Compliance Officers Need More Clout

A recent survey finds more companies are hiring compliance and ethics officers; however, scandal and fraud continue, and a lack of effective training and empowerment are likely chief factors.

Tuesday, January 26, 2016
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Corporate ethics and compliance officers are increasing in numbers, but they're not putting a stop to incidents of corporate fraud and scandal.

So says a recent report from Los Angeles-based practice-management-consulting company Sterling Management. Sterling CEO Kevin Wilson even has an explanation: Ethics officers are simply not being given the knowledge, power and authority they need to govern these wrongdoings and ensure they're nipped in the bud before spiraling out of control.

"These positions are filled with critical training gaps, not enough authority and [are] most often working out of the wrong department in the company," Wilson says. "In many cases, their everyday duties and demands obscure the really big issues that could sink the ship. Without the proper skill set, ethics officers are programmed to fail."

Salary, he points out, could also be a contributing factor to this low stature. Consider the devastating effect of the recent Volkswagen emissions-software scandal. In addition to financial losses in the billions, the emissions-test cheating also did some serious damage to the German national brand, Wilson's report states.

While Volkswagen compliance officers would likely not have discovered the illegal software issue, they could have exerted a proactive effect on the corporate culture that produced it, it says. But according to the Bureau of Labor Statistics, the median annual salary for compliance officers was only $64,340 in 2013. At that level, it says, it's unlikely that anyone would be able to establish authority over the practices of executives making more than 50 times that in bonuses alone.

"A compliance officer," says Wilson, "maintains a very senior viewpoint in the company and must have exacting skills. It's a rigorous job, but if you look at the devastation that can occur when the job is nothing more than a friendly face or someone with a pile of papers, there is no doubt as to the actual value of the position." Stephens, vice president of Navex Global, a governance, risk and compliance consulting firm based in Lake Oswego, Ore., doesn't necessarily agree that clout -- or lack thereof -- lies so squarely behind scandals and an ethics officer's apparent inability to prevent them.

"General counsels and chief financial officers have long had seats at the C-suite table, and presumably clout," he says, "yet there seems to be plenty of instances of violations of laws, litigation and claims of financial mismanagement."

What ethics officers do need to improve their effectiveness and governance power, says Stephens, is for companies to start considering the position as worthy of a single focus and independence.

"We do see many chief compliance officers wear the compliance hat, sometimes as an afterthought or as a second area of responsibility," he says. "This can be dangerous when executives assume that they can take on the role of CCO while also serving as head of internal audit or as general counsel.

"Giving the CCO position a full-time, professional occupant," he adds, "sends a strong signal to the organization [and] its employees, contractors, suppliers and outside regulators that the organization is dedicated to excellence in this area."

Of greatest importantance for HR leaders, says Carrie Penman, Navex Global's CCO and senior vice president of the advisory services team, is to ensure that the right person is selected for the job.

"Clout may come with the title, but respect does not," she says. "There are certain skills and qualities of a CCO that make him or her more effective. There are generally two ways new compliance officers are appointed in an organization -- either they have strong compliance-officer skills and likely may be coming from another organization, so they need to learn the specific business, or they are internal candidates with a strong understanding of the business and operations and, combined with other necessary qualities and skills, can learn the compliance role."

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Penman lists the following as core competencies for today's chief ethics or compliance officers: reputation for the highest integrity; ability to establish and maintain credibility and trust throughout organization; sound judgment, cultural awareness and an understanding of business processes; discretion and ability to protect confidential information; ability to understand legal material and recognize critical issues; exceptional communications skills -- written and verbal -- including presentations, training, public speaking and one-on-one interactions with employees of all levels; and exceptional problem-solving and decision-making abilities.

Wilson would add a few more, including the need -- as Stephens also stipulated -- for CCOs to be independent.

In addition to being a subject-matter expert on legal issues, says Wilson, a compliance officer must be able to proactively spot situations that could develop into major problems -- i.e., major departures from acceptable standards. They need to be trained in HR issues, but also operate from a big picture that includes the standards, reputation and goals of the company.

They also need to have superior management skills, he says, and the ability to defuse legal and ethics problems quickly with effective communication; but, just as importantly, they need autonomy and authority to get their job done before the dam breaks.

"Because of this," Wilson says, "the compliance officer should have the full endorsement of the board of directors, the owners or the major stakeholders in the company. To do anything less would be like throwing that person -- and possibly the company -- to the wolves."  

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