Tag: Board of Directors

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Innovation in Compliance

Compliance Professionals Adapting to Change: Industries, Regulations, and Beyond: Part 3 – Jessica Czeczuga on the Role of a Board of Directors in Training and Communications

Welcome to a special series sponsored by Diligent, where we look down the road at key issues in 2024 and beyond. In this series, I will visit with Nicholas Latham, Renee Murphy, Jessica Czeczuga, Yee Chow, and Alexander Cotoia. Over this series, we will consider compliant communications in regulated industries, managing conflicts of interest at the Board level, the Board’s role in compliance training and communications, navigating the current ESG landscape, and professional growth and mentorship in compliance. In Part 3, we review the role of a Board of Directors in compliance training and communications with Jessica Czeczuga.

Jessica Czeczuga is a seasoned corporate training and compliance professional, currently serving as the Principal Instructional Designer at Diligent. Jessica’s perspective on the importance of Board oversight in corporate training and compliance is shaped by her extensive experience and deep understanding of compliance programs. She emphasizes the crucial role of the Board in setting the tone for the organization’s culture, advocating for active communication from the Board about the importance of training to all employees. Jessica also suggests that the Board should be more significant in discussions about your organization’s compliance efforts, ensuring it meets its stated commitments. She views the Board as another group within the organization that requires tailored training and active involvement in promoting a culture of compliance. Join Tom Fox and Jessica Czeczuga as they delve deeper into this topic.

Key Highlights:

  • Driving Compliance and Training Messaging
  • Fostering Alignment Through Board Involvement
  • Assessing the Impact of Multinational Training

Ready for Purpose-Driven Compliance? Diligent equips leaders with the tools to build, monitor, and maintain an open, transparent ethics and compliance culture. For more information and to book a demo, visit Diligent.com

Join us tomorrow as we consider navigating the current ESG landscape.

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Innovation in Compliance

Compliance Professionals Adapting to Change: Industries, Regulations, and Beyond: Part 2 – Renee Murphy on Managing Conflicts at the Board

Welcome to a special series sponsored by Diligent, where we look down the road at key issues in 2024 and beyond. In this series, I will visit with Nicholas Latham, Renee Murphy, Jessica Czeczuga, Yee Chow, and Alexander Cotoia. Over this series, we will consider compliant communications in regulated industries, managing conflicts of interest at the Board level, the Board’s role in compliance training and communications, navigating the current ESG landscape, and professional growth and mentorship in compliance. Part 2 considers how an organization can manage conflicts of interest with Renee Murphy on the Board of Directors.

Renee Murphy has a rich compliance, governance, and risk management background. Having served as both an internal and external auditor and currently the Chief Evangelist of Diligent, she brings a unique perspective to managing board-level conflicts of interest and implementing ESG practices. Renee believes that conflicts of interest at the board level can have serious implications and emphasizes the importance of identifying and addressing these conflicts to prevent financial misconduct. She also advocates that boards prioritize disclosing their ESG practices and carbon emissions, as stakeholders will increasingly demand this. Her expertise and insights are shaped by her diverse experiences, including her role as a lead analyst at Forrester Research and her work with Fortune 500 companies. Join Tom Fox and Renee Murphy as they delve deeper into these topics on the next episode of the Diligent Podcast.

Key Highlights:

  • Board Members Sitting on Multiple Boards
  • Conflicts of Interest at the Board Level
  • ESG Reporting for Long-Term Risk Management
  • The Role of Compliance in Board Governance

Ready for Purpose-Driven Compliance? Diligent equips leaders with the tools to build, monitor, and maintain an open, transparent ethics and compliance culture. For more information and to book a demo, visit Diligent.com

Join us tomorrow as we consider the role of the Board of Directors in compliance training, messaging, and communications.

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Blog

Renee Murphy on Risks and Consequences of Board Level Conflicts of Interest

I recently had the opportunity to visit with folks from Diligent. We look down the road at key issues in 2024 in a podcast series sponsored by Diligent entitled Compliance Professionals Adapting to Change: Industries, Regulations, and Beyond. I could chat with Nicholas Latham, Renee Murphy, Jessica Czeczuga, Yee Chow, and Alexander Cotoia. Over this series, we discussed compliance communications in regulated industries, managing conflicts of interest at the Board level, the Board’s role in compliance training and communications, navigating the current ESG landscape, and professional growth and mentorship in compliance. In this Post 2, we discuss the conflicts of interest at the Board of Directors and the Board’s role at the ESG level with Renee Murphy.

