This recent lapse of compliance measures clearly demonstrates the importance of continual monitoring of critical procedures that are tied to the profit and loss of the business.
As Barclays' CEO Bob Diamond resigned under pressure this week while the bank deals with the aftermath of ongoing investigations into its role in manipulating the London Inter-bank Offering Rate, boards should consider what they can learn from Barclays’ experience.
According to news reports, regulators have cited weaknesses in the bank’s internal controls and compliance mechanisms as major contributors to the scandal that is believed to have cost at least a dozen international financial institutions several billions of dollars. This recent lapse of compliance measures clearly demonstrates the importance of continual monitoring of critical procedures that are tied to the profit and loss of the business. What is not clear is whether companies realize what it takes to monitor their own systems effectively.
Most companies have an internal resource that can be instrumental in helping them improve their internal controls – the compliance and ethics officer. If anyone at a company has an idea about the challenges of compliance in this highly complicated and ever-changing regulatory environment, it should be the compliance officer. The growing incidences of rogue traders and employees with back-office inside knowledge using that edge to beat security systems and internal controls that we’ve seen over the last two years shows us that companies must begin to act as if they are perpetually under attack. Boards need to give compliance issues a higher priority. In fact, Roy Snell, CEO of the Society of Corporate Compliance and Ethics, believes it may be time for boards to make sure they have at least one member who has experience with compliance issues to make sure it becomes part of the conversation more often.
‘A best practice is to have a compliance and ethics professional on the board much like the board typically has a finance expert for the CFO to work with,’ says Snell. ‘Compliance and ethics officers should have someone on the board who understands compliance and ethics so they can work with him or her.’
If the board has at least one member who is willing to stand up and speak out on maintaining ethics in business, perhaps some of the lapses in compliance and ethics we’ve seen lately would not happen. Of course, getting boards to agree to making such a move is not easy, and having a board member with compliance experience won’t make a company immune to compliance violations. It will, however, make it harder for employees to carry out compliance violations that end up in multi-million-dollar fines that hurt investor returns. If such violations are discovered faster and the fines and penalties made less severe, everyone wins.
Each year, Corporate Secretary celebrates companies, both large and small, for implementing the best overall governance, compliance and ethics program at our annual Corporate Governance Awards, which will be held this year on Wednesday, October 31 in New York. We invite you to nominate companies that have implemented excellent governance programs for this award and 12 other categories. By alerting others to the good work governance professionals are doing, you may inspire companies to adapt similar measures that will improve their corporate governance and overall company performance. Nominate someone today!
