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Compliance - Whose Job is it Anyway?

When times are hard, the compliance role in a company becomes much more important. Hard times can create poor decision making. Some companies rely heavily on compliance committees and trust that these committees can provide significant oversight and a valuable check-and-balance to the company’s management. Others argue that compliance committees may, in fact, increase risk to a company by providing unnecessary cover to the executive who is pushing the envelope on a compliance issue and then defends his or her actions by saying that the decision had been validated by the compliance committee, which may not have fully vetted the executive’s decision. For this reason, some companies do not have compliance committees and assert that “compliance is a job for everyone.” Of course, there is also a danger that “when everyone is responsible, no one actually takes responsibility.” These countervailing arguments need to be considered when establishing a compliance program, but also need to be kept in mind when the company reviews its compliance program on an annual basis.

One thing is clear, however. If an executive is given the title of compliance officer, that executive’s place in the organizational chart of the company needs to be adjusted. No corporation is well served by having its compliance officer serve at the pleasure of those senior executives whose decisions will be subject to the compliance officer’s review. There at least needs to be a dotted line to the compliance committee, if one exists, or to an audit or compensation committee of the board of directors, such that any decision by senior executives which adversely impacts the compliance officer is reviewed by those third-party committees before it is implemented. If a CEO can terminate a compliance officer without oversight, how strong is that compliance officer’s position when it comes to checking the CEO’s activities? The answer is that is not very strong at all. It is best to have a compliance or other appropriate committee review any proposed adverse action to a compliance officer to ensure the compliance officer is free to act in the best interests of the company.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.