Compliance Committees - Starting Right

(Condensed from Boardroom INSIDER for January...)

For good or for bad, the world has become a far more regulated place over the past several decades, and this trend touches every aspect of business.?

? Today, board are expected to know what controls and procedures are in place to prevent compliance issues from ever arising in the first place.? This means that the traditional three-legged stool of board oversight – strategy, finances and good management – has gained a fourth leg… compliance.? How does the effective board shape, monitor and assure solid corporate compliance?

• Begin with a well-defined, dotted-line reporting path from company compliance staff into the boardroom.? In the world’s larger, public or government-related entities, this can mean chief of compliance office reports and briefings to a dedicated risk or compliance committee.? For smaller companies, it will likely see whoever in legal or finance handles compliance duties working with the audit committee, or possibly the full board.? Whether big or modest, the keystone is a written, verifiable chain of reporting and oversight....?
• A dedicated compliance committee is often paired with risk oversight.? This seems natural – “risk” is concerned with potential dangers facing the company, while “compliance” focuses on prevention tools and reporting.? Basic elements should include… laying out purpose and objectives of the committee; committee structure (number of members, frequency of meetings, essential agenda items); responsibilities (legal oversight, disclosures, regulation, internal whistleblower programs); reporting and recordkeeping (assume, in case of emergency, all committee meeting minutes will be picked apart); and self evaluation and review.
• Committee membership is an evolving standard.? Selecting a lawyer to chair the committee may or may not be the best approach (“sometimes they just get in the way,” says Michael Volkov, of the Volkov Law Group).? But targeting sub-CEO/CEO-level ethics, compliance or disclosure staff from major companies for board recruiting on this could offer multiple benefits.? First, they allow you to tune strong compliance experience to your industry needs (financials, pharma, tech, etc.).? Second these skilled, rising talents will be seeking board opportunities, and often are more diverse.
• So what do boards and their compliance committees most often get wrong??? Company culture is too often overlooked. Will stretch sales or growth goals push people to cross a line on compliance?? ?Also, weigh “cascading” risks.? One loss or failure leads to another – a cyber hack triggers legal investigations, liability to (and loss of) customers), financial losses… on and on.?