For An Effective Ethics and Compliance Program — First, Train Your Board and Senior Executives

bdtrCompliance professionals are familiar with the phrase “tone at the top,” but what exactly does it mean?

Unlike other compliance program components, it cannot be easily formalized and implemented in a policy or procedure. Yet tone at the top is critical to building a culture of compliance – employees and managers do not live in a vacuum, they will reflect the importance of ethical business practices shown to them by the managers, executives, and board members above them. But how exactly do you build your tone at the top?

Here, I’m going to focus on arguably the most effective means to ensure that your tone at the top is moving your culture of compliance in the right direction – training.

Have you trained your board and your C-Suite Team to understand the risks, financial and otherwise, of a weak compliance culture? Or the benefits and advantages to a strong compliance culture? If not, that is the best place to start. This is a tricky issue and I received several question on it during a recent webinar.

Board members and senior executives are busy professionals and many think that they are experienced enough not to need more training. But, unless a board member happens to have prior experience in compliance, each board member will need to learn how to oversee and monitor compliance issues. This is where a Chief Compliance Officer should seize on a “teaching” moment. The honest truth is that sometimes board members do not understand what the law requires and how a compliance program is supposed to work.

A company led by a board and C-suite that does not understand compliance program requirements is a disaster waiting to happen.

We have seen time and again the results of a board and C-suite that are not trained to manage compliance issues. Recently the VW emissions scandal and this year’s VimpelCom enforcement action provide a fertile ground for understanding what can go wrong. When a company is not being led by a culture of compliance, which originates with the board, it is merely reacting to enforcement and operational threats.bdtr2

The VimpelCom enforcement action from earlier this year was a shocking example of a board that had nearly abdicated its compliance oversight responsibilities. When VimpelCom executives were seeking approval to acquire two companies the board simply never asked a very basic question – who are the beneficial owners of the proposed acquiring company? If they had obtained the answer to this basic question, VimpelCom could have possibly avoided the FCPA disaster resulting in over $700 million in fines and penalties.

Instead of asking this question, the board approved the proposed questionable transaction after relying on a deficient outside counsel opinion letter that failed to answer this basic question of beneficial ownership. If the board had received training in the importance of thorough due diligence, and the risks of failing to carry out such due diligence, would they have reacted the same way? Unlikely.

Training a board is about more than explaining the basic building blocks of a compliance program – it is also about their role and how they can contribute to building a company’s culture of compliance. In fact, training your board and senior executives is arguably the most difficult type of training to implement – experienced and busy business people who believe they already have the knowledge necessary are not necessarily the most attentive or committed audience.  In practice, board members and senior executives often do not know as much as they claim and they often need a refresher to remind them of developments in compliance.

The basic building blocks of your board and executive training program should include, at a minimum:

  • The importance of corporate culture
  • Company risk sources
  • Third party risk management strategies and procedures
  • Internal investigation procedures and outcomes
  • Periodic assessment and audit results
  • Board legal responsibility for compliance oversight.

Using this basic outline, design a training program that explains why the information is relevant and how the board and senior executives should use the information. Charts and graphs, along with numbers and metrics, are all important parts of the oversight and monitoring process. There are many third party vendors who can provide assistance on this issue and have training programs designed specifically for senior executives and board members.

waFor example, Workplace Answers (Here), a company whom I work with on a regular basis, offers a global anti-corruption training program that covers many of the risk areas your board members and senior executives need to understand such as the FCPA, UK Bribery Act, third parties, internal investigations, due diligence and gifts and entertainment.

If the VW board had understood the importance of tone at the top, they may have chosen to clarify VW’s priorities, and acted to obey the law rather than increase profits by violating the law. Instead, VW faced publicity such as The New York Times’ September 25th, 2015 article titled “Problems at Volkswagen Start in the Boardroom.” The article cites a former executive as describing the scandal as “all but inevitable,” due to “the company’s isolation, its clannish board and a deep-rooted hostility to environmental regulation among its engineers.” It is easy to imagine but hard to accept that VW would have chosen the same path had the board and its executive team been trained and understood the implications of its misguided strategy to avoid environmental regulatory requirements.

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3 Responses

  1. Michael:

    Very good points you raise, and to help the cause the Society of Corporate Compliance and Ethics offers a conference designed to address the compliance-related educational needs of the board. Our next Board Audit & Compliance Committee Conference will take place in Scottsdale from November 7-8. Details are at:

    It’s not only a great opportunity for board members to learn, it’s a great way for compliance professionals to better understand exactly what the board needs to know.

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