Ominous Signs for the Future of the Compliance Profession
As we celebrate Ethics and Compliance Week in 2017, I wanted to offer my own assessment of where the compliance profession stands and the challenges facing the profession for the future.
I am an eternal optimist – I will never fall to the dark side of cynicism and pessimism. Over the last ten years, the compliance profession has made great strides as a profession and in the corporate governance landscape.
Chief compliance offices have broken out of the backwater, and achieved independence, autonomy and amassed increased influence and resources. But there are some ominous concerns for the future.
Chief compliance officers have separated from the legal function in increasing numbers. CCOs have been elevated in the corporate governance world to achieve line of sight across the overall business operations. In other words, they have become part of senior leadership.
More professionals are entering the ethics and compliance field. Pay is increasing for compliance professionals and more attention is being paid to professional development, professional standards and accountability.
So, why do I see ominous signs for the future?
Let me take a step back – corporate leaders and the business community are not often leaders when it comes to significant change in business conduct and corporate governance. In other words, corporate leaders and businesses often move in reaction to trends and avoid proactive strategies. In this respect, many commentators and business leaders would admit (if given truth serum) that the rise of the compliance profession reflects primarily a response to an aggressive global enforcement environment, particularly in response to anti-corruption enforcement.
If the past is a harbinger of the future, we should acknowledge that the rise of the CFO and the Internal Audit functions were directly the result of a new federal law, Sarbanes-Oxley. The specific requirements imposed by Sarbanes-Oxley transformed the financial accounting governance and compliance requirements, including specific requirements concerning the implementation of effective internal controls.
In the absence of specific federal laws addressing the compliance profession, I believe that there is a limit as to what corporate leaders and businesses intend to implement with regard to the compliance function. My view is somewhat pessimistic, and I hate to admit that, but my opinion reflects years of observing corporate actors, cultures and effective leadership.
There will always be a small percentage of corporations with innovative and ethical CEOs, who understand the importance of ethics and compliance to sustainable growth, profitability and legal compliance. However, the larger percentage of companies will only commit to ethics and compliance as a minimum requirement, meaning checking off basic elements without fully embracing the benefits and importance of ethics and compliance.
My concerns reflect my own observations and trends showing that, in the absence of a government investigation: (1) CCOs are often unable to secure adequate resources to implement appropriate policies, procedures and controls; (2) CCOs are not given the appropriate recognition and access to corporate boards and senior leadership needed to carry out their obligations; and (3) top management and boards continue to avoid compliance responsibility and accountability for corporate conduct. CCOs have to avoid and speak up when they view their stature in a business as mere window dressing, meant to provide a pro forma defense or insurance against a possible future government enforcement action. Until top management and corporate leaders embrace ethics and compliance as a critical intangible asset contributing to sustainable growth and profitability, corporate governance will only rely on ethics and compliance as a band-aid and protection against government enforcement actions.
My view is tempered by the extraordinary global movement behind ethics and compliance, corporate governance improvements, and re-examination of corporate boards and their accountability for corporate conduct. Nonetheless, the corporate forces against significant change will resist the next series of reforms needed to instill greater accountability and further reform of the corporate governance world, including ethics and compliance programs.
In the end, I hope I am wrong, but I am concerned that the only way to complete the ethics and compliance revolution may depend on federal mandates and legislation that will come in response to the next series of major corporate scandals that impact our financial system and economy. My fingers are crossed and my optimistic approach will continue but in the back of mind are these ominous worries and signs of limitations in the rise of the ethics and compliance function.