Chapter 5 - Leadership PDF

SECTION 3 CCO SKILL REQUIREMENTS 5 Leadership 6 Making Ethical Decisions 7 Development of Policies and Procedures 8 Monitoring © CANADIAN SECURITIES INSTITUTE ...

SECTION 3 CCO SKILL REQUIREMENTS 5 Leadership 6 Making Ethical Decisions 7 Development of Policies and Procedures 8 Monitoring © CANADIAN SECURITIES INSTITUTE  Leadership 5 CONTENT AREAS Overview of Leadership Leadership Theory Soft Skills of Leadership Demonstrating Leadership LEARNING OBJECTIVES 1 | Discuss the skills required of people in leadership positions, such as chief compliance officers. 2 | Understand the three leadership approaches, and apply the five core behaviours of leadership. 3 | Explain the fundamentals of effective communication. 4 | Explain how to handle difficult conversations effectively. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 3 INTRODUCTION In the previous chapter, we discussed the general requirement for a dealer member to conduct supervision, as well as the need to focus on risk management of specific activities. We learned that a formal approach to risk management helps to establish guidance for the dealer member and its staff in terms of balancing compliance with business considerations. In addition to having effective risk controls in place and an overall environment of efficient risk management, the dealer member must hire good role models to fill its top positions. In particular, the person in the position of chief compliance officer must have the qualities of a leader who is able to influence others and motivate them to do their best. In this chapter, we discuss the traits and skills typically demonstrated by people in leadership positions. We also explain how to apply leadership skills in everyday communication. The material in this chapter is intended to provoke interest and to provide a framework on which to begin building your leadership skills. You are encouraged to explore additional courses on the subject. OVERVIEW OF LEADERSHIP 1 | Discuss the skills required of people in leadership positions, such as chief compliance officers. No one job description or candidate’s profile can be uniformly applied to the CCO’s role. Common elements exist, but the nature of the role and the skills required are dependent on the dealer member’s business, structure, and size. In larger organizations with larger compliance departments, CCOs must spend more time managing, which can separate them from routine frontline issues. In a smaller dealer member with fewer employees, the CCO still needs management skills, but also engages to a larger extent in the day-to-day activities of the compliance department. EXAMPLE In larger dealer members, the CCO delegates the responsibility for carrying out tasks such as trade supervision and marketing approvals to other staff members. In such cases, a system of escalation must be in place within the compliance department, so that frontline employees have the support of the CCO when challenging situations arise. The CCO role has both specialist and generalist aspects. As a compliance specialist, the CCO must have in-depth knowledge of the rules and regulations of the securities industry and the skills required to apply them appropriately and diplomatically. The person in this role must also have general skills and broad knowledge, along with the ability to make good decisions. The failures of compliance and risk management evident in the 2008 financial crisis demonstrate the far-reaching and devastating consequences of getting it wrong. The CCO should be at the forefront of developments in an industry that is innovative and complex. It may not be necessary that they be experts on, for example, quantitative easing by the U.S. Federal Reserve. However, they should grasp the compliance and supervision implications of such things as rising or declining interest rates. Accordingly, CCOs and all Approved Persons should maintain and build on their skills and knowledge through courses and seminars and by reading regulatory publications, the financial press, and related literature. DID YOU KNOW? The British Columbia Securities Commission, in describing the role of the CCO on its website, specifically refers to the distinct expertise that the CCO is expected to demonstrate, as follows: “The CCO requires a myriad of specialized skills. Ensuring compliance requires more than simply keeping up to date with the ever-changing securities regulation. A CCO must be part legislative expert, part innovator, part counsellor, and part operations officer.” © CANADIAN SECURITIES INSTITUTE 5 4 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 BACKGROUND EXPERIENCE A CCO should have experience and skills that reflect the broad nature of the role. The ability to write clearly and communicate effectively is an essential requirement for all compliance officers. A significant aspect of the role is the ability to explain to other registrants the rules that are in place and, in some situations, why they are in place. The CCO also acts as teacher and mentor, sharing their compliance knowledge allowing it to filter through to other registrants. Because good communication skills effectively support the dealer member’s compliance initiatives, examples of written work should be requested from applicants during the CCO hiring process. Furthermore, whatever the expertise of other compliance staff, the CCO should have a thorough understanding of all aspects of the firm’s business. ROLE DESCRIPTION The dealer member should provide an accurate and up-to-date description of the CCO’s job. The firm’s formal compliance structure defines and documents the responsibilities of the CCO, and the job description uses these requirements to define expectations. Applicants for the position should review the job description to determine whether the role entails any supervisory functions in addition to compliance. It is also important that they have the requisite authority to meet all responsibilities outlined in the job description. Although not necessary, it may be useful to include the description of the CCO’s role in the compliance governance document and have it approved by the Ultimate Designated Person and the board. Compliance staff should ideally have a variety of professional backgrounds. A compliance officer with a law or commerce degree brings certain skills and knowledge to the job, whereas another with experience in operations, securities settlement, or credit brings different but equally useful skills and knowledge. Regardless of their background, all compliance staff must have the following skills: Regulatory, industry, and operational knowledge The ability to identify compliance issues The ability to