In this exclusive interview, Compliance Week speaks with Lee Augsburger, senior vice president and chief ethics & compliance officer in the Law, Compliance and Business Ethics unit of Prudential Financial. Augsburger is responsible for overseeing the company’s global compliance organization of more than 500 staff worldwide and the company’s global business ethics efforts. Chief among the topics under discussion were the challenges inherent of overseeing compliance ad ethics training for such a massive, international organization.

How did you find yourself on a path to compliance and ethics?

It is still a profession that a lot of people fall into. For me, it was by way of being a regulatory lawyer and realizing that, at some point in my career, I had been practicing compliance all along the way—I just didn’t know that is what it was called. In 2000, I finally took a compliance role here at Prudential, and have been in that capacity ever since.

My father and both of my brothers are electrical engineers, so I grew up with “process.” But I did words instead of numbers, so I ended up in law school, rather than being an engineer. I think when you marry those two disciplines—words and process—compliance is basically what comes out of it.

I was fortunate in my earlier career to be working in business settings where process and controls were, in the regulatory world, right in the forefront of what I was doing as a lawyer. I really do think I woke up at some point and realized: “I’ve been a compliance officer all along.”

How is the compliance function structured at Prudential?

Prudential does business in a heavily regulated industry. Compliance was formally chartered as a corporate function in 1994, so we have been at it for a long time, and it has had a couple of iterations. At various times, the function has reported to either the chief auditor and/or the CEO. Today compliance and ethics has an independent identity, but as a matter of day-to-day supervision, I report to the general counsel. And, of course, we work very closely with our legal colleagues.

How do you manage a global compliance operation, given geographical and language differences, different regulatory regimes, and distance from headquarters?  How do you maintain control over such a sprawling organization?

It’s not without its challenges. More than half of Prudential’s employees work in our operations outside of the U.S., with a significant portion in Asia. Dealing with the time zone differences—Asia is about 13 time zones away—and other logistics require a lot of thought and effort.

I have what I consider a luxury, in that the compliance organization here at Prudential is centralized. I therefore have solid-line reporting to all the compliance officers across the company. As a result, we operate with a “no surprises” policy. When issues are percolating, we escalate them appropriately. This has worked out very well for us, but it does require a lot of face-to-face time. I enjoy these conversations, which I’ve dubbed “fireside chats,” and it gives me a chance to hear what my team is encountering daily. This is a relationship business, and having those personal relationships around the company is key to operating effectively. I do have direct reports to whom I can delegate, but it in the end, it requires spending time with our teams around the world.

Sometimes you need to get a feel for things, especially in matters dealing with culture, right?

We’ve done a couple of things that really help us in terms of smoothing out the approach as far as consistency is concerned. We have a program, that lasts a week, and every compliance officer who joins the company goes through it. That really allows us to set a foundation for what we believe the compliance profession needs to be. We do it across Prudential, irrespective of the business that you work in. We also have annual leadership meetings with senior leaders across the departments. It allows us to reinforce a lot of those messages as well.

You are absolutely right. The cultural nuance is huge when you are dealing with the differences between Western cultures and Eastern cultures. You can’t translate issues linguistically, you need to translate them culturally.

One example: We are well acquainted in Western cultures to the idea of a helpline for employees to raise concerns about the organization. But in Asia, where culturally there is more focus on the group, the idea of an individual calling out problems within a team is a challenge. We’ve seen in some instances that using an “improvement suggestion line” culturally works so much better. For this reason, when talking about Prudential’s code of conduct in Asia, we have adapted “we” statements instead of “I” statements—so the emphasis is on the group and not the individual.

The bigger issue that compliance and ethics functions are facing today is about behavioral compliance. This is really where this battle is being fought on a day-in, day-out basis in compliance, because not all bad behavior can be easily detected by a compliance program.

Being sensitive to cultural nuances can have an enormously important effect on getting your message across. Or conversely, if you are not paying attention to the nuances, holding the message up.

