Exercising Board Oversight of the Compliance Function
By Ruder Ware Alumni
April 19, 2017
How the Board can Enhance Compliance Effectiveness
The Board of Directors (Board) of an organization has oversight responsibilities over the compliance program. Board members are often unsure of the nature and scope of their responsibilities over compliance. The roll of many Boards is limited to receiving occasional updates from the compliance officer. Compliance is then checked off the “to-do” list and the Board moves on to other issues until their next compliance update.
The way compliance has evolved over the years, makes it necessary for corporate boards to take more active responsibility for their compliance oversight function. Board members should be inquisitive about compliance and should not assume the compliance officer is performing all tasks required in an effective compliance program. Like any other class of employee, there are some compliance officers who perform effectively and others who will let things slide if they are not held accountable by the Board.
Best practice is for the compliance officer to have a direct line of responsibility to the Board. Reporting to other executives inherently diminishes the independence of the compliance officer and potentially impedes the performance of compliance activities. Compliance office independence is good for the program; at least if the compliance officer is adequately performing the compliance role. Where there is independence, the Board is really the only place the compliance officer’s activities are assessed. Matching compliance independence with Board apathy over compliance creates a perfect storm for the compliance program to be operated ineffectively. This underlines the need of Board members to be inquisitive and press the compliance officer. Asking the compliance officer pointed questions is one technique that can enhance the Board’s understanding of its role while it assesses the effectiveness of the compliance officer.
Board members should be attentive to agenda items that involve compliance. If regular agenda items do not exist, Board members should ensure they are included in the future. A compliance program is not effective unless the compliance officer regularly reports to the Board. When compliance issues are on the agenda, Board members should come prepared with questions to ask the compliance officer. This process will help the Board better understand issues the specific organization faces. It will also help the Board adequately and effectively conduct its oversight responsibilities and will result in a more effective compliance process.
As a follow up to this Article, I will be posting a list of questions Board members may wish to ask the compliance officer. The questions should be tailored to the nature of the business and level of understanding Board members have regarding their oversight role.
Back to all News & Insights
Disclaimer
The content in the following blog posts is based upon the state of the law at the time of its original publication. As legal developments change quickly, the content in these blog posts may not remain accurate as laws change over time. None of the information contained in these publications is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. You should not act upon the information in these blog posts without discussing your specific situation with legal counsel.
© 2024 Ruder Ware, L.L.S.C. Accurate reproduction with acknowledgment granted. All rights reserved.