male female

Is Compliance Expertise Required at the Board Level?

Historically, members of financial services firms’ boards of directors haven’t had much direct compliance experience. Instead, directors were chosen based on their business acumen. That trend may be changing as boards face mounting pressure to protect the companies they serve from ever-changing compliance and ethics threats and are tasked with making tough decisions. As compliance becomes increasingly intertwined with business, having one or more compliance subject matter experts on the board can help firms protect their reputations.

Boards Must Address Issues While Taking a Forward-Looking Approach

While board members owe fiduciary duties which, by necessity, include compliance oversight, some company directors simply take a checklist approach to compliance and risk management. However, there are indications that this is changing as organizations recognize the inherent benefits of bringing on board members with a compliance background or focus.

Understanding compliance programs and requirements can help ensure that decisions about the company’s direction and path will not run afoul of the rules or introduce unnecessary risks. Rather than being an afterthought on the periphery, organizations are increasingly realizing that compliance should be built into every decision the board makes.

Recent Board Appointments and Actions Demonstrate a Commitment to Compliance

Several recent board appointments and corporate actions paint a picture of this growing emphasis on compliance at the board level.

Denmark’s largest bank, Danske Bank A/S, recently hired a new CCO and appointed him to the company’s board of directors at the same time. That appointment followed a June 2018 CCO board appointment at Siemens.

In addition, while they aren’t career compliance professionals themselves, board members of several large, well-known companies including Intel, Uber, Papa John’s, and Texas Instruments have had to make difficult decisions in recent months, ultimately removing their companies’ CEOs for code of conduct violations. Other companies, including CBS, are currently investigating allegations of misconduct against executives.

These actions demonstrate that boards are increasingly attuned to compliance and ethics. Firing the CEO also sends a powerful message to everyone else in the organization that illegal or inappropriate conduct simply will not be tolerated. In contrast, boards that simply gloss over compliance reports or that give passes to CEOs or other powerful executives when conduct violations occur aren’t actually minding the store; they’re leaving the organization open to potentially catastrophic risks.

Board Support for the Compliance Department Underscores the CCO’s Efforts

For compliance departments, receiving compliance support and unequivocal tone from the top from the board of directors can be a refreshing show of support. It helps reinforce everything the compliance department does on a daily basis. Having a board that takes compliance seriously can also send a powerful message to regulators, showing them that your company doesn’t look the other way when violations occur.

Of course, no organization has an unlimited budget for compliance efforts. The board plays a key role in forming compliance programs by seeking to understand what the risks are and asking questions designed to make sure the policies the board approves are designed to address those risks. Having a CCO or other former compliance professional sitting on the board can be invaluable in shaping compliance efforts.

Board members need to have a solid, working knowledge of the company’s regulatory obligations and the compliance and ethics program in place to meet those obligations. They also need to interact regularly with the company’s CCO so they can understand the potential risks the organization faces. Finally, directors must be willing and able to fully support compliance decisions that protect the firm.