But filtering of negative content in compliance reports shows a ways to go toward full independence from legal departments
Compliance and ethics officers are no longer step children in the C-suite. These days, in most companies, the compliance department reports to the board or the CEO, meets regularly with and has won the appreciation of the board of directors, according to a new survey by the Society of Corporate Compliance and Ethics (SCCE) and the Health Care Compliance Association (HCCA).
Fifty-three percent of the 626 compliance and ethics professionals polled said they report directly to the board, a slight decrease from 55 percent in 2010, according to the survey, The Relationship between the board of directors and the compliance and ethics officer. Half of those that don't report to the board report to the CEO and 20 percent report to the general counsel. However, among public companies, half the respondents said they report to the GC and 33 percent said they report to the CEO. Public companies were also more likely to have their reports to the board filtered, according to the survey.
‘It's interesting to see that we're getting more independence for the compliance officer,’ one of the keys to a successful compliance program, says Roy Snell, CEO of SCCE and HCCA. ‘In major failures like Enron, Worldcom and [the football coaching program at] Penn State University, individuals with a conflict of interest prevented the organization from dealing with the problem.’.
While there is progress on gaining independence, there are challenges. ’Unfortunately, way too often, compliance officers' reports are filtered such that tough but necessary messages are edited out,’ says Snell. Editing for clarity is acceptable, but not taking the teeth out of a report. ’If messages are filtered out of reports, then the compliance program is going to be less effective.’
Having the compliance officer report to the general counsel is also less than ideal in Snell's view. ’On occasion, the GC must circle the wagons and defend the company, something it's important that the compliance officer have no involvement in, as it creates a conflict of interest and eliminates independence,’ he says
Furthermore, the compliance officer may have to respond to whistleblower complaints about an earlier decision by the legal department. ’You can't be independent if you investigate the person who does your annual review and has hiring and firing decision-making authority,’ says Snell.
While the GC and compliance officer can be ’wonderful partners,’ a big investigation requires independence, he says.
The good news, he adds, is that overall, compliance officers are meeting with their boards regularly, and the survey shows that the board values compliance.
The compliance department and compliance officers are relative newcomers to the corporate landscape, so much still needs to be clarified about how compliance interacts with other members of senior management, he says.
The board needs to be educated about the role of the compliance department. Preferably, the board will have a member who is familiar with the compliance function much the way it often includes at least one member familiar with finance. ’Having a lawyer on the board who has never managed a compliance program is not sufficient. You need someone who has managed a compliance program before,’ says Snell.
Although the board shouldn't be involved in the day-to-day activities of the compliance department, it’ should have oversight of the major issues associated with the compliance program.’
And, in view of the assault the business community is under from the press, public opinion, prosecutors and politicians with regard to ethical and regulatory infractions, compliance departments need to move more quickly to gain independence and boards need to step up their interaction with them, says Snell.
