Today, October 4, is the first Friday in October so I begin my annual month of Friday HorrorFest Film highlights. The great thing about this blog post series is that I get to re-watch these great old horror films. While I usually focus on the films of Universal Pictures and their classic monsters: Frankenstein, Dracula, Wolfman and the Mummy; this year I wanted to highlight the films of one of the great unknowns of horror films, Val Lewton.
Lewton was a writer from New York who went out to Hollywood in the mid-1930s, was not an actor or director but a Producer for the old RKO Studios. He had a stint at MGM working as a publicist and assistant to David O. Selznick, the Producer of Gone With the Wind, which he worked on as an uncredited writer, “including writing the famous scene where the camera pulls back to reveal hundreds of wounded soldiers at the Atlanta depot.”
Lewton left Selznick to work at RKO as a Producer. At RKO he was given three guidelines, (1) each film had to come in under a US$150,000 budget, (2) each was to run under 75 minutes, and (3) Lewton’s supervisors would supply the film titles. For his first movie, he was presented with the title The Cat People; he came in under budget at $137,000 and the film netted $4MM; making it the top film sales for RKO in 1942. Thereafter he was given a free hand but he was still given each film’s title. The thing I love about Lewton’s horror work is that it is based on atmosphere, suspense and ambience, all culminating in what you do not see to deliver its great terror. Lewton produced six films for RKO that I will be exploring in this month’s HorrorFest 2019 Celebration series.
Lewton has been called by Martin Scorsese the “Man in the Shadows” and that seems like an appropriate introduction to today’s topic; which is how the role of the compliance function in a corporation has steadily grown in stature and prestige over the years. In the 2017 FCPA Corporate Enforcement Policy, the Department of Justice (DOJ) listed the following factors relating to a corporate compliance function, that it would consider as indicia of an effective compliance and ethics program: 1) the resources the company has dedicated to compliance; 2) the quality and experience of the personnel involved in compliance, such that they can understand and identify the transactions and activities that pose a potential risk; 3) the authority and independence of the compliance function and the availability of compliance expertise to the board; 4) the compensation and promotion of the personnel involved in compliance, in view of their role, responsibilities, performance, and other appropriate factors; and 5) the reporting structure of any compliance personnel employed or contracted by the company.
Factors 1 and the first half of 3 come from the Ten Hallmarks of an Effective Compliance Program. Points 2, the second half of 3, 4 and 5 come from the DOJ’s April 2016 FCPA Pilot Program, Part 3, entitled “Timely and Appropriate Remediation in FCPA Matters.” Clearly the DOJ is articulating that in an operationalized compliance program, it expects true compliance professionals, who understand the way compliance interacts with and supports the business. Companies must compensate and promote compliance professionals within their organization.
Funding and resources. You will now have to justify your corporate compliance spend. This means at a minimum you will have to meet some general industry standard. If a corporation tries to low-ball both the pay to compliance professionals, as well as the dollar and head count made available to a compliance function, it will not be viewed positively. Also noted in the Evaluation, a company must be prepared to defend any request for compliance resources which are turned down. Budget requests and allocations are always difficult times in any corporation. There is never enough money to go around and most senior management thinks it is their job to slash all budget requests as a simple matter of course. Now such blanket management will be penalized.
If a compliance function is so hampered by resource restrictions it cannot carry out the basic functions needed for a compliance program to operate, it will not find favor under either the Evaluation or the FCPA Corporate Enforcement Policy. If there are compliance projects needed to address basic compliance risks which are not funded because management failed to heed a Chief Compliance Officer’s (CCOs) or compliance functions budget request, this could be evidence of conscious indifference by senior management.
Role of compliance and empowerment. More than simply throwing money at the compliance function (as if that would ever happen) the DOJ is now inquiring into how the compliance function and its recommendations are treated. If there is business unit over-ride of compliance decisions, there must be an auditable decision trail. This, of course, is anathema to corporate executives who do not want to put themselves at risk.
But more than simply preventing management over-ride, a corporate compliance function has to be empowered by the Board and Chief Executive Officer (CEO) to intervene in business decisions that implicate the company’s ethics and compliance issues, compliance with business code of ethics, agent/distributor and supplier codes of conduct, training, communication and internal investigations. If a company considers a business decision or practice that implicates the company’s ethical principles, the compliance function must have the internal authority to weigh in and ensure that ethical principles and compliance issues are factored into the business decision.
Outsourcing of compliance. This area of compliance practice has arisen largely since the articulation of the Hallmarks in the 2012 FCPA Guidance. While this might make sense from a cost perspective, it can be largely problematic if it is not managed properly. Rarely do outsiders have the same access as corporate employees, particularly in a function as important as compliance. Additionally, there will never be the trust level with outsiders there is with someone who wears the same color shirt as the employees. Here a company must not only have a rationale in place, which will largely be cost savings; a company must also have a mechanism in place to assess, on an ongoing basis, any outsourced compliance function. This will be beyond the reach of probably 99% of the companies engaged in such outsourcing.
While Lewton may still be considered ‘the man in the shadows’ certainly his reputation has only grown more with time. The Evaluation and FCPA Corporate Enforcement Policy both demonstrate the continued evolution in the thinking of the DOJ around the corporate compliance function. Their articulated inquiries can only strengthen a corporate compliance function specifically; and the compliance profession more generally. The more the DOJ talks about the independence of the compliance function, coupled with resources being made available and authority concomitant with the corporate compliance function, the more corporations will see it is directly in their interest to provide the resources, authority and gravitas to compliance position in their organizations.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at firstname.lastname@example.org.
© Thomas R. Fox, 2019