Conflicts of interest at the board level can have serious implications for companies, requiring careful management and proactive measures to ensure ethical functioning. Board-level conflicts of interest can arise when board members sit on multiple boards or engage in self-dealing. These conflicts can lead to questions of fairness and potential harm to the company. For example, a CEO whose time is divided among multiple companies may not be able to provide fair attention to each organization, creating a conflict of interest for shareholders. Additionally, self-dealing at the board level, such as funneling company funds to entities owned by board members, can harm the company’s financial health.

To mitigate these conflicts, board members should establish clear boundaries and implement board management software for transparency and accountability. This software enables effective communication and decision-making, allowing boards to address conflicts promptly and ensure ethical operations. Compliance and risk management officials play a vital role in board governance by providing the board with an understanding of legal and regulatory risks and preventing conflicts of interest. These officials enable efficient risk management and compliance processes by utilizing governance software.

The implementation of ESG practices is another crucial aspect of board governance. ESG considers environmental, social, and governance factors in business operations. Companies are advised to select a framework and start disclosing their ESG information. Failure to do so can hinder access to capital and affect long-term risk management. While ESG practices are not currently mandated by the SEC, they are increasingly demanded by banks, customers, and third parties. Therefore, companies have no choice but to disclose their ESG practices to meet stakeholder expectations.

Balancing board-level conflicts of interest and ESG practices involves tradeoffs and challenges. On one hand, addressing conflicts of interest requires strict oversight and accountability to ensure fair decision-making. On the other hand, implementing ESG practices requires companies to consider their environmental and social impact, which may involve additional costs and changes to existing operations. Finding the right balance between these factors is crucial for organizations to maintain ethical operations while meeting stakeholder expectations.

The importance of considering the impact on decision-making cannot be overstated. Conflicts of interest and the lack of ESG practices can lead to financial losses, reputational damage, and legal consequences. By proactively managing conflicts and implementing ESG practices, companies can enhance their long-term sustainability and mitigate risks. Compliance and risk management officials and board members play a pivotal role in ensuring that ethical considerations are prioritized in decision-making processes.

Managing board-level conflicts of interest and implementing ESG practices are critical aspects of board governance. Companies can enhance transparency, accountability, and ethical functioning by establishing clear boundaries, utilizing board management software, and disclosing ESG information. Balancing these factors involves tradeoffs and challenges, but the impact on decision-making and the long-term success of organizations cannot be ignored. With the guidance of compliance and risk management officials, boards can navigate these complexities and ensure ethical operations for the benefit of all stakeholders.

Ready for Purpose-Driven Compliance? Diligent equips leaders with the tools to build, monitor, and maintain an open, transparent ethics and compliance culture. For more information and to book a demo, visit Diligent.com

Join us tomorrow as we consider the role of the Board of Directors in compliance training and communications.

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31 Days to More Effective Compliance Programs Uncategorized

One Month to More Effective Reporting and Investigations – Board Investigations

In their article, “Successful Board Investigations”, David Bayless and Tammy Albarrán, offered seven considerations to facilitate a successful Board investigation.

  • Consider whether you need independent outside counsel.
  • Consider hiring an experienced investigator to lead the internal investigation.
  • Consider the need to retain outside experts.
  • Analyze potential conflicts of interest at the outset and during the investigation.
  • Carefully evaluate whistleblower allegations.
  • Request regular updates from outside counsel, without limiting the investigation.
  • Consider whether an oral report at the conclusion of the investigation is sufficient.

The authors conclude their piece by stating, “By keeping in mind the issues addressed above, the Board will be better prepared for the investigation and readily able to exercise good judgment throughout the review. A well-conducted investigation by the Board may spare the company further disruption and costs associated with follow-on investigations by the regulators, or at the very least minimize the company’s exposure.”

Three key takeaways:

  1. Retain the right counsel. Consider conflicts and appearance.
  2. Carefully evaluate all whistleblower allegations and reject retaliation.
  3. Consider receiving oral reports on an ongoing basis and one lengthy oral report at the end of the investigation.
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31 Days to More Effective Compliance Programs

One Month to More Effective Reporting and Investigations – Board Investigation Protocols

Many companies have an investigation protocol in place when a potential compliance violation or other legal issue arises. However, many Boards of Directors do not have the same rigor when it comes to an investigation, which should be conducted or led by the Board itself. The consequences of this lack of foresight can be problematic, because if a Board does handle an investigation right, the consequences to the company, its reputation and value can be quite severe. The SEC considers a variety of factors around corporate investigations including: Did management, the board or committees consisting solely of outside directors oversee the review? Did company employees or outside persons perform the review? If outside persons, have they done other work for the company?