assess compliance risk to prioritize problems The ability to communicate well, both orally and in writing Negotiation skills Investigation skills Interviewing skills It may be appropriate to prepare questions relating to all of these areas to assist in the hiring process. Similarly, references should be asked to comment on specific skills sets. One approach is to use case studies taken from real-life events to assess candidates’ abilities. The candidate should be asked to identify problems, business issues, and applicable rules and regulations, and then the information that must be gathered and the actions that must be taken. TRAINING Because formal training courses for compliance staff are not widely available, training is generally conducted on the job, and skill levels may vary. Even an experienced compliance officer will likely not have the same level of skill as someone with formal or academic training. Different dealer members have different businesses, procedures, and policies. Therefore, compliance officers coming from other firms may not display the base level of knowledge that one expects from, for example, a certified accountant who has taken standardized courses and exams. Compliance © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 5 staff must achieve a level of competence determined by the CCO through in-house and external training, monitoring of achievement, and measuring of performance. REGULATORY, INDUSTRY, AND OPERATIONAL KNOWLEDGE Dealer members that carry on business in multiple jurisdictions must meet the requirements of each jurisdiction. The CCO may also have responsibilities relating to the regulation of non-securities business activities, such as insurance, banking, and trusts. Furthermore, the securities industry is subject to legislative initiatives in relation to anti-money laundering and anti-terrorist financing, privacy, and criminal laws. The CCO must be able to interpret those requirements and apply them to the activities of the firm. All CCOs should be aware of industry standards and best practices. They should be in regular contact with regulatory authorities, fellow compliance professionals, and other subject matter experts to determine how regulations should be interpreted and implemented. Dealer members often require direction from their CCOs regarding compliance issues and may request a definitive solution quickly when a clear answer is not readily apparent. In such circumstances, the CCO should ask the following questions: Has the firm provided enough information, or are further inquiries needed? Is it practical or appropriate to seek expert advice or regulatory direction? Is it necessary to advise the appropriate level of seniority of the issues and risks of proceeding? What modified or alternative courses of action can be taken to achieve the desired outcome? LEADERSHIP A successful CCO obviously requires a great deal of technical knowledge and a good understanding of the dealer member under supervision. However, the person who fills this role must have skills and abilities that go beyond mere proficiency in compliance. Leadership ability, in particular, is crucial to a CCO’s success. Persons in the role of CCO who consistently demonstrate leadership are able to build and maintain trust with all stakeholders at their dealer member. Employees throughout the firm assist in achieving effective compliance, including the following staff: people in the compliance department; senior management, line staff, and investment advisors at the firm; and numerous regulators. Each of these people has a vested interest in the success of the compliance function at a dealer member. Good leadership and thoughtful decision-making ability of the CCO play a critical role in strengthening the compliance function at the dealer member and, by extension, strengthening the capital markets generally. Leadership skills and practices are also crucial to the CCO’s ability to navigate through the numerous challenges they can encounter. LEADERSHIP THEORY 2 | Understand the three leadership approaches, and apply the five core behaviours of leadership. Leadership theory revolves around the different approaches to leadership and the core behaviours that leaders are expected to demonstrate. © CANADIAN SECURITIES INSTITUTE 5 6 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 LEADERSHIP APPROACHES Most leadership theory investigates leadership from three general approaches: Trait approach Style approach Situation approach TRAIT APPROACH Early studies assumed that leadership could be best understood by studying the personality traits of famous leaders to see what set them apart from non-leaders. The basic premise of this school of thought is that leaders are born, not made. While some might argue that what worked for Napoleon or Churchill is not necessarily applicable in today’s world, research shows that leaders do tend to have certain psychological, physical, and sociological traits in common. Physical traits such as height and good looks (not to mention race and gender) likely dominate more through bias and privilege than ability. The same might be said of sociological traits, such as education and shared networks. Of the psychological traits, successful leaders tend to have the following characteristics: Intelligence Empathy Charisma Confidence Intuition Creativity Resilience Optimism Many organizations use the trait approach to help predict leadership success when hiring new employees and planning for succession. However, the trait approach is limited in that it focuses on the leader alone, whereas employee and situational needs are not considered. Simple possession of leadership traits is not a guarantee that a manager will exercise those traits successfully in a given situation. The basic premise of the theory that leaders are born, not made, is also limiting. It restricts the field to very few people and sets up an inherent bias against many candidates who are otherwise well qualified for leadership positions. In fact, trait theory may be an underlying reason why executive teams and boards of directors have a long-held reputation for lack of diversity. That reputation is beginning to lose its grip as other approaches to the study of leadership gain strength. STYLE APPROACH In response to criticism of the trait approach to leadership development, some scholars shifted their focus from the characteristics of leaders to their behaviours. The style approach looks at the effectiveness of certain behaviours to define broader styles of successful leadership. This study led to two categories of leadership behaviour: Task behaviour, which focuses on and facilitates goal accomplishment Relationship behaviour, which