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Compliance Titles and Responsibilities – Corruption, Crime & Compliance

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Let me start with yet another profound grasp of the obvious — leadership requires many important interpersonal and intellectual capabilities.  I do not intend to list the important ones right now but leadership requires an understanding of influence and the use of symbolic actions that may resonate through an organization and its constituents.

Effective leaders understand know that symbolic acts drive organizational behaviors.  Symbolic actions impact other leaders and employees within an organization. It is a critical component to leadership in any company. 

An organization is a micro-confluence of forces: actions, responsibilities, inter-dependent functions and communication.  in this context, what may appear to be small things, may in fact translate into a larger issue with significant impact.

All of this is a long way of saying something quite obvious for compliance professionals — titles matter.  An officer’s title sends a message within an organization — a title connotes responsibility, authority, and ultimately influence and impact.

Within the context of the micro-organization’s social order, an officer’s title will carry influence or lack thereof.  Remember, the Justice Department’s Compliance Guidance has emphasized three critical concepts for chief compliance officers: independence, authority and resources.

To this end, a CCO’s title has to be considered carefully. I have consistently advocated that CCOs should carry the title of Chief Ethics and Compliance Officer.  Of course, this would complicate my simplistic use of the abbreviation “CCO” to “CECO,” but aside from my stumbling typing skills (which is evident to readers of this blog), my point is that CCOs should carry the Ethics responsibility with their titles to emphasize their responsibility for a company’s culture.  After all, as I repeatedly state, a company’s most important internal control is its culture.

My position, however, is flexible enough to recognize that some larger global companies have separate the ethics and compliance function to create separate positions — a Chief Ethics Officer and a Chief Compliance Officer.  That is fine if the size of the organization justifies two separate positions and units within the ethics and compliance set of responsibilities. 

Beyond this issue, however, I continue to observe problematic title assignments.  The most senior compliance officer cannot be relegated to a title of “Director of Ethics and Compliance” or “Director of Compliance.”  Sometimes companies downgrade the senior compliance officer title as a means to pay a lower salary.  Talk about pennywise and pound foolish.

By relegating the senior compliance officer to the title of a “mere” director, the organization is clearly sending a message — first, compliance is not so important to the organization; second, compliance is not important enough to be a member of the C-Suite.

I pity the poor compliance officer who will be treading organizational water for most of his/her tenure at the company.  For some, that is a livable situation.  For most compliance officers. they know deep in their hearts that they will end up looking for a new job where the compliance function operates with appropriate compensation, authority and influence.

It is high time for companies to give compliance officers their due.  If the Justice Department’s guidance means anything, CCOs should carry with them a title commensurate with the importance of the ethics and compliance function, should be fairly compensated as a member of the senior executive team, and should have the authority and independence to execute their responsibilities.


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The Importance of Independence to a CCO’s Role

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It is easy to be dogmatic in blog postings — to express an unvarnished opinion that sounds valid.  While it may not be supported by hard data or valid evidence, compliance officers are used to trusting their “gut feelings,” when it comes to compliance.  Compliance professionals with experience agree largely on big ticket issues, and this view often reflects lots of real-world experience.  Sometimes the experiential world provides more reliable indicators than the experimental world.

I hate to use the repeated Supreme Court Justice Potter Stewart quote with regard to the definition of obscenity, “I know it when I see it.”  This famous quote can be used by compliance professionals when turning a critical eye to their own compliance programs.  Deep in their hearts, CCOs know when their program has leadership support, operates effectively, and adjusts to changing events. It is this instinct that is invaluable.

The Justice Department has doubled down on the critical elements of an effective compliance program, including the role of the CCO and the compliance function.  DOJ often repeats the importance of Independence, Authority and Resources to an effective compliance function.  Some of these concepts, in practice, however, have been diluted in the real world.  When it comes to resolve and commitment, there is little question that companies have not translated these ideas into real practice.

Perhaps one of the most disturbing trends is the failure of companies to support and implement an “independence” compliance function.  As a best practice, a separate compliance office, headed by the Chief Ethics and Compliance Officer (“CECO”), who reports day-to-day to the CEO and directly to the Board (or Committee thereof).  Instead, many (but not all) CECOs find themselves embedded in other functions or even spread among various functions. 

The compliance profession had a long battle to extricate itself from Legal Departments.  Yet, in NAVEX’s 2022 Risk and Compliance Benchmark Report found that 29 percent of CECOs were located in the Legal Department and reported to the Chief Legal Officer.  That result is surprising.

