Multi-Industry Chief Compliance and Ethics Officers

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Multi-Industry Chief Compliance and Ethi... sorted by thread
 
  Ethics and Compliance Officers and governance structuresJan 25, 2012 10:13 AMTimothy Hollar
  RE:Ethics and Compliance Officers and governance structuresJan 25, 2012 10:28 AMFrank Ruelas
  RE:Ethics and Compliance Officers and governance structuresJan 25, 2012 11:16 AMDonna Boehme
  RE:Ethics and Compliance Officers and governance structuresJan 25, 2012 11:56 PMNell Minow
  RE:Ethics and Compliance Officers and governance structuresJan 30, 2012 11:48 AMTheodore Banks
  RE:Ethics and Compliance Officers and governance structuresJan 30, 2012 12:58 PMDonna Boehme
  RE:Ethics and Compliance Officers and governance structuresJan 30, 2012 1:28 PMDaniel Roach
  RE:Ethics and Compliance Officers and governance structuresJan 30, 2012 1:51 PMDonna Boehme
  RE:Ethics and Compliance Officers and governance structuresJan 30, 2012 9:35 PMTheodore Banks
  RE:Ethics and Compliance Officers and governance structuresJan 30, 2012 10:03 PMPatrick Gnazzo
  RE:Ethics and Compliance Officers and governance structuresJan 26, 2012 2:17 PMJoseph Murphy
  RE:Ethics and Compliance Officers and governance structuresJan 26, 2012 2:44 PMDaniel Roach
  RE:Ethics and Compliance Officers and governance structuresJan 26, 2012 7:31 PMDonna Boehme
 

1.
Ethics and Compliance Officers and governance structures
From: Timothy Hollar
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 25, 2012 10:13 AM
Subject: Ethics and Compliance Officers and governance structures
Message:
Good morning Neil! We are currently reviewing our compliance governance structure here at our organization and would like your feedback. 

First off, I would like to understand the benefits and perhaps the negatives of one person in the organization serving as the Corporate Ethics Officer and Corporate Compliance Officer.  We currently have one person serving in both roles, but have recently considered splitting up the roles into two people.  The main reason we have been structured this way in the past is for the direct access to the board.  How are other organizations typically structured? 

The second part of my question is where do those roles most commonly reside in the organization, but more importantly, where should those roles reside in the organization and why?  Legal, CFO, CEO?  I know each of these roles should have direct access to the board, but the administrative reporting relationship is not as clear.  Any feedback in these areas would be appreciated.  I know there may have been some recent surveys completed on this subject.  If you could send me links to those, that would be appreciated as well.  Thanks,
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TimothyHollarCCEP
Lead Policy & Comp Analyst
Alliant Energy
MadisonWI
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2.
RE:Ethics and Compliance Officers and governance structures
From: Frank Ruelas
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 25, 2012 10:28 AM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
Tim,

Thanks for posting as I will also be looking to hear the responses from Neil and others.

One thing I noted recently is that OIG has some pretty nice opinions in a number of its guidance documents related to which position the Compliance Officer should report which includes what I see as less than positive support for the Compliance Office to report  to or be under either the CFO or Legal.

I'll leave it to folks who want to research this further to go to the OIG website and find these in the CGDs (Compliance Guidance Documents)...the reason these are fresh in my mind is that several organizations I'm dealing with restructured due to some of these guidance documents. A little late in my book as I had suggested this back in 2009 BUT nothing like a CIA to add some extra motivation!

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Frank Ruelas
Principal
HIPAA College
Casa GrandeAZ
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3.
RE:Ethics and Compliance Officers and governance structures
From: Donna Boehme
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 25, 2012 11:16 AM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
I believe along with many in my thought networks that the lack of positioning, empowerment, and resourcing of CECOs is the most significant issue holding back the success of many programs.  Simply put,  despite programs that look good on paper and have all the FSG bells and whistles, many CECOs are positioned for failure.  It's hard for CECOs to advocate for themselves on the issues (on which they nevertheless have powerful arguments) without sounding self-serving, but there is a body of work on this that has helped create the momentum we are seeing to ensure CECO's are positioned for success instead. The OIG guidance and line of health care settlements (Tenet et al)  specifying that the CECO "should not be, and should not be subordinate to" the GC or the CFO are very powerful.   So is Sen. Grassley's memorable "pig farmer"  quote.  All of this is useful in supporting CECOs seeking to make the case for empowerment and positioning.   I am posting some additional links below:

2009 RAND Symposium report "Perspectives of Chief Ethics and Compliance Officers on the Prevention and  Detection of Corporate Misdeeds" (recommend careful review of the invited white papers)    http://www.rand.org/pubs/conf_proceedings/CF258.html