focuses on providing a supportive and productive work environment for employees Successful leaders combine these two categories to inspire and influence employees to achieve goals. In banking, for example, task behaviour is evident in sales coaching, during which managers help their employees achieve their © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 7 sales targets. They start by breaking the larger goal into weekly or daily activities that must be accomplished to reach overall goals. As an example of relationship behaviour, the manager expresses confidence in the employee’s ability to achieve the required activities and goals. The manager and employee discuss any concerns the employee has, and the manager then helps the employee address those concerns. The objective of the style approach is to demonstrate how both elements work together to influence and encourage employees and help them achieve their goals. It is a process-driven approach in which it is assumed that the required skills can be learned and developed over time. SITUATIONAL APPROACH The situational approach to leadership development was developed by Paul Hersey and Ken Blanchard, who believed that there is no ideal leadership style or set of traits. Instead, effective leaders tailor their approach based on circumstances or situations. This approach considers a number of variables, including the maturity of the employee, their length of time in the role, and the specific project. Like the style approach, the foundation for this model balances the focus between the task and the relationships. The major difference is that the situational approach allots a proportion of each element according to the situation. The situational approach uses one of four levels of leadership styles: Telling One-way communication, where the leader tells the employee what the task is, how to do it, and by when it must be done Selling Two-way communication, where the leader directs the employee but allows for dialogue and seeks agreement from the employee Participating A less task-focused and more relationship-focused approach, where shared decision- making and ownership are encouraged Delegating An approach in which the process and decision-making belongs to the employee, with the leader being available for support and consultation The style the leader chooses depends on the nature of the task and the employee’s maturity. The employee’s maturity level is based on competence to complete the task and willingness to commit to the task. Given these parameters, the leader considers four levels of employee maturity. Low competence, low The employee lacks the skills necessary to perform the required task and does not want commitment to accept responsibility. Low competence, high The employee has acquired some competency and is willing to take on the task, but still commitment needs direction. High competence, low The employee is technically able to do the task but lacks confidence or is unwilling to commitment accept responsibility. High competence, high The employee is able to perform the task, has the confidence to perform it, and is willing commitment to assume responsibility for outcomes. The combination of competence and commitment determines the employee’s level of maturity. The leader determines the most appropriate style to effectively coach the employee in each specific situation. © CANADIAN SECURITIES INSTITUTE 5 8 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 LEADERSHIP BEHAVIOURS Most experts agree that effective leaders generally have five behaviours in common: They create a shared vision. They embrace continuous improvement. They enable others to do their best. They lead by example. They motivate others. Departmental leaders and senior managers who demonstrate these behaviours are able to create a work environment where employees thrive and perform to their best abilities. CREATING A SHARED VISION Good leaders actively engage with others in their organization to create and share a vision of where the dealer member is headed. Maintaining a shared vision and bringing it to fruition takes persistence. The leader must see that it is adopted by everyone in the organization, and that everyone works with the common goal of achieving it. Good leaders inspire others to believe in their vision, and they foster an environment in which people work together to make it a reality. One way to make sure everyone is working toward the same goal is to create a vision statement, which is a description of the shared vision of an organization or department. A good vision statement is a brief and compelling declaration of what an organization strives to be. It describes clear objectives that are challenging but not out of reach. Virtually every organization has a vision statement, and much thought may go into their creation. However, without effective leadership, vision statements are too often set aside and forgotten. Chief compliance officers are in a position to provide that leadership. They have the opportunity to tailor a vision statement for their compliance department. With persistence, guidance, and example, the CCO maintains focus on the vision and nurtures it to life. Ideally, the departmental vision statement complements that of the dealer member, but it need not be dictated by the firm. EXAMPLE Consider the following elements of a vision statement, where the intent is clear, and the goal is achievable through focused effort: We will be one of the three most highly regarded compliance departments in the annual brokerage firm survey conducted by Investment Executive. We will be regarded as the most desirable compliance department employer. We will achieve a top ranking by the firm’s internal and external auditors and by CIRO. We will be one of the top ranked back-office departments in employee surveys. Our compliance tools, policies and procedures, and professional staff will be regarded as industry-leading by our competitors. EMBRACING CONTINUOUS IMPROVEMENT Continuous improvement is a process of identifying inefficiencies and making incremental improvements, which can bring significant benefits over time. Leaders encourage people to look beyond a narrow interpretation of their jobs and seek ways to challenge and improve themselves. Under good leadership, all employees adhere to the following principles: Keep the client’s best interest in mind at all times. Continually question traditional methods and find ways to improve them. Seek out challenging opportunities to change, grow, and innovate. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 9 The vision of a dealer member or department is more likely to be realized when it is considered in the context of continuous improvement. Setting both short- and long-term goals helps to demonstrate that positive change is possible. When short-term goals can be reasonably achieved, more difficult long-term goals also seem achievable. Target dates with key benchmarks should be documented, and real achievements should be recognized and celebrated. EXAMPLE Existing processes should be validated first and improved only if the process itself is warranted. For example, before improving the tracking and storage of paper documents, a dealer member might want to consider whether paper documentation should be eliminated altogether. ENABLING OTHERS The key to achieving business goals is to establish an environment where others are able to do what it takes to be successful. Leaders can enable their staff by building trust within the work environment, providing individual opportunities for growth, delegating authority appropriately, and encouraging initiative. Encouraging new ideas, rewarding successes, demonstrating good humour, and projecting a positive mood all contribute to a collegial and productive environment where employees want to contribute and want the organization to succeed. Part of this process is to provide clear direction in terms of what is expected of employees. Direction is typically provided in an employee’s job description and reinforced in periodic performance evaluations. LEADING BY EXAMPLE To lead by example is to demonstrate the behaviour one expects of others. A true leader sets high standards and then consistently behaves in ways that meet those standards. Their actions are an unspoken statement about what is considered appropriate and acceptable behaviour. Consciously or not, a leader’s actions set the tone for the workplace. When actions conflict with spoken or written expectations, it is the actions that have the greater influence. EXAMPLE In an office where employees are expected to work 40 hours per week plus overtime, when necessary, senior management should demonstrate the same work ethic. If a team leader routinely comes in late and cuts the day short on Fridays, members of the team will either resent it or come to see it as acceptable behaviour and imitate it. MOTIVATING OTHERS Motivating others over a short time or for specific task is not difficult. Truly effective leaders are skilled at maintaining motivation over the long term. They do this by having high expectations of others and linking performance to rewards and feedback. Leaders should also be aware that the mood they project has an effect on those around them. Optimism and good humour in the leader inspire the same attitude throughout the organization, whereas anger or negativity is harmful to the collective mood. The two types of motivation are intrinsic motivation and extrinsic motivation. A person who performs a task because it is personally rewarding is intrinsically motivated. Those who perform a task to receive a reward or to avoid punishment are extrinsically motivated. © CANADIAN SECURITIES INSTITUTE 5 10 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 DID YOU KNOW? Rewarding desirable behaviour is a legitimate motivational strategy that has been shown to be more effective than criticism. For example, employees who often arrive late for work generally respond better to positive reinforcement on those days when they are on time than to threats of disciplinary action on days when they are late. Studies have shown that extrinsic motivation is effective in encouraging people to learn new skills and to complete tasks that they might not otherwise find engaging. Rewarding people for tasks that they already find internally rewarding can actually reduce intrinsic motivation. EXAMPLE When Ahmad had to make a presentation at work, he would spend many after-work hours perfecting his slide show. He enjoyed doing it and took great pride in the results. His manager, Jasmine, soon noticed and began to call on him any time she or a team member needed to make a presentation. She always expressed admiration and gave him credit for his contribution during presentations. Before long, Ahmad found that creating presentations had become a chore he had to complete to win Jasmine’s approval. Jasmine’s intentions were good; she thought that rewarding Ahmad with public recognition for his work would increase his motivation. In fact, by offering external motivation, she reduced his intrinsic motivation to the point where he no longer enjoyed the task. SOFT SKILLS OF LEADERSHIP 3 | Explain the fundamentals of effective communication. Effective leaders generally share traits, abilities, attributes, and social graces characterized by good interactions with other people. These characteristics define interpersonal skills, commonly called soft skills. Hard skills are defined sets of skills that are the occupational requirements of a job. Soft skills are harder to define and measure, but they are essential to the effective functioning of work teams and are particularly important for those in positions of leadership. Employers increasingly evaluate candidates’ soft skills when making difficult hiring decisions, especially when the applicants share similar hard skills. EXAMPLE You are interviewing two candidates for a senior trading floor compliance officer position. Both candidates have similar experience and resumes. The first candidate does not look you in the eyes as he answers your questions. His voice is monotonic, and he sits with his arms crossed. He has no experience giving presentations or leading meetings. The second candidate greets you with a firm handshake and a smile. He looks appropriately into your eyes, without staring or making you feel uncomfortable. He answers your questions with inflection in his voice and includes relevant anecdotes reflecting his experience. He has participated on industry committees and been active in giving compliance seminars and presentations. Which candidate are you likely to hire? Clearly, you will favour the second candidate because he demonstrates considerably more soft skills than the first. