Compliance and Ethics Officers: A Survival Guide for the Economic Downturn
(This article was contributed to Corporate Compliance Insights by Mr. Jim Nortz – Compliance Director at Bausch and Lomb. Mr. Nortz can be contacted by email at james.a.nortz@bausch.com, or by phone at 585-338-8156.)
Even in the best of times, being a compliance or ethics officer is not a job for the faint of heart. In addition to small staffs and big responsibilities, the profession is still so new that most of the people do not even really know what they do or why they are on the payroll. To make things worse, compliance and ethics office budgets are a conspicuous expense on the balance sheet with no obvious return on investment. And, on top of all of that, they’re the ones who occasionally have the unpleasant task of telling senior managers that they cannot do things that they really want to do.
As many in our profession are likely finding out, this difficult job becomes exponentially harder in tough economic times. As management teams go into “survival mode” looking for every possible penny of cost savings, compliance and ethics offices may be looked upon as a luxury that must be eliminated until good times return. Compounding the unavoidable feeling of vulnerability that accompanies this reality is the fact that, as corporate belts are tightened, emotions tend to run high and patience is very short for discussion about anythi
ng unrelated to the immediate “crisis.” As a consequence, compliance and ethics officers who may have always felt like the odd person out in senior management meetings may now feel like a guy wearing a bright yellow polyester leisure suit in a biker bar.
Of course, the irony is that there is no time that a corporation is in greater need of an effective compliance and ethics office than in tough economic times. History has shown time and again that when management feels that enterprise survival is in jeopardy, corners are cut and the motivation to rationalize unethical business practices, if not outright fraud, is at its greatest. The catastrophes at Enron, Worldcom, Adelphia, Dynegy, Tyco and Global Crossing are just a few of the thousands of examples of this all-too-predictable response to dire economic conditions.
So, as we all fasten our seatbelts for an economic ride unlike any experienced in nearly a century, what can and should compliance and ethics officers do to maximize their chances of surviving, if not thriving, at a time when their services and good counsel are truly needed most? As outlined below, I recommend that they:
- Plant a tree, if not yesterday, today;
- Re-think priorities; and
- Talk about the elephant in the room.
Plant a Tree, if not Yesterday, Today
There’s an old saying that the best time to plant a tree was 100 years ago. The second best time is now. The same is true for you and your compliance and ethics office. The best time for you to have demonstrated your 
relevance to the business was years before the current economic downturn. The second best time is today.
If you have not done so already, it is vital that you invest the time and effort necessary to get in touch with what is happening in the business and the pressures your leaders are facing. If you don’t already know how to “speak business” it is time to find out. Take a crash MBA course or read a stack of business books if you have to, but do what you must to really understand the critical business issues facing your company and dedicate yourself to becoming a part of the business team rather than just an observer of it.
Re-think Priorities
If your company is in survival mode, you must get in that mindset. Face the fact that there really will not be a long term if your company does not survive the short term. As a consequence, you can expect little tolerance for proposed ex
penditures of time or money for compliance or ethics initiatives with long-term payouts that are not in step with the your company’s fiscal plans. It is time for you to carefully review your entire program with a critical eye and eliminate anything that is not essential in the short term. In addition to demonstrating to your colleagues that you “get it,” this will provide you the time necessary to focus on the most vital issues at hand – your company’s top three legal and ethical risks, that if not managed properly now, will take your company down regardless of how well the business is performing.
Also, the next time you meet with senior management, leave your usual, marginally relevant compliance and ethics training statistics behind. Instead, lay out what you have done to trim the fat out of your budget and focus your discussion on the company’s top three legal and ethical risks along with your plan for managing them. Once you reach a consensus on an action plan, exercise the discipline necessary to make them a priority and develop specialized key performance indicators so you can demonstrate that what you’re doing is working.
Talk About the Compliance Elephant in the Room
Several years ago, while attending an Ethics and Compliance Officer Association meeting, I had the opportunity to speak to Ben Glisan, the former treasurer of Enron. In a room full of hundreds of compliance and ethics officers, I asked Ben whether the existence of a compliance and ethics department at
Enron would have made any difference. As I expected, he said: “No, it would have made no difference at all.” Then I observed that all of the compliance and ethics officers in the room were charged with the responsibility of stopping an Enron-style scandal from happening at their firms. I asked: “What advice can you provide to help us succeed in avoiding such a catastrophe?” Ben responded by saying: “That’s a hard question.”
Ben was right. It is a hard question. It’s hard because the people that commit these crimes are the ones that run the company and determine whether you stay or go. But, like it or not, financial fraud is very likely to end up on your “top three” list of compliance and ethics issues if your company is facing significant financial stress; and I’m not talking about someone stealing change from the office coffee fund. I’m talking about the kind of financial scandal that involves top corporate officers and makes national headlines.
In the coming months there will likely be a steady stream of such headlines as “never say die” business leaders pull out all the stops to avoid failure. Your job is to make sure that your firm is not among them. The only way to do this is to face this issue squarely and make high-level fraud prevention a central part of your compliance and ethics survival plan. In so doing, sit down with your CFO and your outside auditors to make sure you’ve got the support and systems you need to make it real.
There is no way now to know how the current global economic crisis will turn out. But, I believe that such tough times present a significant opportunity for compliance and ethics officers to show their worth. By following the recommendations outlined above, they may play a vital roll in saving many companies from ruin thus furthering the development, sophistication, and institutionalization of the corporate compliance and ethics profession.
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Also by Jim Nortz: Measure or Die! Using Metrics to Measure Compliance Performance
Tags: compliance and ethics officers, ethics and compliance, jim nortz, surviving economic downturn
Nicely put, Jim. It occurs to me that a corollary is that these economic realities should be another nail in the coffin of a “check the box” mentality on the part of compliance professionals — because that kind of standard work likely won’t create enough apparent value and visibility to save compliance from the budget ax.
The challenges you describe also cannot be successfully met by a shrinking violet or academic CCO. More than ever, compliance leaders need to be LEADERS, right? Advocating and communicating effectively, and tuned to business pragmatics. Thanks for the pep talk.