Current Trends in the Relationship Between Boards and Compliance Officers

By Hyeji Kim

Any corporate compliance program needs a strong relationship between the board of directors and the compliance and ethics officer in order to be effective. In 2010, the Society of Corporate Compliance and Ethics (SCCE) and the Health Care Compliance Association (HCCA) conducted a study which showed that the relationship between the Chief Ethics and Compliance Officers (CECOs) and boards of directors was much weaker than it should be. In 2013, SCCE conducted the study again to see if there were any changes.

The recently published 2013 study, based on over 600 responses from compliance and ethic professionals in the SCCE and HCCA database, seems to be on a much brighter note with generally positive findings.

Key Findings

• 62 percent of the surveyed CECOs have on average four or more regularly scheduled meetings with the board per year. Interestingly, male CECOs tend to meet with the board more often. 66 percent of male CECOs meet at least four times a year with the board while only 51 percent of women CECOs do so.
• 64 percent of the compliance professionals are satisfied with the regularity of board contact, including compliance officers in publicly traded companies who tend to be satisfied with having less frequent than average meetings with the board.
• The percentage of CECOs reporting to the board has basically not changed since 2010 (55 percent in 2010 and 53 percent in 2013), except for publicly traded companies which showed a rise from 41 percent to 53 percent. That remains somewhat troubling given a broad consensus in the compliance field that a CECO reporting directly to the board is the best practice.
• Out of the CECOs not reporting to the board about half were reporting to the Chief Executive Officer (CEO) and 20 percent to the General Counsel (GC), with the exception of publicly traded companies where half reported to the GC and just a third reported to the CEO.
• Generally, compliance officers’ reports are not screened or altered by others of high authority, but again the publicly traded companies are an exception with only a third of respondents indicating that their reports are never screened and another third replying that their reports are always edited or screened.Slightly over half the compliance officers felt the board values compliance, and they generally felt that the quality of the interaction of the board was positive, with publicly traded company officers being the most satisfied.
• The strong majority of compliance professionals (77 percent) believed the CECO is responsible for elevating serious allegations of non-compliance to the board level, regardless of who they report to directly.
• Men and women displayed similar opinions as to which qualities are important for compliance professionals. The highest rated qualities include: independence, confidence, assertiveness, and decisiveness.

Although there is still room for improvement, the survey mainly yields positive implications. The percentage of CECOs reporting to the board may not have risen much, but more than half of surveyed CECOs now report to the board and CECOs generally have strong relationships with the board even if they report directly to the CEO or GC. Usually reports are not filtered by authorities outside of the compliance and ethics department (with exceptions), strengthening the necessary independence of compliance and ethics function within companies.

One thing to note is that public companies tend to behave slightly differently from the rest. Their CECOs are relatively highly satisfied with the amount of reporting to the board even though the number of reports actually tends to be lower, and they tend to have their reports filtered more often.

Public companies pose an interesting conundrum. On the one hand, the level of CECO satisfaction with board interactions likely reflects an increased pressure on the boards of public companies to make compliance a priority. On the other hand, less frequent meetings and their more edited content may signal potential problems with truly unfettered access to the board and independence of CECOs. That is a challenge worth keeping a close eye on.

Hyeji Kim is a CIPE intern hosted in partnership with the Asan Academy, a non-profit organization providing internship opportunities in the U.S. for accomplished South Korean students

Originally posted at CIPE Development Blog