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 11 As with hard skills, soft skills can be learned and practised. Unlike hard skills, however, soft skills are seldom mastered, and learning them is a lifelong practice. They are nuanced, and developing them requires an appreciation for subtlety. Soft skills can be roughly organized into three categories (although the categories often overlap): Communication skills Emotional intelligence People skills COMMUNICATION SKILLS People who manage, coach, or lead in their workplace roles must be good communicators. There are no precise rules of communication, but sound principles and key skills exist that can and should be practised regularly. Effective communication essentially involves three skills: speaking, writing, and listening. SPEAKING SKILLS Spoken messages have both a verbal and a non-verbal component. The verbal component is the wording of the message itself. The non-verbal component includes eye contact, facial expressions, gestures and other body language, and tone and projection of voice. The degree of consistency between the two components helps to determine the believability of the message. When both elements work together, the messenger appears trustworthy and the message believable. However, when they contradict each other, the receiver is less likely to believe the message or trust the messenger. Of the two elements, non-verbal communication carries the greater weight. When verbal and non-verbal messages contradict each other, posture, facial expressions, gestures, and tone of voice are likely to be perceived as more truthful than the actual wording of the message. Because trustworthiness is a critical factor in the success of managers and leaders, they should take care that their facial expressions, body language, and tone and resonance of their voice are consistent with the words they use. EXAMPLE It is difficult to fake non-verbal messages, so it is useful to remain mindful of them. In our communications with others, it helps to be aware of the unconscious signals we send. Adjusting our body language can actually help us adjust our attitude. Most people are aware, for example, that smiling can lift us out of a bad mood. Use the following suggestions to help convey a positive message: Friendly respect Smile, make direct eye contact, and offer a handshake, if appropriate; otherwise, do not touch the other person, and maintain an appropriate but friendly distance. Openness Face the client squarely, not at an angle. Keep your arms and legs uncrossed and minimize physical barriers between you and the other person. Engagement Maintain a relaxed, yet alert posture. Do not make distracting gestures. Lean slightly toward the other person and nod to show that you understand what the person says. © CANADIAN SECURITIES INSTITUTE 5 12 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 WRITING SKILLS Business writing is basically any business information communicated in writing. Naturally, all the principles of good writing apply to business writing. But because the audience for business writing is often diverse and readers are often pressed for time, it is especially important that business writing be reader-focused and written as straightforwardly as possible in plain language. Information communicated in plain language has the following benefits for readers of diverse backgrounds: It is more likely to be understood. It is less intimidating (and thus more likely to be read). It saves the reader time. Another reason to encourage the use of plain language by all members of a company or organization is that errors are more likely to be caught in draft versions of a document before it is distributed in final form. Communicating in plain language requires attention to three areas in particular: Style, which relates to word choice and sentence structure Organization, which relates to the way information is presented in each paragraph and how paragraphs are organized within sections of a document Layout, which relates to the appearance of the document In general, information should be stated plainly and organized logically. Key points should be clearly discernible. Documents should be presented in a format that is easy to read and understand. Reference to an underlying authority is recommended in situations where the CCO must defend his or her position. For example, when a regulatory matter is under discussion, the applicable rule or legislation cited in a footnote or appendix lends credibility to the CCO’s position. It also helps to eliminate the notion that the CCO is recommending a best practice rather than advocating for compliance with a rule. LISTENING SKILLS Active listening is a complex skill that demands effort. To listen effectively, we must hear what the speaker is saying and focus on the relevant information. We must then give the information meaning, determine how we feel about it, and respond—all in just a few seconds. Active listening has two key components: seeking to understand what the other person is saying and letting the person that know we are listening. Seeking to understand: We focus on what the speaker is saying and do not allow distractions. We pay close attention to what the person is saying. We pay even closer attention to the person’s tone of voice and body language. We interrupt the speaker only to ask for clarification. If we miss something, we ask the other person to repeat it or to elaborate; we do not fill in gaps on our own. Letting the other person know we are listening: We make eye contact to demonstrate that we are paying attention. We use receptive body language, arms and legs uncrossed and leaning forward slightly. We summarize the conversation in our own words to confirm that we heard the message. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 13 EMOTIONAL INTELLIGENCE People with good interpersonal and communication skills are generally said to have high emotional intelligence, or a high emotional quotient (EQ). Simply put, emotional intelligence is the capacity to recognize and understand emotions in ourselves and others. It also describes the ability to manage our own emotions and our reactions to those of others. Attempts to develop a theoretical framework and measurement system for EQ have not been as successful as those used to measure IQ. Similarly, tests that attempt to establish a correlation between EQ and job performance have not led to generally accepted conclusions. Nevertheless, with these limitations in mind, the EQ traits described in Table 5.1 are generally considered to be important in the workplace. Table 5.1 | Emotional Intelligence Traits Definition Example Self-awareness The ability to understand how your Self-aware people know that a pessimistic emotions affect your actions and the attitude tends to be contagious. emotions and actions of those around you. Emotional control The ability to manage your emotions When employees are in constant fear of appropriately, particularly negative their supervisor’s bad moods, it speaks emotions. poorly of the supervisor’s emotional control. Self-confidence The ability to capitalize on your strengths The ability to evaluate one’s own and address your weaknesses. performance without the need for validation is based in self-confidence. Stress management Awareness of good stress and bad stress, Adopting strategies