Over the last twenty years, the compliance profession has transformed itself through effective advocacy.  At the same time, government prosecutors and regulators, along with investors, shareholders and marketplace stakeholders, have demanded that companies enhanced their ethics and compliance programs. 

At its core, compliance is a profession that requires different skillsets than lawyers.  Compliance professionals employ a blend of talents needed to build and operate an effective compliance program.  While being a lawyer may be helpful in circumstances, compliance professionals know that legal education and experience is not a requirement to serve as an effective compliance professional.

Compliance professionals have to redouble their approach to compliance programs to consistently demand independence, authority and resources.  In the absence of such an effort, the profession may drift back to prior practices where compliance professionals had to advocate for basic work requirements. 

A CECO has to operate with full independence — meaning that the CECO, in consultation with the Board and the CEO, has to execute on those responsibilities and projects free from undue influence or obstacles from internal countervailing forces.  When a CECO has the requisite independence, company leaders and employees are more likely to trust the compliance function as the guardian of the company’s culture and integrity.  With such acceptance, a compliance program can become truly effective.


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What Happens When the CCO is Buried in the Organization?

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Let me paint a picture for you.  It is not pretty.  Unfortunately, this picture occurs all too often in the corporate governance landscape. 

The first picture captures the presence of chief compliance officer in a stand-alone office in a mid-size public company.  The company is not subject to any robust regulatory regime.  The CCO has a staff of one or two people, coordinates some compliance activities (e.g. internal investigations) with the legal department.  The CCO does not sit on the senior management team and is not a member of the C-Suite.

The CCO is energetic and committed to the compliance mission.  And the CCO’s staff of one or two junior professionals share this enthusiasm. 

While the senior management team often speak about the importance of compliance, emphasizing that the company is committed to “doing the right thing,” compliance is not an elevated function nor does it have a robust agenda of responsibilities.  Instead, the CCO and staff have identified several important tasks and have to generate interest in topics such as third-party risk management, policies and procedures and a Code of Conduct rewrite.

The second picture is equally bleak — a CCO or Director of Ethics and Compliance is assigned to the company’s legal department and reports directly to the General Counsel.  The CCO has its own budget, but it is contained in the overall legal budget.  The CCO may have a staff of one or two professionals.  Again, the CCO is not a part of the senior executive team.  Every quarter, the CCO reports to the board of directors with the General Counsel on compliance matters, internal investigations, training and other basic compliance functions.

These pictures represent common, real-world compliance situations.  From my perspective, the two scenarios are more common than we recognize.  We often hear about the gold-plated ethics and compliance programs for large global organizations.  However, in the unregulated world, this type of compliance governance structure occurs on a regular basis.

In these scenarios, I often characterize the compliance function as “buried” in the organization.  Of course, in certain situations, senior management may reach down and pluck out the CCO for a specific task but on a day-to-day basis, the message from the board of directors and senior management is clear — compliance is not a priority; indeed, compliance is just an obligatory operation on the corporate organizational chart.  In fact, compliance has become basically a check-the-box exercise.

By definition, the two scenarios reflect a failure to even attempt to achieve an effective ethics and compliance program.  The missing elements of such a program are readily apparent.

A CCO, as required under DOJ Guidance, has to stand at the top of a compliance function that operates with independence, authority and adequate resources.  As outlined above, the CCO meets none of these requirements, each of which is important but based on their inter-dependency reinforce the glaring defective compliance function.

When a CCO is “buried” in an organization, the CCO  lacks any shred of independence or authority within the organization.  As reflected in the hypothetical scenarios, the CCO lacks any capability of designing and implementing an effective ethics and compliance program.  It has neither the independence within the organization nor the independence to ensure that compliance functions are carried out in accordance with relevant standards.

Indeed, the most glaring omission is the CCO’s lack of adequate resources needed to implement an effective ethics and compliance program.  Sure, CCOs operating in this environment  will do the best they can but eventually they will leave the organization out of frustration — they will suffer from organizational fatigue.  A CCO cannot be expected to remain in a situation when it has neither the authority nor the resources to accomplish the compliance mission.

We all know CCOs who operate in this kind of environment.  It is difficult to watch but many CCOs persevere because of their dedication and commitment to the compliance mission.  In many cases, they hope for a change in attitude and their respective situations.  More often, however, these CCOs eventually leave and find a better home to execute to their real potential.


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