Is Your Board Engaged on Compliance or Not? Be Honest!

engaged2We all can cite situations in which we avoid the truth. Part of the reason is we want to believe and cannot accept the truth. With age, we supposedly acquire wisdom and become more realistic about personal and professional situations.

For the compliance professional, it is easy to sink into the “happy talk” defense and avoid realistic assessments. I have met and worked with many chief compliance officers, and I have seen many permutations of relationships between a CCO and a Board of Directors.

One of the hardest issues for every CCO is to assess where the compliance function stands with the Board of Directors. I have seen CCOs who have an excellent working relationship with the Board. They are in frequent contact with the Chair of the Audit and Compliance Committee; they present to the Committee every quarter and they have an executive session with the Audit and Compliance Committee to discuss issues of concern. The informal contacts and communications between the Chair of the Audit and Compliance Committee and the CCO are invaluable and reflect a board that is truly engaged in the compliance arena.

From this positive model of board and CCO interaction, the picture can become more complicated. I have also witnessed CCOs who do not appear in front of the Audit and Compliance Committee or the Board but submit a written report to the Board each quarter. I have also seen CCOs who are given five to ten minutes to report on compliance issues to the Audit and Compliance Committee.

A board’s attitude toward compliance is demonstrated by its reporting and working relationship with the CCO. I recognize that you cannot over-generalize from some information but it is important to assess accurately whether the board is engaged in the compliance arena.engaged3

When a board devotes brief time periods for reporting or requests only written reports, those are serious red flags that can be seen as indicators of a lack of overall engagement. A board that is disengaged on compliance is likely to be a board that will increase the risk of serious violations of its Code of Conduct and/or the law.

A CCO cannot live in denial. Instead, a CCO has to embrace honesty and develop a plan to improve board engagement. The CCO will need the assistance of the CEO and other senior managers. The CEO may be unwilling to bring this issue to the Board’s attention for fear of negative reactions.

A CCO has to turn the situation around and has to take affirmative steps to bring the board into the compliance field. One of the best ways to educate the board is to train the board – secure thirty minutes to an hour of time to outline the risks, the state of the compliance program, and recommendations for how to enhance the compliance function. It is a significant opportunity and should be done annually.

engaged4The CCO has to adopt a campaign to educate and persuade board members on the importance of compliance and regular contacts. This can be started as a personal campaign under which the CCO reaches out to specific board members who may be receptive to hearing more about the compliance function. Personal persuasion will be needed.

The compliance campaign with the board should definitely target the Chair of the Audit and Compliance Committee. Success will depend on perseverance and interpersonal skills but it can be done. CCOs should not just accept the situation and start looking for a new job. They need to be honest and make the effort. It may work but it may not – but you will never know unless you try.

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