to deal with stress, and their effect on your performance and such as hobbies, exercise, and regular leadership. vacations, indicates a degree of maturity in managing stress. Patience The ability to recognize your own and An impatient leader stifles contributions others’ failures, learn from them, and from other employees, who may react positively move forward. adversely. Patience is critical to fostering an open and safe environment, as well as a logical discussion of issues. Resilience The ability to bounce back from adversity. Leaders are always aware of the chance of failure and plan for all contingencies, regardless of how likely an outcome may be. PEOPLE SKILLS In every office environment, people skills are required to negotiate the complicated interactions between management and staff, as well as among similarly ranked employees. People skills embody the characteristics described in Table 5.2. © CANADIAN SECURITIES INSTITUTE 5 14 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 Table 5.2 | People Skills Teamwork Teamwork is generally defined as those behaviours demonstrated by two or more persons to conduct a common task, where each does a part, but all are subordinate to the team as a whole. The benefits of teamwork include the use of multiple brains to solve problems and to arrive at better and faster decisions. The most effective teams have members who are proficient in a number of soft skills, many of which relate to communication. For example, team members must be adept at problem solving and be willing to accept constructive feedback. Over time, teams learn to work together more effectively. Office politics All workplaces have established hierarchies, but power within a workplace is also exercised outside of formal structures. It often involves individual attempts to increase stature, occasionally by controlling information or by denigrating other employees. Navigating office politics requires tack, diplomacy, and emotional maturity. Office politics are difficult, if not impossible, to avoid, but some people are able to navigate them more successfully than others. Those people are typically willing to recognize the successes of others, admit to their mistakes, and avoid unnecessary conflicts. Networking skills People who thrive in their careers are typically able to foster a diverse and dynamic network of potential mentors, employers, employees, and advisors. Joining industry groups and committees, volunteering, and engaging in activities outside of their industry helps them to broaden their network. DEMONSTRATING LEADERSHIP 4 | Explain how to handle difficult conversations effectively. Everyday opportunities to demonstrate leadership in the workplace include conversations, presentations, meetings, negotiations, and interviews. All these business activities require particular focus on effective interpersonal and communication skills. Strategic thinking, problem solving, and decision-making come into play in various contexts, depending on the focus of the activity. A critical function of any leader, or any employee who has specific job obligations, is the requirement to make decisions. Sound decision-making is paramount in a compliance department because the CCO at some point delegates authority over certain functions to others. With such delegation comes reliance on the others’ judgment and decision-making abilities. A positive and supportive work environment helps to create an atmosphere of learning, which is particularly important among junior employees. Employees should also understand that a potentially negative outcome of a decision is an opportunity for learning, rather than punishment. CONVERSATIONS Most conversations have four phases: open, identify, explore, and conclude (see Table 5.3). Each stage proceeds more effectively when the speakers focus on each other, listen actively, observe non-verbal cues, and ask the right types of questions. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 15 Table 5.3 | Stages of a Conversation 1. Open A conversation usually starts with an open question, which is a type of question that cannot be answered with a yes or no; for example, “What is the most important issue your department is currently facing?” The focus should be on the other person as you set the stage for an effective exchange. 2. Identify During this phase, identify the purpose of the conversation and discover what must be accomplished. If there are multiple issues to be discussed, focus on only one at a time. Structure the conversation so that it cycles through the four-step process for each issue. Again, focus on the other person and ask mostly open questions. 3. Explore When the issue or issues have been identified, ask questions to discover the important aspects of each issue. Find out what the other person needs to be happy with the outcome of the conversation. Continue to focus on the other person. During the exploring stage, you can use both open and closed questions with good results. A closed question in this context might be, “Is my summary of the problem accurate?” 4. Conclude During the final stage, summarize the conversation and move toward resolution. Having discovered what it will take to satisfy the other person, it is time to offer solutions that satisfy everyone as much as possible. HANDLING DIFFICULT CONVERSATIONS Difficult conversations in the workplace are not uncommon, whether they are with a boss, a colleague, an employee, a client, or a regulator. Such discussions can be challenging because of the personalities of the people involved, the nature of the problem being addressed, or the emotional effect on one or more of the participants. Addressing a workplace problem through effective conversation is the most productive approach, but also the most demanding. The communication strategy used should vary depending on the personality and communication traits of the people meeting and the subject being discussed. The four-step process described in Table 5.4 provides guidance to handling difficult conversations. Table 5.4 | Handling Difficult Conversations 1. Acknowledge Listen empathetically to the other person’s concerns and pay attention to the person’s emotion. Recognizing and acknowledging a person’s emotion does not mean that you agree with the person. 2. Question Encourage the person to provide more detail by asking open-ended, clarifying questions. Listen actively to be sure that you understand. Ask the other person how they think the issue can be resolved. 3. Confirm Confirm your understanding of the situation and summarize the conversation without judging the person or evaluating the concern. 