The Key to Compliance: Effective Corporate Governance
For those who like to focus on anti-corruption enforcement and compliance issues, I am sure there are times readers wonder why I post articles about corporate governance.
In any company, “tone-at-the-top,” requires good corporate governance. Senior management can do everything necessary to make a compliance program work but without effective governance at the board level, the tone at the top may be drowned out by other problems within the corporate culture.
It is hard for corporate boards to turn an eye on themselves and honestly assess the strengths and weaknesses of the board. Too often, corporate governance is turned into a prescribed list of best practices (e.g. independent directors, committee structures, CEO does not sit on the board), obsession with bottom line financial measurements, self-congratulatory pats on the back, and avoiding any new risky initiatives.
This is where senior management has an important role to play — the CEO, COO, Chief Compliance Officer and General Counsel — all need to work closely with a similar vision — to make the board more effective, to ensure that the board considers all appropriate alternatives, and most especially, that the board and the appropriate committees are effectively meeting each other’s information needs. The flow of information to and from the board needs to be dynamic and closely measured and modified if necessary. Without information, boards are disabled from carrying out their important responsibilities.
The relationship between the Chief Compliance Officer and the Audit Committee/Compliance Committee is a crticial lynchpin in this equation. Whatever relationship exists between the committees and senior management, if the Audit/Compliance Commitee and the Chief Compliance Officer are not on the same page or not working well together that is a recipe for disaster. Unfortunately, even when a company has created an effective corporate governance structure, the interpersonal relationships among key actors may cause an otherwise efficient structure to misfire. This is a factor which needs to be part of any ongoing assessment of corporate governance operations.
The tone of top management is quickly tested whenever potential compliance issues arise. If a board is working well with senior management, potential corruption issues will be dealt with professionally and with a team approach to the analysis, assessment and course of action. When the toner at the top is mixed, and there is disagreement on corporate values and priorities, compliance issues can become nightmare scenarios.
The first sign of a dissembling corporate governance structure is when divisions appear among board members, often deteriorating into separate campes of positions or even individual d staking out positions. Given the potential liability issues for directors, especially with increased civil litigation risks (e.g. shareholder derivative, civil RICO suits), directors are quick to secure individual representation to handle difficult governance issues, especially those surrounding compliance and possible enforcement actions. irectors
The tone at the top of the board can either be a foundation for compliance or the root of crumbling governance and compliance programs. Chief Compliance Officers need assurances on his/her relationship with the corporate board on access, information and authority to carry out the compliance mission.