2010 RAND Symposium report "Directors as Guardians of Compliance and Ethics Within the Corporate Citadel"   http://www.rand.org/pubs/conf_proceedings/CF258.html

"Just How Independent Should the CECO Be (from Legal)?" (Snell/Boehme interview)
 http://compliancestrategists.net/sitebuildercontent/sitebuilderfiles/snell.interviewboehme3.2011.pdf 

See also "Defining Corporate Integrity: Defining the Role of the Chief Ethics and Compliance Officer"  (2007) http://www.darden.virginia.edu/corporate-ethics/pdf/Leading_Corporate_Integrity_Exec_Summ.pdf

In particular, the RAND Reports have been widely cited and reviewed both in the US and internationally,  and have influenced policymakers, regulators, boards, management and even recruiters who help to shape these roles.  They also contain further citations to a rich body of cases, reports, surveys, and policy developments that further help define the issues.

Finally, there will be a number of comment letters available soon on the ERC website in support of its 20th anniversary FSGO review, advocating specific support for the role of an empowered CECO, which I will post when available  (mine included). 

If anyone has questions on this or needs further information, feel free to email me directly.
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4.
RE:Ethics and Compliance Officers and governance structures
From: Nell Minow
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 25, 2012 11:56 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:

Hello, Tim and Frank, and thanks for the provocative questions.  (It's Nell, though, by the way, not Neil.)

I don't think there's any one structure that applies to everyone.  It is something each board has to decide -- and regularly re-evaluate on its own.  So much depends on the size, breadth, and diversity of operations and the qualities of the individuals assigned to the roles.  I know of one company where it worked very well to have the General Counsel oversee ethics and compliance but he was truly an extraordinary man.  When he retired, the board had to reconsider and divided the roles.  It seems to me the only solution is for the board to set up what seems best, evaluate it rigorously, and never assume that what worked last year will work next year.


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NellMinow
GMI
McLeanVA
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5.
RE:Ethics and Compliance Officers and governance structures
From: Theodore Banks
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 30, 2012 11:48 AM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
I think the main qualification of the CCO is that he or she can stand up to the CEO.  This could be a general counsel, or it could be someone else, even if that person reports to the CEO.  

Reporting to the board of directors may elminate some issues facing a CCO, but is not a panacea.  It is my impression that many (most?) directors do not have the knowledge about to compliance to provide them with the independent basis to make judgments about compliance or ethics issues.  So if there is a compliance issue presented to the board by a CCO, with oppostion to a proposed course of action from the CEO, how is the board to decide? 

This also raises the issue to me of a need to ensure compliance competence in at least one board member.  Having a financial expert on the board is helpful, but that is not the same as compliance expertise.   Companies can become excessively focused on financial compliance (and COSO requirements are not sufficient to cover all of the things that a CCO needs to worry about) or industry regulatory compliance (e.g., the company has satisfied the Medicare payment regs, and doesn't worry about other areas).  

Interesting report today on the SEC unable to figure out the duty of a general counsel to supervise employees. Case is Ferris, Baker, Watts, Inc., and the confusion was around a board decision not to fire a broker, contrary to the advice of the general counsel.    Intersting dilemma.

Ted
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Theodore Banks
Compliance & Competition Consultants, LLC
President
Highland Park IL

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6.
RE:Ethics and Compliance Officers and governance structures
From: Donna Boehme
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 30, 2012 12:58 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
Well this is one of those rare instances where I don't agree with Ted 100% on everything, so I will characterize this as an "add on"  to his comment on CECO structuring.  I would add on one equally important CECO quality and that is competence, appetite and world view to be a CECO (just being a great GC isn't enough),  rather than just wearing an additional hat as we see some GC's who are CECOs or have CECOs reporting to them.  I'm not saying that this arrangement isn't working well in some cases, but I am saying that in my view these are in the minority and that we want to structure these roles institutionally for success and not just rely on one stellar or fair-minded individual or individuals to make it work,  until they aren't in their roles anymore (and then it doesn't!).  See 2 RAND reports that refer to this issue.   http://www.rand.org/pubs/conf_proceedings/CF277.html http://www.rand.org/pubs/conf_proceedings/CF258.html

After all,  if this worked well all the time we wouldn't see Sen Grassley famously comment on Tenet Healthcare's then double hatted GC/CECO role that "It doesn't take a pig farmer from Iowa to smell the stench of conflict in that arrangement." http://www.grassley.senate.gov/releases/2003/p03r09-08.htm   Or we wouldn't see some GC's or other officers unilaterally filtering or changing the CECO's report to the Board or closing down investigations that are "too sensitive."  Or promoting/transferring a manager involved in major misconduct or providing "coaching"  when there really should be an inconvenient public hanging.  In all these cases,  the Board doesn't get the information it needs to evaluate the company's c&e efforts or see real problems  and senior management doesn't hear the voice of the CECO without having it vetoed prematurely.  The CECO and the GC may agree on everything say, 70% of the time,  but the 30% of the time that they disagree for good reason driven by their separate mandates,  are often the times it really counts for the company. 