4. Commit Gain the person’s commitment to a specific solution and be prepared to offer suggestions to help reduce the person’s concerns or anxieties. Explain benefits that link the potential solution with the identified concern or issue and agree on next steps. © CANADIAN SECURITIES INSTITUTE 5 16 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 GENERAL TIPS FOR HANDLING DIFFICULT CONVERSATIONS Make use of the following tips to help resolve difficult conversation. Allow the other person to finish speaking. Stay focused on the issue. Do not let emotions cloud the issues. Do not respond to conflicts with commands, accusations, or judgments. Do not tell the other person how to feel (e.g., “You shouldn’t feel embarrassed.”). EXAMPLE When speaking with a gregarious employee, colleague, or client it may be necessary to allow some time for friendly conversation before asking specific questions. Then, focus on the issues you wish to address without cutting the person off, as in this example: “It sounds like you had an interesting vacation, Daniel. I hope you’re feeling refreshed and ready to get back to work. Maybe it will help us get to the bottom of the supervision problems you’ve been having at our Regina branch. What do you think?” PRESENTATIONS As with other soft skills, presentation skills must be practised. Too many presentations are ruined by inadequate preparation, poor speaking skills, badly presented content, or lack of regard for the audience. The following guidelines can be used to make presentations engaging and informative: Stand, rather than sit. Move around naturally, and use hands and arms to help make a point. Look at the audience and make eye contact with individual participants. Do not hold anyone’s gaze for more than a few seconds. Speak directly to the audience without making them uncomfortable. Speak naturally and use normal inflections. Prepare the presentation carefully. Have several points for the audience to take away. Summarize those points at the beginning and end of the presentation. Rehearse the presentation. Watch the clock and stay within the time limit. Use graphics and other features of the presentation software to enhance specific points, without distracting the audience. If appropriate, engage the audience and invite questions. MEETINGS Meetings can be boring, overly long, and in some cases unnecessary. The following guidelines can be used to manage meetings to make them more effective: Carefully consider the purpose of the meeting. A meeting to brainstorm a problem is managed very differently from a meeting to provide a project update. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 17 Invite only the necessary participants to the meeting. Do not waste other people’s time. Announce to participants the objective of the meeting; provide an agenda and other material to be discussed well before the meeting. Create a schedule and keep to it. Control the conversation. If a participant attempts to take over the meeting, interrupt and thank the person for contributing comments, but indicate the need to hear from others. At the start of the meeting, ask the participants to use personal devices only to make notes. Engage all participants. Send a summary of the meeting and follow-up items to all participants. Assign responsibility for delegated tasks and give timelines for completion. NEGOTIATIONS Negotiation is a basic means of getting something from others. It is the back-and-forth communication to reach an agreement when two sides have some common interests that are shared and some others that are opposed. PREPARE TO NEGOTIATE The best negotiators become well prepared by using the following six-step process: 1. Identify long-term Come to the table knowing what to achieve, both immediately and over the long term. and short-term objectives 2. Collect information Gather all available information about the other party, including their needs and interests in the deal. Stay informed regarding market standards, opinions, surveys, and benchmark prices before quoting a price. Also, consider how much information to disclose to the other party during the negotiation process. 3. Know the other Some people negotiate quickly and enjoy taking risks; others take their time and try party to avoid risk. The more we know about the habits, preferences, weaknesses, likes, and dislikes of the other party, the better our chance of winning the deal. 4. Choose the best Determine the best format for the meeting: telephone, email, or in person. If meeting approach in person, choose an advantageous meeting place. Identify other people who should be involved, such as subject matter experts for specific issues. 5. Find negotiable Identify what can and what cannot be negotiated. Likewise, as much as possible, identify items the negotiable and non-negotiable items of the other party. 6. Value concessions Always trade a concession by getting something in return, even if it is just an acknowledgement of giving up something. A common mistake is to give a concession on the basis that a person does not consider it valuable. But if the concession is valuable to others, it is tradable. © CANADIAN SECURITIES INSTITUTE 5 18 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 DID YOU KNOW? Most negotiators expect to trade offers back and forth several times, with each side making multiple concessions before the deal is completed. If you give away everything in your first offer, the other party may expect that you are holding back, even though you have been fully generous already. BUILD RAPPORT When starting the negotiation, our behaviour should be positive, open, and encouraging. This is achieved through what we say, how we say it, and how we show it in our body language. Hostile behaviours do not foster a positive environment where one can build an amicable and collaborative negotiation. People tend to respond to what appears as hostile and aggressive behaviour by being hostile and defensive in return. This dynamic can lead to a downward spiral, where negotiations collapse, and the parties fail to reach an agreement. USE PRINCIPLED NEGOTIATION TACTICS Principled negotiation is a concept based on the book Getting to Yes by Roger Fisher, William L. Ury, and Bruce Patton.1 The concept is based on the following four principles: 1. People People have a tendency to entangle emotions with the merits of a problem. When deal-making gets tense, no one wants to back down. Often, we end up viewing our counterpart as the adversary. A more effective approach is to focus on the underlying problem and look for ways to solve it. Attack the issue, rather than the other negotiator. 