Compliance, Ethics and Investigations in Asia:
An interview with Michelle Yu

Michelle Yu is the Vice President of Ethics & Compliance, Asia at LVMH Group. She was previously the Head of Compliance at DFS Group and an Anti-Corruption Group VP at Morgan Stanley. Michelle started her career as a lawyer focusing on corporate crime and investigations and is qualified in New York and the District of Columbia. She has a BA from Pomona College and a JD from Georgetown University Law Center.

All viewpoints expressed herein are solely her personal opinions and should not be construed to represent those of her current or former employers.

Q1. Please introduce yourself and tell us about your work and interests.

I was born in China, grew up on the US East Coast, moved to Hong Kong for high school and then headed to the US West Coast for college. By the time I was 18, I had spent exactly half my life in the West and half in the East! After finishing law school in Washington DC, I worked for a few years there specializing in white collar crime and investigations and then received an opportunity to return to Hong Kong with a law firm in 2013. After a few job changes and moving in-house, I’m currently the Head of Compliance in Asia for LVMH Group, the world’s largest luxury group, headquartered in Paris. In this role, I advise our luxury companies (‘Maisons’) on their Ethics & Compliance programs, focusing on both preventative (policies, training, controls) and reactive (concerns, investigations, and remediation).

On my off time I love exploring nature, particularly hiking and running all over Hong Kong and seeing the beautiful sides of this territory in a way that not many people who live in Hong Kong have seen – whether you grew up in Hong Kong or not! One of my favorite areas is Robin’s Nest (紅花嶺), a mountain right near the Northeastern border between Hong Kong and Shenzhen.

Q2. Many people are familiar with the compliance function in their companies; how do you define and enforce ethics?

Unfortunately, many people are actually not familiar with compliance! To define it simply like I do in my trainings, ethics is something that’s from the heart and you know when something is right or wrong. Compliance is acting in accordance with local and regional/international laws and regulations, which can be more technical. I adopt an ethics-first approach to lead people from a principles-based perspective, which everyone can understand regardless of their education level, cultural background, or experiences.

Q3. As a multinational company operating across so many countries, business lines and cultures, how does compliance manage and respect these differences? Can uniform standards be maintained or is that not even an appropriate goal?

The best compliance policy is sensitive to regional differences, but in the case of gifts and entertainment, for example, most companies maintain easy to remember round-number limits globally. Uniform standards, when they are maintained, tend to go to a minimum which is hardly better than compliance by robots (i.e., “gifts and entertainment to business parties are prohibited”). To put it simply, whether a gift is 50 dollars or 75 dollars will not substantially affect the risk profile of a business. Focusing on nickel-and-diming small gifts and entertainment expenses such as these while ignoring the larger risks of a retail business (joint ventures, new business lines and countries, etc.) would be to a compliance officer’s detriment, but this often makes for a much tidier and data-focused set of job duties and the appearance of a stronger compliance infrastructure to outsiders. However, effective compliance programs can often not be captured so neatly in a numerical way but are rather administered and seen through case studies where problems are taken seriously by senior management, and the compliance department being consulted before and during new business activities. Compliance should also stay involved in the design of business controls.

Q4. In many companies, compliance is sometimes seen as the killjoy that blocks potentially lucrative deals/sales. What advice would you give compliance peers on how best to co-exist and cooperate with business teams?

If you minimize risk, you will also naturally minimize business opportunities; any business naturally comes with risk. Compliance teams are often incentivized to minimize risk as that will also minimize their day-to-day burden. Any business in the world, particularly multinational ones that do substantial business in Asia, will by their very nature embrace a healthy amount of risk.

I always start by educating businesspeople on the risks they are already taking in their day-to-day business. Then I advise on how to mitigate those risks as much as I sensibly can while still capturing business, much in the same way that a tax advisor or financial consultant would, instead of always “saying no”. When you go in with this mindset, you will find that businesspeople are eager to throw you their headaches and problems. Winning the trust of the business is essential so that during the rare times you need to give an absolute no, they will know that you are saying it not because it’s a standard or automatic response, but because, based on your knowledge of their business and expertise, it’s not the right thing to do and could land them in some very hot water.

I think the biggest piece of advice I would give to compliance peers is to know your business. Get out there and see the business in action, talk to your stakeholders, and have empathy for the different goals and perspectives of the employees there who experience significant commercial pressure. I have often found that compliance issues arise from misaligned business goals, and in that case, compliance needs to have the ear of senior management.

Q5. With such a broad set of responsibilities, how do you prioritize the various compliance and ethical issues that you face? How much of what you do is reactive and how much is proactive?

I always start by putting the basics into place with training and awareness raising – making sure people know Ethics & Compliance is a topic taken seriously and staffed with knowledgeable experts who are approachable, friendly, and helpful. Then, as trust builds within the organization, employees start to raise issues, either in person or anonymously through our whistleblowing channels. It will be different for each organization, but a healthy balance for responsibilities would be about 50-50 on proactive and reactive parts of the job, as these form two sides of a coin and reinforce each other continuously. Unfortunately, because many compliance teams are not well staffed, I personally know of teams in certain companies that end up doing mostly reactive (investigations, etc.) work after being able to automate a lot of the proactive piece (training and awareness). To me, there’s nothing that substitutes for the human touch, particularly in the industry where I now work with luxury products where the value is in the artisans and craftspeople. Therefore, I always give a “bespoke” approach to my trainings and show up at least on camera if not in person as much as I can. An online training is easily ignored, but a person in front of you will always be a potent reminder.

