Approximately one-quarter of all companies have become enlightened by creating a board-level Compliance Committee.  I have long been an advocate for the advantages of a Compliance Committee.  To me, it is a no-brainer. 

A Compliance Committee can be instrumental in focusing an organization’s compliance efforts.   The Compliance Committee purposes should be to ensure: (1) compliance with the laws and regulations applicable to the Company’s business; and (2) compliance with Company’s Code of Conduct and related policies by employees, officers, directors and other agents and associates of the Company.

Some argue that a Compliance Committee is not necessary since Audit Committees have historically taken responsibility for compliance.  Such thinking is short-sighted.

In this era of aggressive enforcement and exponentially increasing laws and regulations in the global marketplace, it is unrealistic to think that the Audit Committee can continue to carry out compliance.  Creative strategies require creative structures.  A Compliance Committee fits the bill.  Proactive steps for compliance are even more critical today, and Compliance Committees are the most effective laboratory for identifying new and effective compliance policies and procedures.

It is important to isolate the compliance function.  A Compliance Committee underscores and even elevates the role of the CCO within the organization.  It gives a boost to the compliance effort.

A macro view of compliance allows for new ideas to percolate to the top of a company.  New strategies are considered, evaluated and embraced.  It is a simple way to promote compliance within a company.

By contrast, Audit Committees suffer from two significant downsides.  First, Audit Committees are subject to strict regulatory regimes governing their activities.  The SEC and the Public Company Accounting Oversight Board impose a number of regulatory requirements on the Audit Committee.  Sarbanes-Oxley mandated a number of requirements on Audit Committees which were multiplied by SEC and PCAOB regulations.  

As a result, it is understandable that Audit Committees do not have sufficient time nor desire to focus on compliance.   Audit Committees already have a crushing burden.  They cannot easily turn away from important issues relating to audit functions, annual financial audits, and overall financial operations, to engage in compliance. 

A Compliance Committee has a focused mission which transcends all compliance functions.  At a minimum, a Compliance Committee will improve reporting and analysis of compliance information; and risk assessments, monitoring and overall compliance trends within companies.  In addition, a Compliance Committee creates an important leadership laboratory to consider and implement new, proactive compliance strategies and solutions. 

The cost of a Compliance Committee is minimal in relation to the benefits.  Enlightened companies need to move forward in this direction.  It is not sufficient to create a Compliance Committee among senior managers.   These committees are unwieldy and narrow in scope and function.  A board-level committee ensures that compliance is promoted as critical to an organization’s future, and is important to ensuring that employees incorporate ethical conduct into their day-to-day activities.