Wanted: Ethics and Compliance Officers on Boards

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The ethics & compliance community has been abuzz lately with a startling recent enforcement action — actually, the lack of one — against Cognizant Technologies.

The Justice Department declined to bring criminal charges against the company for violations of the Foreign Corrupt Practices Act (FCPA), even though the department also indicted two former senior executives at Cognizant, now accused of executing a $2 million bribe paid to Indian government officials.

How did Cognizant get a resolution so favorable, when involvement of senior executives typically would bring a criminal charge?

How did Cognizant get a resolution so favorable, when involvement of senior executives typically would bring a criminal charge? All evidence suggests that the ethical conduct embraced by the board in its decision-making accounted for an enormous part of the cooperation credit.

Specifically, the board decided to disclose the FCPA violations to the Justice Department within two weeks of hearing about them; typically a company might take months to investigate and decide its next step. This was followed by full cooperation with prosecutors, and additional investment in Cognizant’s ethics and compliance program.

Read More: "Escalation Risk" Is a Growing Board Concern Compliance Professionals Can Help Ease

We shouldn’t be too surprised, however, because two members of Cognizant’s audit committee are audit or compliance professionals themselves. Their day jobs in ethics, compliance and audit at other companies had to have guided their thinking in Cognizant’s boardroom — which brings us to a question that the compliance community, and the larger corporate governance community, needs to consider.

Shouldn’t we have more ethics and compliance officers serving on boards?

Corporate audit committees already have a requirement that at least one member must be a “financial expert.” But that requirement comes from the Sarbanes-Oxley Act of 2002 (SOX), and the main point of SOX was to make corporate boards more responsible for accurate financial reporting.

The DOJ has placed heavy emphasis on companies voluntarily disclosing potential misconduct they have discovered.

That’s a worthy objective unto itself, but the public’s expectations for good business conduct have expanded enormously since 2002. The Justice Department in particular has placed heavy emphasis on companies voluntarily disclosing potential misconduct they have discovered — including issues such as foreign bribery or data security, which often don’t jeopardize accurate financial reporting at all.

So if we’re putting more value on embracing the spirit of ethical conduct — more emphasis on a company’s willingness to confess wrongdoing simply because confessing is the right thing to do, regardless of the consequences — then we need to consider how boards can embody that new attitude.

And what better way to help boards navigate those more expansive views about ethics and compliance, than to have ethics and compliance professionals serving on those boards?

CCOs on Boards: Where, Exactly?

How many boards actually have ethics, compliance or audit professionals serving on them already? I checked the 2018 proxy statements of 20 random S&P 500 companies, and found none. Maybe I chose poorly, or maybe the companies didn’t mention that experience.

In any case, ethics and compliance officers bring useful experience to the board’s audit committee. That’s where the most difficult questions about investigations, regulatory compliance, and corporate misconduct often get decided, and a compliance officer’s experience handling those issues would be valuable.

Moreover, audit committees are also responsible for oversight of the company’s internal control and risk management systems. Once upon a time, that mostly meant internal control for accurate financial reporting.

Today, in the world of FCPA investigations, intensifying third-party risk and social media induced hyper-transparency, companies need to take a much broader view of what internal control should do, and how to accomplish those things. Again, that’s what CCOs have been doing in their day jobs for years.

Companies need to take a much broader view of what internal control should do.

All that said, one can also argue that CCOs serving on the nominating and governance committee or the compensation committee might be more useful. After all, those are the committees responsible for recruiting the CEO and setting his or her compensation incentives. This gives companies a chance to build a commitment to ethics into the foundation of their most influential executive role.

So let the experts at good conduct work with the experts at compensation to develop plans that incentivize good conduct. That’s how the company can focus the CEO’s attention on ethical culture, and then he or she can work to inculcate that commitment throughout the rest of the organization.

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Embedding a Compliance Soundboard

When participating on the board as a whole (regardless of committee assignments) a compliance officer can also frame corporate strategy questions in the context of ethical conduct.

Consider all the organizational change that can tear through a firm these days: restructurings, mergers, new technologies, new policies, new leadership. Those changes might help the whole, but they can leave individual employees whipsawed and anxious, wondering what the organization’s priorities are — and whether they should start looking out for themselves instead.

That’s not good. Ethics and compliance officers serving on boards can help to keep ethical culture as a fixed North Star while constellations of change whirl by.


What do you have to say? Share your thoughts in the comments below or join a discussion group on Compliance Next.


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