Compliance Expertise in the Boardroom

In this era of corporate accountability, regulators and prosecutors are looking for opportunities to hold board members, individually and collectively, accountable for corporate misconduct.  The list of improper oversight, bordering on recklessness to deliberate intent, is well known in the Department of Justice.  You can rest assured when presented with the right set of facts and evidence, the Justice Department will pull the trigger and charge a corporate board member with a criminal offense.

In response, many have advocated for improvement of corporate governance, increased training of corporate board members and specific guidance on the board’s obligations to oversee and monitor a company’s compliance program.  No longer can companies rely on the old model of inserting outside counsel to make sure that the board embraces a defensive strategy aimed at avoiding litigation and risks.  Instead, a new model is being crafted with the push from compliance advocates, prosecutors, shareholders and other key stakeholders that advances corporate accountability and responsibility for a company’s ethics and compliance program.

One important aspect of this new approach to corporate governance is to insist on appointing a board member with compliance expertise.

I have witnessed firsthand that companies that have a board member with compliance expertise usually have a more aggressive and effective compliance program.  In this situation, a Chief Compliance Officer has to answer to the board for the company’s compliance program, while receiving the resources and support to accomplish compliance tasks.

Companies spend time and resources to nominate board members who bring a real value to the boardroom.  The mix of board members reflects the company’s overall strategic priorities and focus for governance.  For example, the nominating committee will locate a board candidate with financial reporting, audit and SOX expertise to manage the audit committee.  Each board member should be considered for a strategic purpose and benefit.

A board member with a compliance background advances a company’s compliance program by multiple factors.  It is an investment with significant benefits to the compliance program and the company overall.  The board member can educate other board members on compliance issues, facilitate CCO presentations and communications to the board and improve the company’s tone at the top, as well as its ethical culture and other elements of a compliance program.

A requirement to include a board member with compliance expertise is fast becoming a governance best practice.  While it is easy to brush aside compliance in favor of other significant topics and risks – cybersecurity, financial reporting, SOX – relegating compliance to a lower priority is a real and significant missed opportunity.

Chief compliance officers have to maintain a robust reporting relationship with the audit or compliance committee.  A CCO cannot be afforded 10 or 15 minutes at the end of a quarterly meeting.  Rather, a CCO has to be treated in a manner commensurate with the importance of compliance to the company’s operations.  If there is no tone at the top, the CCO will probably be given a short slot at the end of the meeting.

A board member responsible for compliance with prior experience in compliance will ensure that the board devotes adequate time and attention to the company’s compliance program.  No longer will the CCO have to devote energy and time to “educate” the board on the importance of compliance issues.  The CCO will have a built-in support system and advocate for compliance issue on the board itself.