Getting Back to Basics: CCOs and Independence
Chief compliance officers continue to enjoy these heady days – salaries are up and new opportunities are popping up in the corporate world. CCOs have to keep their eye on the ball. It is well and good to get a good salary, a nice office, and a title, but there is an important requirement that cannot be overlooked – independence.
The trend over the last ten years has been unmistakable. CCOs have been freed from the bondage of backwater corporate offices, elevated to important roles in a company, and given significant responsibilities. At the same time, CCOs have been given greater independence.
Last year, Deloitte issued an important report (here) capturing the important trends:
- 21 percent of CCOs report to the General Counsel
- 57 percent of CCOs report directly to the CEO or the Board (not just a dotted line)
- 50 percent of CCOs sit on executive management committee
Donna Boehme, Michael Scher, Joe Murphy, Roy Snell and others in the compliance world have been pushing for CCO independence, especially when it comes to the legal function. General counsels often have political conflicts – they want to see the compliance function grow so long as it is within the legal function. When a CCO is elevated and carved out of the legal function, general counsels often undermine this arrangement, at least the politically insecure and controlling types.
Forward-thinking general counsels recognize the importance of separating the compliance function and empowering the CCO as a key ally in the overall compliance function. General counsels should be a natural partner to the CCO but politics and insecurities sometimes get in the way.
CCOs have to stick to their guns, especially when negotiating their employment at a new company. CCOs have the leverage when they are being considered for a new position and they have to continue to push for independence, line of sight and empowerment. These are not meaningless buzzwords – they are real and tangible concepts that are demonstrated by placing the CCO in the C-Suite, giving the CCO visibility and participation in senior staff meetings, and affording them operational independence with a reporting responsibility directly to the CEO and a dotted line to the board.
A model for CCOs is the Internal Auditor. Not to create sibling rivalry, but CCOs should be treated equally to the Internal Auditor. Internal Auditors enjoyed extraordinary growth and influence in companies as a result of Sarbanes Oxley.
Prosecutors and government regulators have adopted a similar manifesto for CCOs. The Justice Department expects CCOs to have sufficient authority, resources and independence to carry out their job. Audit Committees responsible for oversight and monitoring of a company’s compliance program have to take a robust approach to a company’s compliance program and make sure these best practices are met.
CCO independence is a core characteristic of a robust compliance function. If companies carve compliance into an existing function: internal audit, legal or security – CCOs are hamstrung.
A CCO has to enjoy independence and direct access to the CEO if the CCO is to have a chance. General counsels have to step aside and recognize that a CCO’s elevation and empowerment enhances the legal function as well. Lawyers play a valuable role in supporting and advancing the compliance function. When they stifle the compliance function, they gain short-term political advantages but suffer long term consequences when a company fails to adhere to compliance requirements, or a company’s culture veers of course (e.g. GM and the ignition switch case).
CCOs have to redouble their efforts to educate companies on the importance of independence and avoid situations and job opportunities where such independence is not guaranteed.