The 5C's of Compliance

(five minute-read)

by Eric Young, Founder and CEO

Young Enterprises LLC, Fairfield, CT 06824

Summary: Calm, credible, clear, confident and courageous Compliance leadership keeps management, the Board, employees calm to manage crises and keep defenses strong to remain diligent against harm, including fraud, misconduct, and criminal activity.

With the coronavirus (or COVID-19) virtually on everyone’s mind, and measures being taken including monetary actions, I thought a calm five-minute reminder might help keep our compliance and controls diligent and strong.

This is about the 5 C’s of Compliance and Ethics. About what? Yes, of Compliance and Ethics.

As with the “5 C’s of credit risk management” and the more universally known “5 C’s of a diamond”, there are also 5 C’s of Compliance.

Taken together, these three concepts form a strong foundation (and reminder) of navigating our interconnected world toward a level of sanity, and less anxiety.

·     Credit must continue to flow, enabling our businesses to operate, our economies to generate, which sustains our families to be in a healthy state. We must keep our economies flowing.

·     Diamonds are physically one of the hardest naturally occurring materials on Earth. We must remain durable, determined – and diligent; AND

·     Compliance and Ethics Officers must remain our compass, our guiding star and beacon which (with enduring faith in ourselves, family and for some, spiritually) navigates and guides our conduct ethically to do the right thing, as well as in a lawful manner. 

Briefly, the 5 C’s of Credit and 5 C’s of Diamonds serve as two of our three pillars to help manage crises and keep our controls (or “immune systems”) strong:

Credit (and Creditworthiness):

1.    Character – always important

2.    Capacity – through credit history

3.    Capital – can we afford the debt

4.    Collateral – to secure our debt

5.    Conditions – amount, terms, and rates

Diamonds

1.    Carat – size by weight

2.    Clarity – flawless or not, as light flows through

3.    Color – clear to yellow

4.    Cut – enabling brilliant display

5.    Certificate – is it real - or are you being defrauded or victimized?

This is where the 5C’s of Compliance apply:

In times of perceived, actual or anticipated crises, calamity, and now, coronavirus, our governments and our companies must remain durable (like a diamond), dependable and devoted (to treat our citizens, employees and their families) as if they are their own family.

During times of crises, we must also remain incredibly diligent, especially now.

We must not let our guards or defenses down as humans, nor as governments, businesses nor as a society. Our governmental and business defense systems must not be “immuno - compromised” and instead, remain just as healthy as the very humans who operate our governments and businesses.

Collectively, we are the engine of our economy and of our defenses and controls - whether small or large, local or global – against any harm (whether natural or unnatural, intended or not).

Similarly, Compliance and Ethics officers act as our gatekeepers, guardrails, and they help oversee our corporate controls, which must not be weakened nor distracted. Our defenses and controls against any harm must remain strong, healthy, and vigilant against fraudsters, sanctioned entities/individuals; and others that may harm whether human, animate or inanimate, or bacterial or viral.

Otherwise, panic and anxiety permeates, as we are witnessing daily through our financial markets, closure of large public venues, along with travel bans and quarantines.

Calm must prevail. Leaders - including our Chief Compliance Officers and Compliance and Ethics teams - must rise above the fray and navigate others from anxiety and harm.

To comply is the bedrock of our society and the foundation of our governments and of our companies. People (and businesses) either comply or they don’t. They conduct themselves ethically or not. They meet the letter of the law as well as the spirit of the rule. And they behave and act, appropriately to do the right thing.

This means Chief Compliance Officers and their Compliance and Ethics staff, no matter the crisis, calamity and now, coronavirus, must lead with its 5 C’s:

1.    Calm

2.    Credibility

3.    Confidence

4.    Clarity

5.    Courage

Below are brief reasons why the 5 C’s of Compliance are important:

1.    Calm

If the Chief Compliance Officer and his/her team remain calm no matter what, those around them:

·     See calm

·     Feel calm, and

·     Proceed calmly.

It is essential that our Compliance and Ethics officers remain calm to do their jobs effectively. Whether to: 1) surveil, investigate and report suspicious activities; 2) assist our IT, information security, data governance, business and operations leaders to execute business continuity and disaster recovery plans; 3) monitor sales practices for appropriate conduct to protect a firm’s customers; and 4) identify, risk assess and prioritize how a legal or regulatory risk or behavior of a product, business, employee -- or client -- is managed lawfully and ethically.

Remaining and acting calmly as a Chief Compliance Officer keeps the Chief Executive and an independent Board of Directors calm as well, so that they can continue to act and govern objectively, decisively without emotion, division or subjectivity.

2.    Credibility

Compliance officers, particularly Chief Compliance Officers must be and remain credible. This includes utilizing his/her network of colleagues, staff and others to gather and know the facts, analyze multiple streams of data and articulate them into a credible plan of action in story-telling form for management to comprehend and execute.

3.    Clarity

Being calm enables clarity of steps that have and will be taken. Transparency reinforces calm because knowledge is direction, a path forward to address the what, why, when and how to navigate a crisis. This reinforces all to remain calm.

4.    Confidence

Clarity and calm incubates into confidence, which in turn, spreads positively to management, the Board of Directors and employees, to remain calm during a crisis.

Being confident, of course, requires having credibility as a Compliance and Ethics leader with deep subject matter expertise, and leadership skills to simplify complex issues into a clear narrative, in order to influence others to follow the way through a crisis.

5.    Courage

Perhaps the most difficult attribute is courage – particularly moral courage – which is about taking actions that might have adverse consequences individually, but doing so for the greater good of the government, society, or the company. 

Compliance and Ethics staff and Chief Compliance Officers must be morally and professionally courageous to credibly, clearly, calmly and confidently influence change, however unpopular, or budget unfriendly, if it enables our defenses and a company’s “immune system” to remain healthy and strong.

Credit flows, strength and durability like diamonds, and the 5 C’s of Compliance will help us remain calm, lead clearly with confidence and courage, which in turn will lead us down a path to stability with a strong and healthy future.