Who will answer the GC/CCO reporting relationship question?

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2073
2014-snell-roy-speaking-headshot-200By Roy Snell
roy.snell@corporatecompliance.org

Some industries have more regulations, more enforcement and more settlements.  They have had the most experience implementing compliance programs and the most feedback from the enforcement community about how effective their compliance program was.  The enforcement community has had some opinion about compliance officer independence and often included their opinion about chief compliance officers (CCO) independence in their settlement agreements.  Those industries may be able to tell us something about where the debate about the CCO reporting to the legal department debate will eventually end up.

Early adopters of compliance programs had the enforcement community come in during major investigations and asked questions, like who knew, when did they know and who wanted to fix the problem?  Unfortunately for the legal department, they are the group most frequently thrown under the bus. It caused the enforcement community to think that the legal department was impeding the compliance program.  Fair or not, the public, prosecutors and the press think that the legal department should be the strongest advocates for fixing a known legal problem.  Many legal departments do try, but unfortunately some don’t aggressively fight to fix a known problem.  At least that is the impression the enforcement community has often come away with.  Even politicians like Senator Grassley once commented about a major healthcare organization’s decision to have the General Counsel (GC) also be the CCO.  After several major settlements he said, “It doesn’t take a pig farmer from Iowa to smell the stench of conflict in that arrangement.” The GC later resigned.

If a material problem is not dealt with, the enforcement community wants to know who had the most influence on the decision not to fix a known problem.  Right or wrong the answer is often perceived to be the legal department.    If the enforcement community asks who advocated for fixing the problem but were not listened to, employees interviewed during the investigation occasionally mention the compliance department efforts to fix the problem.  The enforcement community is not just going to ask two or three people in leadership, “Who advocated for fixing it and who advocated for not fixing it?”  They are going to go a layer down to someone who probably is a little nervous and was in on a few meetings or had some pertinent hallway discussions.  These secondary players will have heard the private complaints of those who fought to address the problem and those who thought everyone was overreacting and that the problem should not be addressed.  For whatever reason investigators like to know who should be blamed.  They want to know who is the most guilty. It’s either considered relevant or simple, it’s just human nature.  Probably both.

In the long term the thing that is going to drive who the compliance officer reports to is the observations and feedback from the enforcement community.  The CEO and the Board are going to pay attention to what the enforcement community thinks.  I had a colleague who was the GC and CCO.  He said he was stopped in the hallway by a board member who showed him a document that stated that the enforcement community felt compliance should be independent of the legal department.  The board member asked, “Why would you put us in this position?” Apparently the answer was unsatisfactory and they appointed a separate CCO who had the same independence as the audit department.

It appears to me that this is what will drive the independence discussion.  Not industry experts.  Not the compliance community.  Not the in-house legal community.  It will be the press, public, prosecutor and politicians.

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