The Evolving Role And Expectations Of The Chief Ethics And Compliance Officer

Thursday, March 22, 2012 - 17:02

The role of the chief ethics and compliance officer has evolved to become a vital member of the senior management team in many organizations. During the 2012 Global Ethics Summit, an event focused on providing insight and best practices in the continually changing regulatory environment worldwide, I had the opportunity to serve as a moderator for a panel that discussed the evolution of this role, as well as the responsibilities of the organization in ensuring its successful functioning.

The panel featured a group covering multiple industries and years of experience. The participants included Elliott Fisch, director, internal audit and chief compliance officer, Easton-Bell Sports; Laura Merten, chief compliance officer, Walgreen Co.; Kimberly Strong, vice president and chief ethics and compliance officer, Consolidated Edison of New York; and Alan Yuspeh, senior vice president and chief ethics and compliance officer, Hospital Corporation of America.

As the session opened, our discussion focused on how the role has evolved over the last 10 to 20 years. The consensus was that the role has become a profession in its own right and covers a broader range of responsibilities, and that generally the level of resources has risen to meet these broader responsibilities.

Following the initial discussion of the evolution of the position, the conversation turned to the authority and independence required in the role, and how vital those elements are for the position to be successful within the organization.

The group voiced strong opinions that the chief ethics and compliance officer should report directly to the board of directors or the chief executive officer. The consensus was that reporting lines were important, particularly in senior management meetings, where the chief ethics and compliance officer should  have a seat and voice at the table with equal status to the other heads of business lines and C-level functions, such as the chief financial officer and general counsel.

But the panel also stressed that where the box sits on the organizational chart and to whom the position directly reports are less important than ensuring that the position has access to the right people throughout the organization.

In organizations where the chief ethics and compliance officer does not report directly to the board or the CEO, it is vital that the chief ethics and compliance officer have direct access to them. The role may sit a level or two down the chart, but to be effective, the position must have the authority to report in an executive session to either the board or the audit committee, allowing the chief ethics and compliance officer to address issues without management interference.

In contrast, the panelists noted, even positions reporting directly to the board or CEO could be mere window dressing if they do not have authority and stature equal to C-level managers, potentially making them ineffective in their role and ability to support the organization.

More broadly, the chief ethics and compliance officer must be free to perform his or her duties in representing the interests of the company within the organization, and support from above and authority to act are key to his/her success.  An effective chief ethics and compliance officer raises tough questions; interviews employees at all levels as well as partners and suppliers; reviews documents, and more; and must be able to do so without impediment from others in or outside of the organization.

As the chief ethics and compliance officer role has evolved, so too have its needs. The officer must have support from the very top of the organization, be given the necessary resources to serve as a key member of senior management, have the ability to report directly to the board and be afforded sufficient independence in order to be effective.

The Global Ethics Summit, held March 15-16, 2012, in New York, included numerous panel discussions that featured CEOs, board chairs, executive leaders and government and regulatory officials offering in-depth analysis and best practices surrounding ethics and compliance. Each of these panels, including the Evolution of the Chief Ethics and Compliance Officer, is available via video on westlegaledcenter.com.

Scott McCleskey is global head of financial services regulation, Thomson Reuters Governance, Risk & Compliance.