I agree with Ted that the Board needs to up its game on matters of C&E (to become a "compliance-savvy Board"-  every CECO's  dream) and that having one Board member saddled up as compliance competent would be one step to that goal.  Joe Murphy has also stated that the Board should invite a former qualified CECO to join its ranks.  It would also help if the Board viewed compliance training as something more than the annual helicopter view from an outside big 4 or law firm consultant (so they can pat themselves on the back that those things "don't happen in this company") and commission the CECO to give or recommend some modern board training in digestible bites.   For those interested in this topic, see my article from the SCCE Manual and related webinar slides on "Not Your Father's Board Training"  http://compliancestrategists.net/sitebuildercontent/sitebuilderfiles/directorengagement.scce2010.pdf
http://compliancestrategists.net/sitebuildercontent/sitebuilderfiles/board.training.2.18.2010.pdf
   
This would provide the Board with some context and state of readiness in the cases where the CECO and the GC/CEO/CFO etc disagree (this might be on individual cases or on a general strategy or way forward), so that they are well-positioned to make informed "compliance-savvy"  decisions. 

 
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DonnaBoehme
Principal
Compliance Strategists LLC
New ProvidenceNJ
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7.
RE:Ethics and Compliance Officers and governance structures
From: Daniel Roach
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 30, 2012 1:28 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
As always, I appreciate Ted's perspective.  However, on this one I woulike to throw out a slightly different perspective.   I view my main qualification as the ability to influence (as opposed to stand up to) managment and the board, including the CEO. 

Perhaps I have lived a sheltered life, but I have never worked for a CEO who wanted to do the wrong thing.  There have been times when I might have disagreed with a CEO (and/or other members of management or the board) over what the right thing was, but at that point it is incumbant on me to have established the credibility and built the relationship necessary to influence the decision so that together we can craft a solution that we both believe is appropriate.

If you are in an organization where you have to 'stand up' to the CEO (other senior executives or the Board) on more than one occasion, you should look for a new job.  It is my view that CEOs need trusted partners; a CECO who can be relied on not to panic, to carefully evaluate the situation, to approach leadership in a collaborative and thoughtful manner, and who is willing and able to articulate persuasively why another course of action may be better than the proposed action.

Even where I could not resolve our differences, my role is not to stand up to the CEO.  My role is to go to the board or audit committee, explain the issue and the differing points of view, and let the board make the decision.  Obviously, if the board made a decision that I believed was improper, I would be headed out the door quickly.  Fortunately, at least for me, I have never had to exercise this approach.

Dan

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DanielRoachJD
VP Compliance & Audit
Dignity Health
San FranciscoCA
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8.
RE:Ethics and Compliance Officers and governance structures
From: Donna Boehme
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 30, 2012 1:51 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
That's an excellent perspective Dan.   I am reminded of one of our colleagues (well known CECO of 2 big multinationals) who always carried a letter of resignation in his pocket,  lest he need to use it.   He did have to offer it once.  I never carried around a letter in my CECO roles,  but I always had in the back of my mind that there might come a day when I would have to decide whether to turn in my badge and gun and walk away.  That same colleague referred to above would advise in those circumstances "talk to the board on your way out."  And if the reason you are leaving IS the board,  then presumably you've already had your little talk!

I agree with you that the job of the CECO is to provide senior management and the Board with a careful, balanced reasoned view from the C&E perspective,   often one of a  few views that the Board needs.  Imagine if HP Board had had that view provided in their corporate espionage case (and consider how their CECO was structured at that time).   The problem is that often the CECO is not structured in a way that this view ever reaches the top.  And those are just the big cases.   Consider the hundreds of little judgments (and big ones) the CECO makes every week on the program re investigations, risk assessment, monitoring, disciplinary recomendations, etc,  and multiply the things that could go  wrong when she is not empowered to make independent judgements that support the compliance program and ethical culture of the organization,  and you have the recipe for "where was the CECO?"  questions that inevitably get asked when problems become NYT or WSJ headlines.    
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Donna Boehme
Principal
Compliance Strategists LLC
New Providence NJ
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9.
RE:Ethics and Compliance Officers and governance structures
From: Theodore Banks
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 30, 2012 9:35 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
Dan, thanks for the nuanced response to my comments.  "Staanding up" to the CCO really means being respected.  This is a reflection of an indivdual's skills and expertise in addition to the power that is conveyed based on the box on org chart position.

