Regulators’ disapproval of compliance reporting to the general counsel may make compliance officers’ jobs more difficult, say two GC
The realities of managing risk and the stepped up enforcement efforts of government regulators have made the compliance and ethics function a much more important part of the corporate management team, two prominent general counsel asserted at the Ethisphere Institute/Thomson Reuters Global Ethics Summit in New York on March 20. Speaking on the opening keynote panel, Larry Thompson, executive vice president, government affairs, general counsel and corporate secretary of PepsiCo, and Randal Milch, executive vice president, public policy and general counsel for Verizon, also suggested that compliance officers’ jobs are made more difficult because government regulators may have a ‘profound misunderstanding’ of the fiduciary duties of corporate compliance departments.
During the panel moderated by Holly Gregory, partner at Sidley Austin, the two men told a crowd of over 325 attendees that increased risks from social media, unethical behavior and other factors have raised the stakes for compliance departments as they try to protect corporations from reputation damage and compliance violations.
Compliance departments are more involved in the management teams’ decision-making, which ‘places them on the front lines of protecting the company’s reputation,’ said Milch. ‘We have our fingers in everything that could be a trouble spot [for the company].’
That increased responsibility has led to legal departments and compliance departments working more closely together in recent years, placing more pressure on the general counsel. However, Gregory noted that in recent investigations, regulators seem to prefer that compliance officers not have a direct reporting line to the general counsel’s office. Thompson and Milch both disagreed with that position, stating that each company will handle its compliance efforts differently primarily because there is no ‘one size fits all’ approach.
Thompson, who has served three US Presidents, including his appointment by George W. Bush to head a Corporate Fraud Task Force that handled the government’s Enron investigation, seemed to take offense that the government would have an apparent preference.
‘I think there is a perception that somehow the general counsel represents the CEO or perhaps works for the CEO, and that’s not true,’ he said. ‘I find it more efficient and perhaps better in terms of protecting the company’s legal interest for the chief compliance officer and general counsel to work very closely together and have a reporting relationship, but that does not mean that the chief compliance officer should not have independence.’
Thompson explained that at PepsiCo his chief compliance officer routinely has independent meetings with the CEO and the board’s audit committee to keep them informed of compliance matters.
‘I think there should be important areas of independence, but in terms of the reporting relationship, I view my fiduciary duty to the company no different than the chief compliance officer’s,’ he said. ‘I think the government has a profound misunderstanding of our fiduciary duties.’
Thompson was also critical of the more aggressive tactics used by regulators in trying to deal with possible compliance violations. ‘Government enforcement efforts have changed. They’re using wiretaps, undercover operations….very much like what we’ve seen in past years in organized crime and drug enforcement investigations,’ he said.
Both men also felt that regulators could offer more guidance regarding what companies need to do to avoid compliance violations.
Milch said companies need to get beyond concerns for compliance and build ethics systems to better protect themselves from today’s risks. ‘You can have a reputation blemish that causes far greater damage from an ethics issue than a from a compliance issue,’ he said.
Milch also recommended that companies promote an atmosphere that insists that compliance is every employee’s business. Each of the company’s different business units must be deeply involved in the compliance process in order for it to be effective.
‘Set up a compliance counsel to make sure you avoid missed deadlines for rudimentary items,’ he said.
