The ultimate measure of a compliance program is whether it can constrain the people the organization believes it cannot afford to disappoint. Most compliance programs are designed for ordinary decisions made by ordinary employees. The real danger lies in extraordinary decisions involving people with unusual economic power. Today we conclude with lessons learned.
They may be founders, controlling owners, senior executives, rainmakers, celebrity endorsers, critical customers, or star performers. Their value to the organization can become a reason to bypass controls, reinterpret rules, or treat prohibited requests as business problems requiring creative solutions.
The investigation into the LA Clippers and Kawhi Leonard demonstrates what happens when that pressure enters the commercial ecosystem. The independent investigators’ report (Wachtell Report) concluded that Clippers leaders helped create outside-income opportunities for Leonard through companies doing business with the team, linked vendor business to endorsement arrangements, paid impermissible personal expenses, and failed to report prohibited demands.
The lessons reach well beyond professional sports. They reach into all businesses. Finally, they apply wherever commercial urgency can overwhelm governance.
Lesson One: Power Is a Compliance Risk Factor
Traditional risk assessments organize risk by geography, business unit, transaction type, or regulatory subject. They often overlook individual power.
Organizations should identify people whose economic importance, ownership position, revenue contribution, reputation, or personal relationship with leadership could weaken ordinary controls. This is not an accusation against those individuals. It is recognition that employees may respond differently when a request comes from someone perceived as indispensable.
The DOJ’s Evaluation of Corporate Compliance Programs asks whether risk management is proactive, whether resources follow risk, and whether senior leaders persist in their commitment to compliance when facing competing business objectives. A power-risk assessment helps answer those questions.
Lesson Two: Prior Misconduct Must Change the System
The Clippers had a prior circumvention violation. The NBA later investigated improper demands associated with Leonard’s 2019 free agency, established a reporting requirement, and trained the team’s senior leadership. Yet the Wachtell Report concluded that similar risks materialized again.
Training is not remediation unless the organization can demonstrate changed behavior. After an incident, compliance should identify the root cause, assign control owners, establish deadlines, test effectiveness, and report results to the board. The inquiry should continue until the organization can show that the opportunity for recurrence has been materially reduced. DOJ expressly asks whether companies incorporate lessons from their own misconduct and from similar problems at peer organizations. The Organizational Sentencing Guidelines likewise make prior history relevant to risk assessment, program design, and organizational culpability.
Lesson Three: Compliance Must Have Independent Authority
The question is not whether the organization employs compliance professionals. It is whether those professionals can challenge a powerful executive, suspend a transaction, obtain complete information, and reach an independent board committee without management permission.
The DOJ evaluates whether compliance has adequate qualifications, seniority, stature, resources, autonomy, and direct board access. These are operational requirements, not organizational-chart preferences. A CCO who can advise but cannot stop or escalate is not empowered. A compliance committee dominated by the executives sponsoring the transaction is not independent. A board that receives only management-filtered information is not exercising informed oversight.
Lesson Four: Follow the Entire Commercial Relationship
The Clippers investigation involved sponsorships, consulting agreements, sustainability services, an owner’s investment, player endorsements, vendor payments, and personal expenses. Reviewing each transaction separately could obscure the common purpose. Compliance needs a consolidated view of the relationship. That requires common identifiers across procurement, contracts, accounts payable, expenses, conflicts disclosures, gifts, sponsorships, and third-party systems.
The most useful question may be simple: What other business do we have with this person or entity? That question should be mandatory when a transaction involves a significant vendor, executive relationship, personal investment, public official, customer representative, agent, or other high-risk beneficiary.
Lesson Five: Test Economic Substance
According to the Wachtell Report, several endorsement arrangements had unusual economics, limited performance obligations, little public activation, and compressed negotiation timelines. Consulting agreements involved substantial advance payments. Separate agreements contained matching or closely connected amounts. The COSO Internal Control–Integrated Framework reminds organizations that controls support compliance and operational objectives, not simply accurate accounting. A payment can be correctly recorded and still serve an improper purpose.
Controls should test business rationale, market value, deliverables, proof of performance, payment timing, ultimate beneficiary, and connections to other transactions. Internal audit should be authorized to ask whether a contract makes commercial sense, not merely whether it was signed by an authorized person.
