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The State of Affairs: General Counsels and Chief Compliance Officers

In the last few years, the tension between chief compliance officers and general counsels appears to have subsided.  The issue of separating CCOs from legal departments is not as important as it used to be.  Why?

I would like to think that CCOs have gained independence, authority and line of sight across their organizations.  General counsels have acknowledged the importance of this change and accepted it as the new norm in the compliance landscape.  But has change really occurred?

The facts clearly establish that change has occurred.  Years ago, almost two-thirds of CCOs reported to the general counsel.  Now, with the support of government prosecutors and regulators, and compliance advocates, the number of CCOs reporting to general counsels has dwindled to approximately one-third.  I predict this number will continue to fall below one-quarter.

Has the so-called “rise” of the compliance profession been more form over substance? 

Has independence and authority truly elevated the CCO into the C-Suite? 

Has the CCO become a trusted advisor to the CEO and senior managers?

I suspect the answers to these questions varies from company to company.  I am not so naive to believe that form will always trump substance.

As I have witnessed in my own career, it is hard to generalize about professions because the most significant influence on a company’s operations may vary based on personalities.  The form or organization of a compliance infrastructure may not be determinative of the role of the CCO and the influence of the CCO with the CEO.

On the other hand, corporate politics, jockeying and ultimate influence requires access and contact.  A CCO in the C-Suite provides opportunities that a CCO would not otherwise have.

A general counsel always has access to the CCO and the C-Suite as the chief legal advisor.  But again, in some companies, the general counsel sits at the right hand of the CEO, and in others, the general counsel and the CEO have occasional contact.  I have yet to see an organization where the CCO sits at the right hand (or even left hand) of the CEO.

Some have suggested there is an inherent bias by the CEO and senior managers to favor the general counsel over the CCO.  I do not believe that.

The CCO’s elevated importance has not had enough time to take hold in corporate governance.  We will see the ultimate rise of the compliance profession as a trusted business partner in those organizations that understand the importance of ethics and compliance to a successful and sustainable business.  A new breed of leadership is evolving in the corporate landscape – one that avoids cutting corners, living for quarterly results – and instead embraces the true support multiplier of corporate success: a commitment to ethical business as a sustainable business model.

Corporate leaders that eschew ethics and compliance will no longer be successful in the long run.  They may move from company to company, but they will not be leaders of the new model for corporate governance that is built on long-run results.

The natural partner for sustainable growth, however, is the CCO.  Certainly, general counsels can play that role as well, and I have seen numerous conversions by general counsels who now acknowledge the importance of an independent CCO with authority and resources.  In fact, with the rise of CCOs, I have seen more collaboration than antagonism between CCOs and general counsels.

The road may have been bumpy but coordination and partnership between the legal and compliance functions is increasing rapidly.  In the end, CCOs and general counsel realized that they needed each other more than they needed to disagree.  It was bound to play out this way and general counsels and CCOs have made it work.

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2 Responses

  1. Dave says:

    Interesting article. In my experience, I have seen both — the CCO or other high level compliance function report directly into the GC or report directly to a CEO. In either scenario, though, the constant has been that the CCO is almost always, if not always, a lawyer for the company (or at least have a legal degree) regardless of the role’s growing independence from the general counsel’s office. I’d be interested to know if your research/experience is similar. As a compliance practitioner (non-lawyer), who has a background in contracts compliance and has shifted to a more pure ethics role, I wonder what my ceiling continues to be as related to the fact that the CCO is gaining independence. To me, those trained as practitioners tend to be an important counter-balance to the legal staff in larger organizations. I think the break of the GC and CCO seems to align with that balance, but not if the CCOs always end up being lawyers themselves – often being promoted up through the GCs office. At the end of the day is the break between the two really just a distinction without a difference if they are simply two legal professionals doing basically the same work?

  2. There is a continuing lag in recognizing the differences between compliance officers and legal counsel. As long as the two functions have this blind spot, the evolution of the compliance side will be slow and frustrating.