In any corporate culture, a CCO who can persuade management to do the right thing will be more successful in the long run than someone who is in conflict with the CEO, GC or anyone else.  From an individual standpoint, if you find yourself facing a recalcitrant CEO or board on nontrivial matters, then you should resign.  And of course it is easy to say that in the abstract, since I, too, was fortunate enough in my career never to have had to make that decision.   But if you are in the position of facing the loss of your job in a terrible economy because of a stubborn CEO and an ignorant board, something is wrong.

Think about the duty to the shareholders.   The goal of the CCO is to protect the corporation, and there should be some expertise at the board level that will understand what the CCO says, particularly when it is not a black-white legality situation.  Even if the CCO reports to the  board, if they don't get it, then there is no guarantee that that this reporting relationship will do any good.

Ted

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Theodore Banks
Compliance & Competition Consultants, LLC
President
Highland Park IL

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10.
RE:Ethics and Compliance Officers and governance structures
From: Patrick Gnazzo
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 30, 2012 10:03 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
I never have, nor do I think I ever will need to go toe to toe with a CEO where I choose to work. There is no magic to the fact that if the CEO places the CECO within the Executive Management Leadership team, that CEO wants to do the right thing for the Organization. The right kind of CEO positions the CECO in order for the CECO to have the ability to go toe to toe with the rouge or pressured Executive Manager on behalf of the Organization. Placing the CECO on the Executive Ledership team where they can hear, see and react in a timely manner means you have a CEO that wants ethics advice and rather that run from it.

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Pat Gnazzo
Principal
Better Business Practices
McLean, VA
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11.
RE:Ethics and Compliance Officers and governance structures
From: Joseph Murphy
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 26, 2012 2:17 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:

Usually it's a good idea when commenting on corporate matters to suggest looking at all the factors, etc.  But when it comes to positioning the chief ethics and compliance officer (CECO), I think there is a danger to this advice.  I draw my lesson from the American political system. We started our government with remarkable people - Washington, Jefferson, Adams, Hamilton.  But we designed a system that could withstand Nixon.  In other words, you set up a system that will endure, not one that depends on the personality of the first incumbent.


Regarding compliance programs, too often companies start in reaction to a failure and bring in the brightest star they can find to run the program.  But a corporate generation or two down the road and the "compliance officer" is in a junior staff position, unprotected, unempowered, and positioned for failure. The stage is then set for catastrophic failure.


The CECO acts as one of the few enduring checks on misuse of power by the executives.  Because of this the CECO needs to report directly to the board.  And I mean "report" in two ways.  One is fact-to-face reports telling them what is going on regularly (not on "special occasions," not just when asked, and not after thorough scrubbing of reports by the lawyers).  But the other "report" means that the CECO cannot be dismissed, or punished, or hassled without the board saying so first. 


Only with this level of empowerment and autonomy can the CECO protect the board, the company, and even the executives.  Relying on the good faith of the current general counsel, or HR head, or even CEO is like designing a system of government based on the presumption that every president will be Washington.  I think it is a dangerous mistake.  



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Joe Murphy CCEP
Of Counsel CSLG
HaddonfieldNJ
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12.
RE:Ethics and Compliance Officers and governance structures
From: Daniel Roach
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 26, 2012 2:44 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:
I agree with Joe.

Moreover, I would add that a true statesman general counsel would advise her/his organization's board and management that the overwhelming weight of authority calls for the CECO to be someone other than the GC (or someone reporting to the GC) and therefore it is in the organization's best interest to have an independent CECO.  While I might make an exception for a very small organization that cannot afford both roles, it seems to me that any other position by the GC would call into question her/his 'statesman' status.

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DanielRoachJD
VP Compliance & Audit
Dignity Health (formerly Catholic Healthcare West)
San FranciscoCA
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13.
RE:Ethics and Compliance Officers and governance structures
From: Donna Boehme
To: Multi-Industry Chief Compliance and Ethics Officers
Posted: Jan 26, 2012 7:31 PM
Subject: RE:Ethics and Compliance Officers and governance structures
Message:

Agree 100% with Dan and Joe. Companies need to structure CECO roles for long-term institutional success, rather than rely on the particular attributes of a single GC, even one who imagines himself a "statesman" (in fact maybe this should be viewed as a clear sign of trouble to come). The simple fact is that while the GC and CECO have many shared goals and should be able to support each other in most activities, their mandates are different, and that will drive decision-making that may be in conflict from time to time. When that happens, the organization needs both views to reach the top, rather than have the GC view automatically veto the c+e view. That didn't work out so well for Tenet or Pfizer, did it?
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DonnaBoehme
Principal
Compliance Strategists LLC
New ProvidenceNJ
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