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The Need for Corporate Compliance Committees

It is hard to move businesses in different directions.  I like to use the analogy of turning a ship around — it takes time, dedication and a steady hand.

Corporate governance is shifting again.  We had the revolution of Sarbanes-Oxley in the early 2000s and now we have a new movement afoot.  It is no coincidence that aggressive changes in white collar enforcement coincide with significant changes in the corporate governance landscape.

The newest trend — which I fully endorse — is the creation of corporate compliance committees.  For most businesses, a separate compliance committee is an effective means to focus on difficult compliance issues, demonstrate a management commitment to compliance, and facilitate communications on compliance issues within an organization.  By establishing such a committee, a company sends a very clear message.  But the committee has to be more than just window dressing — it has to have the support, the resources, and dedicated members with real expertise in the compliance area.

I like to use another analogy — a compliance committee is like your dashboard on your car, telling you how fast you are going, how much fuel you have, and allowing you to signal others on the road. 

A compliance committee should help your company navigate your legal obligations by empowering your decision makers with the right information.   It serves a proactive role, separate from the audit committee which has a number of critical obligations related to Sarbanes-Oxley enforcement. 

The compliance committee is responsible for ensuring that the company is complying with key legal and regulatory obligations.  It is your primary vehicle by which to manage risk. 

The compliance committee must actively gather and disseminate information reporting on overall compliance efforts.  It must also communicate compliance issues and business risks to the right people. The right people include responsible managers, who are directly responsible for significant day-to-day business decisions. 

The compliance committee must include one or more independent members who understand the regulatory environment, as well as the principles of good governance. This has a number of advantages. The independent member can test reports and statements, and mine discussions for issues that may otherwise go uncovered; may be able to share broad industry information and trends; and is likely to be less susceptible to a company’s internal culture (which might be reluctant to discuss certain risks and violations).

A well-structured compliance committee is your ultimate protection against potential legal and regulatory violations.  I encourage others to look at such committees as part of an overall compliance program.

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1 Response

  1. Anonymous says:

    Having lived through a compliance nightmare, I can not agree more with your views on a compliance committee. This particular SWF established a compliance committee with no less than 26 members all non-lawyers coming from within each business unit. To the extent that HR managers, token nationals put in positions to fly the flag of nationalization, are held up as knowledgeable, aware and experts in the area of compliance, corporate governance and corruption. There is limited if any training or understanding on the part of this committee, at best the most pathetic attempt at window-dressing I have ever seen. Having recently been walked out the door due to blowing the whistle on illegal practices in Indonesia and Malaysia by a SWF who now hides behind their ME home jurisdiction to avoid the reach of the US and UK yet they issue term notes in the US and Europe and avoid reporting requirements yet still chase profits by corrupt means. Unfortunately, the senior management bear personal liability as they comprise of both US and UK persons who were actively involved in the illegal activities, were advised to cease and desist yet defied this advise for the sake of self-interest, greed=bonuses. I now sit in waiting for the SEC to take action. Having been terminated for what the SWF labelled as "unethical behavior" and now the subject of threats of being thrown in a UAE jail, I can sit and wait for the SEC and DOJ to act. I now appreciate the stress and fear Peter Barker-Homek faced when dealing with the UAE. SWF's want to play in the global economy yet they wont play by the rules. How can finance houses like Goldman's and Citigroup take investors funds and pump it into SWF's who fail miserably on the compliance front. Simply fueling corruption, illegally gained profits and advantages and breeds ever-growing social injustice and poverty. Financial institutions need to take a long hard look at themselves in the mirror as well as foreign workers who flock to SWF's in the ME to chase large pay packets yet leave their ethical, moral and professional obligations at reception, if they had any.