Greek government ministers; the company said in February an internal probe had found no evidence of wrongdoing and Greek prosecutors were reported to have cleared four of the officials under investigation.

One way compliance can become a more positive force for change is in working to improve the “speak up” culture for employees, an area where, again, banks still struggle. According to recent findings{here} by the UK Banking Standards Board, which included 72,000 employees across 26 banks, almost 60 percent of those surveyed who reported having spoken up last year said they were either unsure (19 percent) or felt their employer had failed to listen to them (40 percent).

Yapchai of Tenneco views a speak up culture in terms of continuous improvement, noting it not only helps Tenneco be more compliant but helps them to perform better as a company. She identified two aspects to a speak up culture: (1) asking employees to speak up, and (2) ensuring managers understand the value of speaking up and how to handle those situations.

Taking an example from the auto sector, Yapchai cited a process Toyota had incorporated on its assembly lines, called the “Andon cord.”

“As a car comes down the line, an employee can pull a cord to stop the line if they see something wrong. . . Some companies have an ‘Andon cord’ but no one ever pulls it because the manager yells at them for stopping production without even asking why they pulled the cord,” said Yapchai. “That’s not how the system is supposed to work. The manager is supposed to ask, ‘how can I help?’”

In Yapchai’s view, compliance should be a partner for employees, not an obstacle or policing function.

“My biggest piece of advice is to engage your employees. Employees want to do the right thing and be proud of where they work. When you have them as your team, it makes the job much easier,” said Yapchai, urging compliance officers to get out from behind their desks and visit various business sites to observe the difference between high-performing, high-culture sites versus those who are still struggling.

Notably absent from the discussion by the three compliance chiefs was any mention of employee surveillance or monitoring, terms often heard by compliance officers in financial firms.


All three companies have “whistleblower” hot lines, seen an important tool in providing employees the opportunity to identify problems in their organizations. In 2017, Volkswagen implemented a new whistleblower system that included numerous channels through which staff can voice their concerns. Initially, there was worry that employees would only report anonymously, however, in practice the results proved otherwise.

“The good and encouraging news is that only 10 percent of whistleblowers report anonymously without any possibility to communicate. More than 50 percent directly addressed my colleagues at group compliance being responsible for the whistleblower system, and more than 20 percent of the whistleblowers contacted local compliance officers,” said Michels. “To me, that shows people really understand the system and the compliance organization intake channels.”

Moosmayer noted that while whistleblowing systems were very much a standard across many organizations, for global companies one needed to also understand cultural differences and how they might affect a willingness to speak up.

“The point is the cultural issue. If you go to different countries, there are different histories. In Eastern Europe, for example, whistleblowing is not a very much liked tool because employees link it to former dictatorships and secret services. . . So you have to position a whistleblower hotline differently,” he said.

Moosmayer also pointed to the important role that middle management plays in influencing culture, an observation that many have also made regarding large financial companies.

“You need to get middle management involved. Middle management is really important for the culture of the company because they tell employees how the game is played; they set the tone.”

For Yapchai, if employees better understood how internal fraud might affect their own pocketbooks, the reluctance to come forward could be diminished.

“Research shows that 40 percent of fraud is caught through employees speaking up,” said Yapchai. “When (employees) realize it is hitting their own pocket, not just the company’s, they value culture more.”

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(Henry Engler is a North American Regulatory Intelligence Editor for Thomson Reuters Regulatory Intelligence. He is a former financial industry compliance consultant and executive, and earlier served as a financial journalist with Reuters. Email Henry at

This article was produced by Thomson Reuters Regulatory Intelligence - - and initially posted on Apr. 29. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters