That’s good. Also important are CCOs’ reporting relationships. The most common alternative is reporting directly to the General Counsel. The message that formal departmentalization sends to middle and lower management is one that prizes independence and separation as opposed to interdependence and collaboration. Departmentalization ostracizes compliance and creates a “C” in the C-suite without the requisite influence. By Thomas Fox I have noted with interest the excellent posts by Walker and Kaplan on the role of the Board of Directors in an effective compliance program. The reporting structure of any compliance personnel employed or contracted by the company. People do not necessarily recognize an ethical dilemma as an ethical dilemma when it is presented to them. It has fallen primarily to the chief medical officer to forge this alliance, to form a meaningful and operational liaison between hospital administrators and physicians. Organizational Structure Options • Centralized – The compliance department has more employees who report through the Chief Compliance Officer and are responsible for overseeing and implementing the compliance and ethics program. Instead, it is a practical, economic decision based on a cost-benefit analysis. To the contrary, an effective structure starts with the board and the specific committee responsible for overseeing the compliance program. . Although consistent with some forms of practice, such an attitude is the opposite of the way most GCs view their role, which is one that includes being responsible for gatekeeping, creating culture, and protecting the corporate conscience of the company. Moreover, it might also work against the recent movements to hold lawyers more accountable to more constituents for their behavior and for the social consequences of their corporate clients’ conduct. 1. This works in smaller companies, at least, because the Officer over Compliance is compliance-minded and will give due consideration to Compliance input. As mentioned above, one of the three goals of departmentalization is to create a culture of ethics that is ingrained in the organization so that malfeasance is deterred and prevented. Although it is true that multidisciplinary and multifunctional collaboration is possible between two separate departments within an organization, having compliance departmentalized from the people who interpret the law and gauge the risks hinders the department’s ability to create effective programs and secure the commitment and cooperation from employees around the globe. These arrangements should be in writing. Structure: A compliance program has to have an effective structure. The Chief Information Security Officer (CISO) is a position within an organization whose genesis lies in the IT department. Tod is responsible for advising MCG regarding compliance with applicable laws and regulations, including the 1940 Act and other securities laws, and overseeing the development, monitoring, training and testing of corporate policies. The launch of the Challenger, despite the evidence that overwhelmingly predicted its demise, is an example of such segmented decision making: the group that recommended launching it (despite the evidence) couched the decision as a “management” one. As one interviewee said, “The goal is to have them trained well enough and sensitized about the permissible but also about the right thing to do . To increase transparency and ensure that lawyers were billing ethically, firms began demanding lawyers report their time spent per client in smaller and smaller increments. the second in a series of reports Ethisphere is publishing about the 128 firms that made its WME list for 2018. . (For a preview, see the sidebar “A typology of styles” at the end of this article). If departmentalization creates the perception that the in-house lawyer’s role is no longer concerned with ethics or morals, it may become expected that lawyers play the role of legal technician telling clients what they “can” do within the letter of the law, not what they “should” do. And that “Other” category at 38 percent includes lots of “vice president of…” titles, but substantively, those people are devoted to ethics and compliance full-time. The compliance officer should be a member of senior management and report directly to the CEO. Putting aside the valid argument that privilege is becoming a nonissue because it is the first thing waived by corporations in an investigation, this argument about transparency still fails. These are some of the Chief Compliance Officer's responsibilities: - Defining the necessary level of knowledge on existing and emerging regulatory compliance requirements across the organization. In other words, the WME firms offer a glimpse of what other firms might aspire to do. Likewise, 89 percent have input into mergers & acquisitions or market expansions (up from 77 percent four years ago); and 66 percent have input into new products or services (up from 52 percent). Before we put a new “C” in the C-suite, we may want to spend more time defining the CCO’s function and identifying who can best fill it. Yet, and in no small part due to corporate scandal after scandal in industry upon industry during the past 10 years, there has been a growing trend toward separating the compliance function from the legal department by creating independent compliance departments comprised of people with legal training (see “Speaker’s Corner” and “Six Keys to Compliance: Perspectives from the field”). As mentioned above, lawyers serving as compliance professionals are neither structurally classified as part of the legal department, nor are they functionally considered as practicing lawyers. The Chief Compliance Officer The fourth ingredient in a world-class ethics and compliance program 3 ... reporting structure for CCOs can send a strong signal to all stakeholders, including personnel and regulators, that the organization takes ethics and compliance seriously. Thus, for the CCO, it isn’t just lonely at the top—it may also be disempowering. A year-over-year comparison shows the percentage of CIOs reporting to the chief executive has been trending upward for the past three years (Figure 1). Intrinsic and extrinsic motivation: the problem with carrots and sticks: Formal manifestations of compliance and basic, routine check-the-box processes do not take into account complicated intrinsic motivation factors. An effective reporting structure: (1) plays a vital role in creating and fostering a culture of compliance within the organization; (2) sets the tone that compliance is the responsibility of all employees; and (3) keeps the lines of communication open. Departmentalization is the wrong answer because the right question is not about the CCO’s independence or the corporation’s organizational structure, but instead about function: how can a corporation leverage the research on connectivity, informal norms, ethics, and motivation to create effective compliance and ethics initiatives and culture? Further complicating the scenario is the fact that many compliance departments are run by lawyers. The automaton – The automaton role is about building policies and procedures, training and testing employees on specific regulations and obligations, and monitoring adherence. Michele DeStefano is a professor of law at the University of Miami School of Law. To the contrary, an effective structure starts with the board and the specific committee responsible for overseeing the compliance program. Although Rosen et al. Thus, a chief compliance officer appointed in accordance with rule 206(4)-7 (or rule 38a-1) would not necessarily be subject to a sanction by us for failure to supervise other advisory personnel. The general counsel’s job is more black and white; [for example,] ‘These are the legal risks.’”. We have a lot of attorneys in our law division who are in the compliance department. Ethics intertwines with compliance: blind spots and ethical fading: Formal changes and controls like ethics programs, codes of conduct, mission statements, and reorganization are completely decoupled from what we know about ethical decision making. . Contributing to this confusion is the excess of secondary material on compliance and the lack of scholarly, qualitative research about the compliance function in large publicly traded corporations. They move a piece of the gatekeeping function out of the GC’s hands and place it within a new department that is often filled with lawyers who are now not practicing law. Chief Compliance Officer. found that lawyers are followers: “They follow their company’s normative orientation. Should the compliance and ethics department be separated from the legal department entirely? The decision to sell Pintos despite evidence that the vehicles would cause accidents resulting in death was couched as a “business decision” made for financial reasons. Transparency into the corporation so that misconduct can be uncovered and prosecuted and future misconduct deterred, The ability for a corporation to establish a functional culture of ethics and compliance that goes beyond the letter of the law, The impact that internal networks have on effective compliance, How people are motivated intrinsically and extrinsically. Corporations around the globe are facing a daunting challenge in the emerging area of compliance and ethics. Cinda Although many of the GCs and CCOs interviewed claimed that their relationships were open and collaborative, the message that formal departmentalization sends to middle and lower management is one that prizes independence and separation as opposed to interdependence and collaboration, which are essential to effective compliance program development and adherence. That reflects, I hope, an awareness among board directors and senior executives that. STATUS AND REPORTING LINE OF CHIEF COMPLIANCE OFFICERS FINANCIAL We refer to our Circular referenced BSD/2/2002 and dated 8th August, '2002 Which directed banks and other financial institutions to appoint Chief Compliance Officers (CCOs) not below the grade of a General Manager and compliance officers (COs) at Departmentalizing will not necessarily increase transparency into a corporate misconduct investigation but, counterintuitively, may increase the amount of information shielded by the attorney-client privilege. That said, the broad direction of these WME firms’ practices all make sense.  It appears that departmentalizing compliance, instead of being best practice, may elevate form over function. Last month’s column addressed the security organization reporting to the General Counsel, which studies show is one of the more common reporting relationships for security executives. However, courts are more reluctant to protect communications from in-house counsel because they worry that corporations are purposefully including lawyers in communications in order to use the attorney-client privilege argument to shield information. Focuses on the strategy of human capital and how HR programs grow revenue and the organization for the broad and often global organization and for the longer term. That’s why I moved from legal. In some companies, Compliance does not have its own Officer. Often, the compliance function reported to the GC, and sometimes the GC simultaneously served in the CCO role. 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