They felt that legal is still in charge of the “should,” not just the “can.” Be that as it may, if departmentalization creates the perception that the in-house lawyer’s role is no longer concerned with ethics or morals, it may become expected that lawyers play the role of legal technician telling clients what they “can” do within the letter of the law, not what they “should” do based on the spirit of the law, ethics, and considerations beyond law. Even if the turf wars do not erupt, there is a simple mathematical problem: in a corporation, one plus one does not always equal two. A good example of ethical fading is lawyers reporting billable hours. All of that is good news, since arguing for ethics and compliance awareness at the strategic level saves compliance officers boatloads of time at the tactical level later, when you’re implementing specific controls and processes. , when you’re implementing specific controls and processes. Focuses on the strategy of human capital and how HR programs grow revenue and the organization for the broad and often global organization and for the longer term. So, … An effective reporting structure: (1) plays a vital role in creating and fostering a culture of compliance within the organization; (2) sets the tone that compliance is the responsibility of all employees; and (3) keeps the lines of communication open. Over time these divisions can create silos—and silos are the death knell for the cross-fertilization between different departments that is needed to create new solutions. Compliance is not part of the law. If this is what the job entails, the job of a compliance officer is measurably more complicated, and the level of influence and power, along with the personal, leadership, and communication skills of the compliance officer, become even more important. Transparency into the corporation so that misconduct can be uncovered and prosecuted and future misconduct deterred, The ability for a corporation to establish a functional culture of ethics and compliance that goes beyond the letter of the law, The impact that internal networks have on effective compliance, How people are motivated intrinsically and extrinsically. This article is derived from a more expansive work previously published in the Hastings Business Law Journal. Indeed, much has been written about the time it took for GCs to get their seat in the C-suite—to move from being considered second-class citizens to being one of the highest-ranking, highest-paid, and most influential corporate executives at large publicly traded corporations. Should there be a new “C” in the C-Suite? They aren’t a sample of “normal” firms that might portray what companies usually do. Policies/ Procedures. In other words, how people classify a decision affects the decision they make. Further complicating the scenario is the fact that many compliance departments are run by lawyers. Now we have this report, showing that more CCOs among this group have input into strategic issues. Interestingly, the CCO interviewees—even those who were formerly practicing attorneys and often associate GCs within the legal department—distinguished between lawyers and compliance professionals, saying that whereas lawyers tell you what the law says and are concerned with legal liability and vigorously defending the corporation at all costs, compliance officers: … care about doing the right thing the right way for the right reasons. In the first Ethisphere analysis published last month, that report explored how the firms were trying to be more transparent with employees (and even outsiders) about what the ethics & compliance function actually did; and how the firms were using technology to give employees a better, more interactive experience when reading the Code of Conduct and written policies. What expertise and skills should these compliance officers have? Also important are CCOs’ reporting relationships. The scarecrow – The scarecrow role is played when no one person is in charge of compliance at the corporation as “compliance is everybody’s business.”  Rather than specifically designating someone as a CCO, a more open organizational structure means that everyone—from management all the way down to front line workers—is concerned with compliance issues. By working separately from the GC’s office (and outside the lawyers’ rules of professional conduct), the CCO will have the requisite autonomy to uncover and report noncompliance, thereby increasing transparency into corporate misconduct—especially during governmental investigations or queries. This is no wonder, given the economic downturn of 2008–2009, changing technologies, and rapid globalization. Our job is to raise awareness that there is an ethical obligation to be aware of what is allowed, which in the end is in the best interest of clients, and that includes reporting if they see something that should not be done or could harm the company or clients. . . Courts protect communications by practicing lawyers who mix business and legal advice as long as they are “predominantly legal” or “made primarily for the purpose of generating legal advice.” This is because it is almost impossible to distinguish between business and law, and in the course of performing their jobs, most corporate lawyers mix legal and business advice. the general counsel simultaneously. . A series of underemphasized and unintended consequences of departmentalization are important to draw out in order to answer the “so what” question more appropriately. Research by Robert Eli Rosen, Christine Parker, and Vibeke Lehmann demonstrates that a corporation’s perception of legal risk is heightened when practicing lawyers are in charge of compliance. 