Compliance Lessons from the World Series: Part 4 – The Astros and Continuous Improvement | Thomas Fox – Compliance Evangelist

We continue our celebration of the Houston Astros winning the 2022 World Series by considering the Houston Astros, their road to the championship and what lessons might be drawn for the compliance professional around continuous improvement. Sports is perhaps one of the best metaphors for the compliance concept of ‘continuous improvement’, a mandatory component of any best practices compliance regime. Every team must evolve every year to be or remain competitive. Players age and get injured; economics dictate some players are traded or released; strategies evolve to meet new successes and new challenges; and, at least in baseball, sometimes the rules change.

It all started with the executive level of the club. Both a new General Manager (GM) and Manager were brought in after the sign-stealing scandal was revealed. Bradford Doolittle, writing in ESPN, said, “This franchise is an organizational baseball machine that continues to roll even after the scandal led to changes on the field and behind the scenes. James Click, the soft-spoken, analytics-savvy executive, took over one of the most proficient front offices in the game, and under his management, the Astros haven’t missed a beat. In some ways, they’ve even iterated into a higher form, especially given the pitching depth that is the envy of the majors. Dusty Baker arrived, then, too, and the beloved manager’s very presence restored a measure of integrity to the Astros when they badly needed it.”

Further, there are only five players remaining from the 2017 team which won the Astros first World Series in the wake of the cheating scandal: Justin Verlander, Lance McCullers Jr., Yuli Gurriel, Jose Altuve and Alex Bregman. That means there were 20 new players added to the team and, as Doolittle noted, “It’s a different team on the field — the 2017 club was more explosive offensively, with a well-rounded lineup of skilled players such as Springer and Correa. In 2022, though, the team does less damage on balls in play, making them more reliant on the long ball to keep the scoreboard turning.”

But the execution by the front office is also different. Whereas prior GM Jeff Luhnow relied heavily on data and analytics, Click has taken a more holistic approach bringing back human scouting assets to supplement the data the team reviews. Most crucially the team invested heavily in Latin America scouting and the dividends paid off. Tyler Kepner, writing in the NYT said, “Javier switched from outfielder to pitcher at 16, the age when many prospects from the Dominican Republic turn pro. He signed just before his 18th birthday for $10,000, the same bonus the Astros had given Framber Valdez, a Dominican left-hander, in 2015. The team gave a $100,000 bonus that year to José Urquidy, a right-hander from Mexico, and $20,000 in 2017 to Luis Garcia, a right-hander from Venezuela. Add it all up and the Astros spent $140,000 to sign four pitchers from Latin America who combined to make 112 starts this season. None of the four were ever listed among the top 100 prospects by”

Continuous improvement also comes in the form of player development. Former GM Luhnow was quoted in the NYT, “I think we’re seeing a result of the next big thing, which really started in the 2015 era, which is player development and teaching young arms pitches that are going to work in the big leagues and keeping them healthy and developing young arms so that you have not only starters but bullpen arms that can do exactly what they’re doing right now.” Pitcher Lance McCullers Jr. was quoted in by Tom Verducci on this topic as well, “I think it goes back to our pitching development. Our guys in the minor leagues are just fabulous. I think that’s becoming lost in today’s game. I think developing pitchers and developing pitches still matter, and it starts from the bottom up.”

Compliance Lessons

The Department of Justice (DOJ) has made clear that continuous monitoring should lead to continuous improvement of your compliance program. This concept was originally enshrined in Hallmark Nine of the Ten Hallmarks of Compliance Program, as found in the original FCPA Resource Guide. It said, “compliance programs that do not just exist on paper but are followed in practice will inevitably uncover compliance weaknesses and require enhancements. Consequently, DOJ and SEC evaluate whether companies regularly review and improve their compliance programs and not allow them to become stale.” The DOJ/Securities and Exchange Commission (SEC) expects that a company will review and test its compliance controls and “think critically” about its own weaknesses and risk areas. Internal controls should also be periodically tested through “targeted audits.”

The lessons from the Astros continuous improvement provide the compliance professional with three key insights.

  1. Risk Management. When your risks changes, risk management must change with it, including compliance. For baseball those risks include players, economic issues, game changes and others. The DOJ made clear in the 2020 Update to the Evaluation of Corporate Compliance Programs that companies must assess their risk as the change. In this era of post-Covid and Russian invasion of Ukraine, your risks have changed. When was the last time you performed a risk assessment?
  2. Talent Acquisition. Obviously, the Astros have been superior in this arena. In addition to the World Series MVP, rookie Jeremy Pena who was drafted in the 3rd of the MLB player draft, there is Chas McCormack, who made a run saving catch in Game 5 and who was a 21st round draft pick, and of course the aforementioned pitching acquisitions. Free agent pick-ups were critical, such as Trey Mancini who made the game saving catch, also in Game 5. The clear message is to bring in talent to your compliance team.
  3. Talent Development. Here the Astros excel as well. The minor league system actually develops talent. Former Astros star and now minor league coach Morgan Ensberg was quoted in the Kepner piece, “the Astros essentially doubled their inventory of starters by using a piggyback system; that is, two pitchers working four innings apiece each time through the rotation. That way, the organization had more options for pitchers who could be stretched into starters at the higher levels — and more starter types who were familiar with relief.” What are you doing to develop the compliance talent in your organization?

What is your organization doing to improve your compliance program? Your risks change over time and your compliance program must adapt. How you monitor those changes and then create new risk management strategies to improve your compliance program are key to maintaining a successful compliance regime.

Join me tomorrow as I explore World Series Champions and reputation.

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