Q6. As someone with significant experience conducting investigations in Asia, what are some hard won pieces of knowledge or experience that you think are worth sharing?

It is not essential (indeed, or even possible) to turn over every rock that looks a little off. Every compliance team, no matter how well-staffed, will have limited time and resources and not every red flag or issue requires the five-star treatment. It is a best practice to reserve energy in advance and not work exhausting hours on a regular basis because in reactive investigations you never know when there may be an urgent new issue popping up. If you are already running on empty, you will not be able to pivot quickly to a new problem, which is one of the compliance metrics that should really matter to a business and helps to build that valuable trust between compliance and the business. The analogy to firefighting is very apt in that one needs to always be at the ready when there’s smoke, but only mobilize full resources to run in when there’s a building that’s on fire. Consequently, I focus closely on trends and nuances that may allow me to predict where a problem may pop up next, while keeping in mind the relative sizes and risks of each problem that emerges.

In addition, keeping good records (in reality, this can mean something as low-tech as throwing materials and documents into a folder or box and giving it a label) is essential if you are in-house. This allows you to keep documentary evidence that is more reliable than your gray matter. However, do be careful how issues are described as quickly written memos may sometimes make issues look worse than they are and create the wrong impression, whether it’s for a new employee or even a regulator.

A friend of mine retrieving paper archives in a musty warehouse was confronted with rodent droppings, which did not render the documents useless but did substantially increase the negativity he had already associated with the job!

Q7. Constant vigilance is a common refrain when discussing compliance. How do you manage this in practice? Is it through policies, procedures and training? Are there specific tools or best practices you employ?

A good compliance team focuses on training and awareness raising. There are sneaky ways to build in micro-trainings even in meetings where you mention a case or example of something that went wrong and put in a “lessons learned” section. The short answer is if you are going to meet with me then you will have a new compliance lesson to learn whether you like it or not! But I also try to make these lessons appreciated, to say, (1) everyone occasionally gets it wrong, (2) here are ways you can reduce your risk in these areas to not get it wrong, and (3) if you get it wrong anyway, you could be putting not only yourself and your career at risk but also your loved ones and your reputation at large. So, think before you act!

Q8. From a more philosophical perspective, how do you reconcile personal ethics and values with that of a corporate mandate? Can the perspective of an individual co-exist with that of the corporate as a whole?

Employees and the companies they work for must have a substantially overlapping alignment of interests, or else the relationship totally breaks down. Many conversations are taking place in the realm of work-life balance, ethical consumption, etc. Most of the time, within compliance, I don’t see a conflict because wrongdoers are usually acting in their own self-interest, which not only affects the company negatively, but also other employees. So, putting an end to wrongdoing is in everyone’s best interest. Many times, my concerns have involved employees taking substantial advantage of the company, rather than the other way around.

Q9. What are the big compliance and ethics trends in the luxury space? Is your industry as a whole moving in the right direction and how does it compare with other industries, such as financial services, where you worked previously?

Overall, one of the key trends is increasing the use of technology in compliance, and I believe this follows a trend that’s already been going on for some years in more regulated industries. It’s safe to say this industry is also increasing its abilities and infrastructure in terms of compliance, and in some ways, due to the differing business model and the resulting differing risk areas, I would argue that the luxury industry is already significantly less risky than the usual high-risk industries (utilities, financial institutions, medical…). This is because the business model is quite simple in that we are selling goods in stores to end consumers for the most part. There are limited interactions with government bodies and our primary stakeholders are the end consumers of our products, for whom corruption risk is low.

Of course, I don’t discount the money laundering risks inherent in high-value cash sales and sales to VIP customers where the source of funds is not known. There are also the regular interactions with tax, customs, and other regulatory authorities that require our attention. However, these all have limited effects on the bulk of our normal business, which is routine sales to customers who just want to treat themselves or a loved one to something out of the ordinary!

Q10. Looking ahead and using your crystal ball, can you talk a bit about what issues or events may have a material impact on ethics and compliance matters in 2023 and beyond?

Currently, like other industries, the luxury industry is grappling with the issue of data privacy in the operation of marketing and loyalty programs for customers. The question of how the data is collected and where it is held and analyzed remains a burdensome issue as these regulations change at a dizzying pace.

Another key issue is the ethics related to consumption in general. So far, the reason for the significant success of our Group and its companies, particularly over the past decade or so, is due to increased demand from our customers. At the same time, there remain significant questions within the fashion and luxury industry on sustainability and worker rights. I have no doubt that the luxury industry will continue to lead these efforts, having already made great strides in gemstone traceability, environmental impact of raw materials, and of course operational footprint. But for example, is it ethical to respond endlessly to increased consumer demand, because the earth’s capacity certainly has a limit? I think the ethics of consumption is the biggest issue every company right now should be grappling with and certainly one that pushes me to think about how one can do things better – not just in compliance but in the world.

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