2. Interests Even though opening positions may seem far apart, there is often a way to satisfy both parties’ underlying interests. Be patient and empathic to the other parties’ positions, and highlight the benefit of exploring underlying interests. Be creative in finding solutions to satisfy both parties’ interests. 3. Options A negotiation can lead to more than one result. Identify the result where the interests of both parties converge to form a mutual agreement. Proposals are easier to agree on when they seem legitimate, or when they are supported by facts and logical arguments. 4. Objectivity Results should be based on an objective standard. Demanding a price that is dramatically higher than the market rates, without solid justification for such a price, is unreasonable. Likewise, avoid accepting a price significantly lower than the market standards. EXAMPLE A key skill of successful negotiators is creativity. Good negotiators search for options that benefit both parties and bring about a mutually rewarding outcome. The goal is not to argue over who gets the bigger slice of the cake, but through creativity to make the cake bigger, so that both parties come out with a better outcome. The best agreements are based on mutually beneficial offers. 1 Roger Fisher, William L. Ury, Bruce Patton (2011) Getting to Yes: Negotiating Agreement Without Giving In (3rd ed.) United Kingdom: Penguin Group © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 19 INTERVIEWS The foundation of successful interviews is basic proficiency in communication. Non-verbal communication plays the same role in an interview as it does in conversation. Body language and eye contact are at least as important as the spoken word. A poorly conducted job interview can provide a skewed assessment of the candidate’s potential. It is therefore critical to establish the objectives of the interview beforehand and prepare a set of carefully crafted open-ended and closed (yes-or-no) questions. The interviewer should also be prepared to ask probing questions based on the interviewee’s responses. During a job interview, the interviewer attempts to establish whether the candidate is qualified for the position and whether the candidate will be a good fit with the organization. Candidates’ resumes generally demonstrate whether they have necessary skills for the job. The interview is an opportunity to confirm their qualifications. But more importantly, the interviewer must determine whether the candidate meets all the requirements of the position. For example, the role of CCO requires significant compliance experience that should appear on a candidate’s resume; however, candidates should also have leadership and soft skills that may not be immediately apparent. The interviewer should ask both competency-based and behavioural-based questions. The first type is used to confirm that the candidate has the hard skills necessary to do the job. The second type relates to soft skills and is used to determine how the candidate might go about doing the job. EXAMPLE Competency-based question: “Do you have a specific example of how you were able to improve compliance with investment suitability rules at your last firm?” Behavioural-based questions: “Can you describe an incident where you had to deal with a difficult coworker?” “Can you give us an example of a stretch goal that you set for your department and the steps you took to meet it?” INTERVIEW SKILLS Both the interviewer and the candidate being interviewed should pay careful attention to the following considerations: Tips for the interviewer: Do not take over the interview; allow the candidate to do most of the talking. Questions should be clear and unambiguous. Do not use double-barreled questions (e.g., “Do you think your previous department should have had a bigger budget and more compliance officers?”). If possible, provide details of the interview in advance. Let the candidate know who will be conducting the interview, if anyone else will be involved, if follow-up interviews will be done, and how the decision-making process will work. Organizations benefit from hiring people with different personalities. Some people may be excellent candidates for specific positions, but it may not be readily apparent in an interview. A good interviewer will probe to discover hidden gems. Enjoy the process. The interview is a discussion and should be structured accordingly. Questions should be prepared in advance, but some answers may provide an opportunity to pursue new directions during the interview. © CANADIAN SECURITIES INSTITUTE 5 20 CHIEF COMPLIANCE OFFICERS QUALIFYING EXAMINATION      SECTION 3 Tips for the candidate: Be prepared for behavioural questions. Think of some instances that illustrated effective handling of difficult situations, as well as any successes or challenges with previous employers, and how they were resolved effectively. Listen carefully to questions. Do not over-answer; if asked for an example, give one. In a group interview, make primary eye contact with the interviewer asking the question, but also with the others. Be friendly, but not over-familiar, with the interviewer. Use appropriate language, including acronyms of the industry. Do not be over-confident. Be prepared to ask questions when invited to do so. © CANADIAN SECURITIES INSTITUTE  CHAPTER 5      LEADERSHIP 5 21 SUMMARY In this chapter, we learned about the traits, behaviours, skills, and abilities typically demonstrated by people who are seen as good leaders. We discussed the evolution of leadership theory and the current focus on situational leadership, whereby leaders tailor their approach to suit a particular situation or employee. A key point to remember is that trait theory, which holds that leaders are born not made, has gone out of favour with most experts. A more commonly held belief today is that many leadership skills and abilities can be learned and practised. This chapter focused on five behaviours that leaders generally have in common: they create a shared vision, they embrace change and improvement, they lead by example, they make it easy for others to succeed, and they motivate others to want to succeed. We also discussed the importance of a leader having good soft skills, which generally relate to communicating well and getting along with others. These skills are evident in the way good leaders handle meetings, presentations, and difficult conversations. They are also essential to conducting interviews and negotiating deals. But as important as leadership skills are to the success of a dealer member, the behaviour of the firm’s senior employees must above all be based in strong personal ethics. In the next chapter, we focus on ethical behaviour and the importance of ethics as a guiding force in today’s strict regulatory environment. © CANADIAN SECURITIES INSTITUTE