Aside from employees around the world, you also need to manage the many regulatory regimes, all in flux and evolving. Is it difficult to balance the global view with the regional view?

You do, from time to time, run into challenges there. Usually, legal counsel can help us navigate these areas, but it’s not always easy, and it does require us to have a significant amount of engagement with our local regulators. Once again, there are cultural nuances to consider.

It is essential to have a process in every country to monitor the applicable regulations and respond to them. I don’t pretend to be a regulatory expert for the globe. We need to rely on solid and talented people, country-by-country. Trying to do this centrally is difficult. We’ve found that distributed responsibility works well, but it puts a premium on recruiting and retaining diverse talent, something that Prudential places a great deal of emphasis on.

Cultural differences must affect training programs. You certainly want core values expressed through the training programs, but do they need to be adapted by jurisdiction?

There is no question about it. It would be wonderful to do a single one-stop training program for the entire organization, but what we found is that they need to be modified country-by-country. The cultural differences between the United States and Asia are substantial. At Prudential, we rely on leadership that mirrors the culture within the country, and we have found that to be very successful.

And then, you have language challenges. We can’t do everything in English. So, we will create a training program, then have it translated and sent to the local jurisdictions, and they will rework it. Then, it comes back to us, and we re-translate it to see how it has moved from where we started. It’s not the easy thing to do, but it’s the right thing to do.

For a company like Prudential, trust must be a core piece of the relationship with customers. How do you extend that concept throughout all the business units? How do you seep a culture of ethics and compliance across many business lines?

This is the space I truly love and have real passion for. In some ways, I got into this role because I was a regulatory lawyer, but I am enjoying it because I’m really acting like an organizational psychologist now. I am so much more focused on behavior than I am on regulation.

Historically “compliance 1.0” was about transactional compliance. For instance, whether a contract contains the precise language that it is required to have. Those are all very easily measured and monitored, and you can do it transaction-by-transaction.

The bigger issue that compliance and ethics functions are facing today is about behavioral compliance. This is really where this battle is being fought on a day-in, day-out basis in compliance, because not all bad behavior can be easily detected by a compliance program.

You are right to be asking that question to an insurance company. Our business model is based on our ability to deliver on long-term promises to our customers. Keeping a promise requires both the capability and character to do so. For Prudential, the capability is our financial strength and the character is our commitment to doing business the right way.

That’s something our ethics organizations spends a great deal of time on with respect to our leadership and our middle management. We ask them, ‘Are you managing with a strong moral compass?’ Because if we don’t drive it home and embed it into our own organization, our customers will never see it.

Because the tone really is set at the top, Prudential has business ethics officers who work with all our major business units to build communications programs around ethics and integrity. We monitor the perspectives of our employees through surveys, and look at data from our helpline and other sources, to see group-by-group how we are doing. Organizational psychologists tell us that culture is built 250 people at a time. So, within smaller groups, we are looking for the ethical culture that exists. Where we see potential red flags, we will spend extra time working with the leaders in those groups to make sure the right messages are sticking with the employees.

Since we are in the business of keeping promises, continuing to earn and build trust is essential to our reputation in the marketplace. Everyday our employees are committed to performing their day-to-day activities with integrity and in a way, that shows we are worthy of trust.

How are you utilizing technology?

The data we are looking at for transactional compliance is largely digital, so we are not in the position of having to do the manual work that we would have done in the past. We are also looking at robotic processing to take on some of that data and transactional monitoring.

The exciting thing is to think about what data analytics will allow compliance functions to do in the context of behavioral compliance. For example, asset managers might have millions of trades. Using data analytics and looking at those trades, outliers may appear. Those can then potentially be cross-referenced against behavioral information, such as the telephone calls portfolio managers make, to see if there is any correlation of consequence.

The idea of using data analytics to identify outlier behavior, as a way of moving the compliance profession to the next level, is a really exciting idea.

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