Compliance's Challenge: Making Inroads With The Board

October 11, 2018 Ben DiPietro

Chief ethics and compliance officers desire more interaction with and attention from their boards, but they will have to find more effective ways to connect to the issues that matter most to directors to make it happen.

The latest report from LRN asked chief ethics and compliance officers for their opinions on how their boards view ethics and compliance; it identified seven themes. While the results revealed that a few boards are very engaged and place a strategic high priority on ethics and compliance, the report found most boards:

  • Have a poor understanding of their ethics and compliance programs;
  • Lack a systematic plan for compliance oversight;
  • Spend little time discussing ethics and compliance and don't make them priorities;
  • Fail to help integrate ethics and compliance into company operations;
  • Don't focus on behavioral root causes, culture or measurement metrics;
  • Don't hold management accountable for ethics and compliance; and
  • Lack a confidential communications channel for the compliance chief to raise sensitive issues.

The report recommends four ways boards can create more effective oversight of compliance. They are:

  1. Making more time for compliance issues and elevating them to send a signal to the entire organization that ethics and compliance matter;
  2. Making sure boards exercise better oversight of compliance to ensure it is more closely linked to business operations;
  3. Empowering greater accountability of senior management; and
  4. Creating a stronger and more direct, confidential reporting relationship between boards and chief compliance officers.


David Greenberg (left) discusses the role of Boards in overseeing corporate ethics and compliance with Anthony Goodman, Marcus Brauer and Gary Hayes of Russell Reynolds Associates.

Speaking Wednesday during a webinar analyzing the results of the report, Anthony Goodman, a member of the board and advisory group at Russell Reynolds Associates, said one issue is language.

"A lot of this discussion focuses on ethics and compliance, maybe two of the most boring words in the English language, as important as they might be," said Goodman. "If compliance can reframe the issue around corporate culture, there would likely be more interest from the board and then more progress will get made."

There is an opportunity to do that, he said, as one of the areas boards are focusing on is risk oversight, which includes discussions about culture. The troubles at Wells Fargo and other companies, which resulted in board members being replaced, along with the effects of #MeToo, have elevated cultural concerns at many boards.

"Chief compliance officers have it within their hands to provide boards with a way of thinking about culture problems," said Goodman. "If you want their attention, tuck your issues under these prevailing things that will attract their attention."

LRN's David Greenberg, who authored the report, said one issue uncovered is the lack of understanding of the role compliance plays in setting the proper organizational culture. This shows compliance needs to do better in explaining to the board what it does, he said.

Part of the reason a board may not understand what compliance does is that compliance gets so little time to present to the board or the board committees.

The report asked compliance officers to estimate how much time a year their board spends talking about ethics and compliance; half said two hours or fewer. Only one in three said they get to speak to their board or board committees in executive session. More than 40% said their board didn't receive ethics and compliance education or training in the last year.

Another reason is most directors are or were very senior business executives who are comfortable reviewing data and making big decisions, said Gary Hayes of the leadership and succession practice at Russell Reynolds. They are less enthusiastic when they delve into fuzzier areas such as ethics, compliance and culture.

"When you move into ethics and compliance, and something even broader like culture, you are moving away from their comfort zone," said Hayes. "It is not area they thrive in...and it is quite understandable why they hold back, even when recognizing the urgency of reputational risk."

That presents opportunities for compliance to be a data aggregator that provides the kind of information that might indicate a culture problem, said Goodman. Data could come from health and safety information, employee satisfaction surveys and exit interviews, turnover rates, how many and what types of calls to the company's hotline. The report found 60% said they don't collect metrics about ethical culture.

"There are lots of sources of data that can give you a sense of what is going on," said Goodman. "But who is putting that together? Is there a dashboard that goes before the compensation committee, the audit committee, the full board? Somebody needs to be looking at patterns, talking about pattern recognition, because data is one thing, the interpretation of data is quite another." 

So how can compliance increase its influence with the board? It must make sure its issues are linked to the organization's strategy. It also may want to make board members undergo the same ethics and compliance training as everyone else in the company, which he said is one way to get their attention and get them to ask questions, Goodman said.

Another idea is to show them where the company's ethics and compliance efforts rank in comparison to their competitors and those deemed to have best-in-class programs. 

If all this doesn't work, and it's apparent senior management and the board aren’t interested in ethics and compliance, Goodman shared this advice: "You're in the wrong job. Be brave, get fired and go to a company that does care."

Click here to read the report. 

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