Lesson Six: Mandatory Reporting Requires a Closed Loop
The Wachtell Report found that Clippers leaders did not report improper solicitations made on Leonard’s behalf, despite a rule requiring reporting even if a request was rejected. A mandatory reporting policy needs more than a sentence in the code of conduct. It requires defined triggers, responsible owners, escalation deadlines, documentation, non-retaliation protection, and verification that the report reached the required recipient.
Organizations should test the reporting control. Present leaders with realistic scenarios and ask what they would do, whom they would contact, and how quickly. If answers vary, the control is not operating reliably.
Lesson Seven: Red Flags Must Reach Someone Who Can Act
The Wachtell Report described unusual payment structures, internal concern about the Forum transaction, resistance from Aspiration executives, and explicit communications linking Clippers business to Leonard’s endorsement agreement. Red flags do not protect an organization merely because they exist in an email archive. They must reach a person with authority, independence, and responsibility to act.
Boards should identify mission-critical compliance risks and establish reporting systems that deliver meaningful information. The Delaware Supreme Court’s decision in Marchand v. Barnhill emphasizes the board’s obligation to make a good-faith effort to establish and monitor reporting systems for central compliance risks. That does not make every control failure a Caremark violation. It does mean that silence at the board level is not a defensible oversight model.
Lesson Eight: Investigation Conduct Is Compliance Conduct
Investigators assessed not only the underlying transactions but also witness credibility and cooperation. They distinguished between witnesses who accepted responsibility and those whose accounts conflicted with documents or changed over time.
Organizations should prepare for investigations before a crisis. Document preservation, witness instructions, privilege protocols, anti-retaliation protections, escalation duties, and cooperation standards should already exist. Outside counsel should defend legitimate interests without impairing the organization’s ability to learn the truth. An investigation is not solely a litigation event. It is a test of culture and governance.
Lesson Nine: Accountability Must Reach Supervisors
The NBA’s penalties included a $30 million organizational fine, forfeiture of five first-round draft picks, individual suspensions, a payment by Leonard, a five-year restriction on Robertson, and a five-year compliance and monitoring program.
The sanctions reached individuals based on different forms of responsibility, including direct conduct, approval, supervision, and organizational leadership. Corporate consequence management should do the same. Employees who participate directly should be accountable, but so should managers who ignore red flags, approve unsupported exceptions, or fail to supervise. Compliance must be enforced consistently regardless of commercial value or title.
Lesson Ten: The Board Must Oversee the Pressure Points
Boards do not need to approve every sponsorship, vendor agreement, or expense report. They do need visibility into the areas where incentives, power, and mission-critical compliance risks intersect.
The board should receive reporting on high-risk transactions, control overrides, related-party relationships, significant investigations, repeated policy violations, executive discipline, and remediation testing. It should meet privately with the CCO and internal audit leader and confirm that both functions have access to the information and resources they need. Board oversight is not passive receipt of dashboards. It is informed challenge followed by documented action.
Practical Takeaways: A 90-Day Agenda
CCOs and risk leaders can translate these lessons into action:
- Identify the organization’s most powerful internal and external stakeholders and assess where their requests could bypass controls.
- Review prior investigations, violations, and audit findings to confirm that remediation was implemented and tested.
- Map all relationships involving high-risk vendors, personal investments, sponsorships, consulting arrangements, and individual beneficiaries.
- Establish independent review for transactions involving controlling owners, senior executives, or conflicts of interest.
- Test procurement, payment, expense, and reporting controls using real transaction data.
- Give compliance documented stop-work and escalation authority.
- Define investigation cooperation and consequence-management standards before the next allegation.
- Provide the board with targeted reporting on control overrides, repeat issues, and high-risk relationships.
The final lesson from the Clippers investigation is straightforward. Compliance fails when the organization treats the rule as an obstacle and the desired outcome as nonnegotiable. An effective program reverses that order. The rule defines the boundary, and the business must operate within it. The true measure of compliance is whether the organization can say no when yes would be more profitable, more convenient, or more popular. That is where governance becomes real.