2. 3. To the contrary, an effective structure starts with the board and the specific committee responsible for overseeing the compliance program. In this view, the compliance department’s role is more process and results oriented in some ways than that of the legal department. . Thus, it appears that departmentalizing compliance, instead of being best practice, may elevate form over function. Most enterprises combine a number of functions under the Office of the CFO; the most … In some companies, Compliance does not have its own Officer. It should also cover structure and role of the compliance function as well as role of the CCO. In this article, I have attempted to focus on the underemphasized drawbacks to departmentalization, such as the disempowerment of the CCO, the creation of barriers to collaboration between departments, a decrease in corporate transparency, and the potential evolution of lawyers into amoral, legal technicians. This works in smaller companies, at least, because the Officer over Compliance is compliance-minded and will give due consideration to Compliance input. Which sounds even worse than reporting directly to the general counsel to me, but such is life. The automaton – The automaton role is about building policies and procedures, training and testing employees on specific regulations and obligations, and monitoring adherence. . Tod Reichert Tod K. Reichert is Chief Compliance Officer, Senior Vice President and Corporate Secretary of MCG Capital Corporation (NASDAQ: MCGC). By closing this banner, scrolling this page, clicking a link, or continuing to browse this site, you agree to this use. Chief risk officers and chief compliance officers are board members who work in corporate settings. The Chief Information Security Officer (CISO) is a position within an organization whose genesis lies in the IT department. Banks' chief compliance officers to report to CEO, board committee: RBI ... accountability, incentive structure and effective communication and challenges. In fact, the risk is much, much larger. First, news about job titles: at 76 percent of WME firms, the person with overall ownership of the ethics & compliance program has the title of chief ethics and compliance officer — although only 35 percent of firms have that person solely in charge of ethics and compliance, with no other title. Noncompliance is seen as intentional, and attorneys and non-attorneys alike need to be trained and caught. So why not establish a role dedicated to bringing those issues to light, and then inculcating awareness across the whole enterprise? This one examines job titles, reporting relationships, and staffing. The most common alternative is reporting directly to the General Counsel. The issues relating to separation of the CHIEF COM… Just as there are executives in the CIO’s team responsible for IT infrastructure or enterprise applications, there were those who were responsible for IT security—those who ensured that the computers, the networks and the applications remained safe. If there is a risk that the compliance officer is vying for power and influence, arguably, he or she may also succumb to using his or her cast of mind and freedom from the model rules to do more bad than good. Ethics intertwines with compliance: blind spots and ethical fading: Formal changes and controls like ethics programs, codes of conduct, mission statements, and reorganization are completely decoupled from what we know about ethical decision making. These arrangements should be in writing. The Chief Compliance Officer The fourth ingredient in a world-class ethics and compliance program 3 ... reporting structure for CCOs can send a strong signal to all stakeholders, including personnel and regulators, that the organization takes ethics and compliance seriously. Departmentalizing will not necessarily increase transparency into a corporate misconduct investigation but, counterintuitively, may increase the amount of information shielded by the attorney-client privilege. This executive helps steer corporate values more broadly—and recently has … Do any of these characters sound familiar? In October 2016, the SEC fined and censured a registered investment advisor for failing to conduct required annual compliance reviews and for appointing a chief compliance officer … Who should be in charge of compliance and ethics: the GC or the CCO? At the Chief Compliance Officer level, this disparity is much less noticeable for CCOs who hold law degrees than for those without law degrees. . The problems posed to multinational corporations today are more complex than ever before, requiring teams of people with different expertise to collaborate to understand what the regulations require, where to apply them, and, most important, how to comply and implement them. Last month’s column addressed the security organization reporting to the General Counsel, which studies show is one of the more common reporting relationships for security executives. 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