Is it Ever "Rational" to Ignore Compliance?

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4 Responses

  1. Jon May says:

    My guess is that in most cases these companies will not have a chief compliance officer but will have a general counsel who may become aware of the company’s illegal activities. My guess also is that knowing that there is a very small chance that the illegal activity will ever be uncovered, counsel will make the “rational” (defined purely in utilitarian terms) decision not to do anything and take whatever measures are necessary to insulate himself or herself from any material that could show knowledge if in the unlikely event the government gets wind of the crime. The situation becomes more difficult if the GC or CCO learns of the crime through a report from a company employee. In that case the chances of disclosure increase dramatically as a result of Dodd-Frank. In that case the most rational choice may be for counsel to run as fast as he or she can to 10th and Constitution Ave.

    • Michael Volkov says:

      I agree — and I ahve seen that situation occur. It is a mess and everyone circles their own wagons to trya nd rpotect themselves

  2. John Weaver says:

    I have no doubt that GC and CCO’s find themselves in this position. It was ever thus. The stark reality however is that these individuals are charged with certain tasks and are generally well rewarded as a consequence. Those rewards are provided in recognition of the weight of responsibility which the role entails. In the event documenting and leaving cannot be the right answer. Similarly it cannot be a ‘commercial decision’ in the truest sense as to whether the costs of compliance outweight the risk of expeosure.

    If you hold yourself out as a compliance professional your role and duty is to comply with the law and stated company policy. Almost certainly the consequence is that there should be a notification to the board and all of the other steps which follow. Quite apart from the question of legal and professional obligations, plausible deniability is often a long and muddy defence to run. As Michael has said senior management will look after themselves. If they have created an environment where the CCO feels threatened in making a notification (which should properly be made) they should not be premitted to absolve themselves so readily of their own legal and professional responsibilities.

  1. January 29, 2012

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