Board Seek Specialist in Adherence Matters

In the realm of corporate governance, the role of a compliance expert on the board of directors is gaining significant attention. This article delves into the importance of this role, particularly in the context of compliance committees at the board level.

Roy Snell, a compliance professional, suggests that individuals with extensive experience in compliance, particularly those at senior management levels, would make excellent candidates for directorship in a board of directors' compliance committee. However, he cautions that ethicists, risk managers, and auditors, while crucial, are not automatically compliance experts.

The need for a true compliance expert on a board of directors is underscored by the Office of Inspector General (OIG), the Department of Justice (DOJ), and the Securities and Exchange Commission (SEC). Hui Chen, the DOJ Compliance Counsel, emphasizes the importance of companies operationalizing their compliance programs and integrating compliance into the very fabric of their organizations.

Mike Volkov, another compliance expert, agrees, arguing that companies with a board member with compliance expertise often have a more effective compliance program. He further notes that a Chief Compliance Officer should report directly to the board for the company's compliance program, receiving necessary resources and support.

The DOJ and SEC are expected to follow this emphasis, with Chen predicting that they will soon require the presence of a compliance expert on a board of directors in any Foreign Corrupt Practices Act (FCPA) enforcement action resolution. The SEC is also expected to follow suit.

The OIG suggests adding a compliance member to the board to raise the level of regulatory and compliance expertise. This is a step that has been taken by some organizations, such as the Oversight Committee at the board of director level and the Baker Hughes Inc. (BHI) GeoMarket Compliance Committee at the business unit level.

Despite the importance of this role, many boards, such as the Wells Fargo board with a $230 billion market cap, lack demonstrable subject matter expertise in compliance. This was evident when the bank's fraudulent accounts scandal came to light, with the board taking more than two years to act when accepting the resignation of former CEO John Stumpf.

The presence of Teresa Carlson, a compliance expert, on the Wells Fargo board before the scandal became known, could have potentially mitigated some of these issues.

This article was republished with permission from Tom Fox's FCPA Compliance and Ethics Blog. It serves as a call to action for boards to consider the value of a dedicated compliance expert on their committees, particularly in the compliance committee at the board of directors level, to ensure effective compliance and avoid potential scandals.