Compliance Programs and the Butterfly Effect

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By Alexandre C. Serpa
CCEP, CFE, Director of Business Compliance Officer for CVS Health Brazilian Operations

According to Wikipedia: In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. In simpler words: a small change in the initial state of a complex system can result in catastrophic changes in the end state, like in the usual example of a butterfly beating its wings in Asia may cause a tornado in the US.

 But what does the Butterfly Effect have to do with Compliance Programs? In my experience, one of the situations that usually frustrate our clients (i.e. all the employees of our companies) is that we, compliance professionals, do not usually provide them with simple “yes” or “no” answers.

First of all, let’s assume that our client’s frustration is our fault (this is an exercise I like to employ every time I am assessing a situation that did not come out as expected) and ask ourselves, “What is the reason for their frustration and what can I do to eliminate it?”.

One of the common reasons for us not providing simple yes/no answers is that the questions do not provide us with the complete set of information we need to assess the situation, project, idea or problem at hand. It is not rare to have to provide an answer to overall ideas or projects that are in their initial stages – during which not everything is known to the person posing us the questions. Nonetheless, our clients want us to provide them with blanket answers to questions like “Can I do it?”.

So, what can we do about it? Surely we cannot eliminate reality from the equation, as it is part of business reality that ideas and projects need to be discussed and assessed during their early stages, but we can be clear about the reasons we are not providing a final answer but only a based-on-the-information-provided-so-far answer.

And it becomes easier to explain those reason if we use the Butterfly Effect concept. It should be clear to everyone that compliance questions and discussions are in the realm of complex systems, for no action has only a direct and easy to predict effect. To use a simple and common example let’s evaluate the case of an employee willing to provide a gift to a public official. This employee comes to you and asks “Can I give this gift to a public official?” expecting to get a yes/no answer. But you have to ask this employee a myriad of other questions, such as:

– What is the gift?

– Who is the public official and in which capacity is she a public official?

– What is the reason for you to be willing to give it to the public official?

– Is this public official allowed to receive this gift according to her code of conduct (or similar)?

– Is our company expecting any business, or decision, from the office in which she works? or

– Has our company benefited in the early past from an action or decision by this official or her office?

– May this gift be seen as an undue influence, or an unusual offer, given the culture of the country we are in?

– What is the current scenario of private-public relationship in our country/ region?

– Has any of our competitors, customers or vendors been the subject of any negative media or an official inquiry regarding gifts to public officials?

– Would that be just the first of many other gifts to the public official or is it a truly standalone offer?

One can expect that an employee that is not well versed in the arts of compliance programs may become annoyed with having to answer so many questions because of a “silly simple gift”, and we all know that many employees do not spend their days reading about compliance programs and enforcement actions as we do.

So, back to our problem at hand: what do we do then? The answer has to start with the word ‘education’, and we shall educate our fellow employees in every single opportunity we have. By education I don’t mean the periodic training on the gifts policy, I mean providing them with the framework necessary for them to understand the risks by themselves (I am not talking about a course on risk management either). What we could do is use every single opportunity we have and discuss the question with the employee. Instead of simply asking the employee all the questions above in a checklist manner, start by explaining that you cannot provide her with a simple answer because the topic is complex and minute details may make a whole lot of difference (the butterfly effect). Use some of those questions above to illustrate to the person the types of different scenarios that could lead to an “yes” or a “no”  answer and engage in a dialogue with the employee, ‘coach’ the employee to get to the answer herself, invest some time helping that person to understand how compliance-related decision-making works and you will have made your job a lot easier and created a safer environment for your company. And it can all start with an interesting topic such as the butterfly effect.

Make it educational, make it interesting, make it effective.

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4 COMMENTS

  1. Many thanks for posting…very thoughtful ideas indeed!

    Just a comment on the Butterfly Effect which is often hugely oversimplified given that its roots are in mathematics in the event folks read this blog.

    It is true that a single variance in a non linear system can have dramatic effects further down the in the chain of events.

    HOWEVER…

    It can also have no effect or effects so infinitesimal that they are all but undetected on anything but the nano-scale perspective.

    Just trying to keep this in context because the number of outcomes can range in the order of billions, even in very small somewhat closed systems.

    Just adding a few tidbits since most people’s exposure to the Butterfly Effect is from the movies which tend to be a bit dramatic.

    But hey…I like the movies!

    • true indeed Frank,
      key is that whether or not a change will occur you cant know beforehand, so better safe than sorry

  2. I appreciated this article. Alexandre presented the complexity of decison making in a familiar scenario to most employees that they may be able to relate to. I love images like this and making explanations more fun!

  3. Very good article, Alexandre. Sometimes the answer becomes irrelevant as soon as we understand the motivations of the question (the motivation preceeds the question that preceeds the answer that preceeds the action). It’s much richer (and more difficult) working at the root of the risk than at the verge of the risk.

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