In this final five days of my One Month to a Better Board series, I will look at inquiries and questions a Board can take to help the organization actually do compliance going forward. I begin with an exploration of how can a Board work to incorporate the compliance function into a long-term business strategy of the organization. A Board can do so by engaging with the Chief Compliance Officer and compliance function through having a strong Board which is committed to doing business ethically and incompliance with anti-corruption laws such as the FCPA and engaging actively with the CCO and compliance function. This post will begin a discuss of various tools and techniques a Board can use and engage to move to this level of engagement.

The first point is to develop a framework for incorporating compliance into your long-term strategy. This framework draws from the State Street Global Advisors’ strategy for sustainability and adapts it to compliance. To set up the framework for evaluation of the compliance function is a three-step process, which you can use to determine how comprehensive you compliance program is as a starting point.

Step 1-has the company identified the compliance issues relevant to the Board?

Step 2-has the company assessed and incorporated those compliance issues into its long-term strategy?

Step 3-has the company communicated its approach to compliance and the influence of those factors on its overall strategy?

From this initial inquiry you can move into some specific questions that the Board can use to determine the overall state of your company’s compliance program. First a Board can work to identify compliance issues material to your organization. This can be accomplished with compliance related key performance indicators, which a Board should then prioritize to elevate their impact on compliance. A Board should consider these through the life-cycle of a business line or geographic sales area. Next the Board should work to move compliance into both the long-term strategy for the company and also have the CCO detail the long-term strategy for the compliance function.

Drawing from the February release Justice Department Evaluation of Corporate Compliance Programs (Evaluation), the Board should actively work to incorporate compliance into the long term capital allocation of the company. Obviously the earlier the investment the better as it brings benefits such as benefits through brand differentiation, lowering the risk profile of the company and improving nimbleness in market responses.

The Board should oversee the incorporate of KPIs into senior management performance evaluations and compensation. Once again building upon the Evaluation which asks how the company monitors its senior leadership’s behavior and how senior leadership modelled proper behavior to subordinates, the Board should make certain systems are in place to quantify or measure performance related to compliance issues, should establish performance goals against which they measure compliance achievement and finally disclose to shareholders the material compliance issues that drive compensation, the specific goals or performance targets that management has to achieve and report on the actual performance against established goals to justify compensation payouts.

Finally the Board should work to communicate the influence of compliance factors on overall corporate strategy by demonstrating how compliance was integrated into the business. Not only is this good from a business perspective and shareholder expectation but also as the DOJ Evaluation makes clear what the government expects is the operationalization of compliance going forward.

These general factors will lead us into more specific questions that a Board can pose as we continue one month to a better board for a best practices compliance program.

Three Key Takeaways

  1. Having a long term strategy is critical.
  2. What is the Board’s framework for assessing compliance?
  3. Create KPIs to measure senior management’s actions around compliance.

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