Dan Chapman has said this is the time for a very frank conversation with your Board about what such an investigation will entail. Costs must be adequately discussed to set proper expectations. These include both direct costs and, what Chapman believes may be even more important, a discussion of indirect costs to the company. He noted, “the biggest cost to a company during an investigation is the diversion of management resources” and, as he further explained, “everything stops to focus on the investigation.” This indirect cost comes through largely the time commitment of senior management. He further explained, “if senior management has to commit 20% of their time to the investigation, that’s 20% that’s not going towards revenue generating, shareholder value protecting activities.”

Finally, Jonathan Marks has noted after notification of serious allegations, Boards should take the following steps:

• Consider creating a Special Committee to conduct the investigation;

• Establish a committee charter;

• Preserve the electronic and hardcopy documentation environment;

• Communicate with external auditors; and

• Plan potential communication with the SEC, DOJ, and the relevant stock exchange.

Marks also notes that while a special committee might be necessary in certain rare circumstances, the Board should try to avoid forming a special investigative committee to oversee the investigation if the Audit Committee is composed of independent and disinterested directors that are suited for the task. A special committee must be disbanded at some point (usually once the investigation is completed and before the restatement process begins), and the disbanding could become a complicated news item. Conversely, if the Audit Committee oversees the investigation, then, once the investigation is complete, they can pivot back to their normal role, which would include overseeing the actual restatement process. Investigations overseen by the Audit Committee also benefit from the positive relationship that the committee chair usually has with the audit partner of the company’s external auditor.

 Three key takeaways:

1. The Board should have a written protocol for investigations prepared in advance.

2. Any Board led investigation must be both credible and objective.

3. The investigation must be thorough but the Board can be cost effective.

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31 Days to More Effective Compliance Programs

One Month to a More Effective Board – 20 Questions Directors Should Ask about the Board Compliance Committee

In an area of inquiry entitled Oversight, the 2023 ECCP asks three basic questions which we have explored throughout this chapter:

1. What compliance expertise has been available on the Board of Directors?

2. Have the Board of Directors held executive or private sessions with the compliance function?

3. What types of information has the Board of Directors examined in their exercise of oversight in the area in which the misconduct occurred?

To facilitate the answers to these questions, consider this list of 20 questions to reflect the oversight role of directors. These are questions the Board should ask of both senior management and the Board should ask itself. The questions are not intended to be an exact checklist, but rather a way to provide insight and stimulate discussion on the topic of compliance. The questions provide directors with a basis for critically assessing the answers they get and digging deeper as necessary. Although the questions apply to most medium to large organizations, the answers will vary according to the size, complexity and sophistication of each individual organization.

Part I: Understanding the Role and Value of the Compliance Committee

1. What are the Compliance Committee’s responsibilities and what value does it bring to the Board?

2. How can the Compliance Committee help the Board enhance its relationship with management?

3. What is the role of the Compliance Committee?

Part II: Building an Effective Compliance Committee

4. What skill sets does the Compliance Committee require?

5. Who should sit on the Compliance Committee?

6. Who should chair the Compliance Committee?

Part III: Directed to the Board

7. What is the Compliance Committee’s role in building an effective compliance program within the company? How can the Compliance Committee assess potential members and senior leaders of the company’s compliance program?

8. How long should directors serve on the Compliance Committee?

9. How can the Compliance Committee assist directors in retiring from the Board?

Part IV: Enhancing the Board’s Performance Effectiveness

10. How can the Compliance Committee assist in director development?

11. How can the Compliance Committee help the Board chair sharpen the Board’s overall performance focus?

12. What is the Compliance Committee’s role in Board evaluation and feedback?

13. What should the Compliance Committee do if a director is not performing or not interacting effectively with other directors?

14. Should the Compliance Committee have a role in chair succession?

15. How can the Compliance Committee help the Board keep its mandates, policies and practices up-to-date?

Part V: Merging Roles of the Compliance Committee

16. How can the Compliance Committee enhance the Board’s relationship with institutional shareholders and other stakeholders?

17. What is the Compliance Committee role in CCO succession?

18. How can the Compliance Committee foster great technical impact for compliance function?

19. What role can the Compliance Committee play in preparing for a crisis, such as the discovery of a sign of a significant compliance violation?

20. How can the Compliance Committee help the Board in deciding CCO pay, bonus and resources made available to the corporate compliance function?

 Three key takeaways:

1. The DOJ Evaluation requires active Board of Director engagement around compliance.

2. Board communication on compliance is a two-way street; both inbound and outbound.

3. Has the Board built an effective Compliance Committee for itself?

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Compliance Into the Weeds

Compliance into the Weeds: What is Driving Compliance Engagement at the Board?

The award-winning, Compliance into the Weeds is the only weekly podcast that takes a deep dive into a compliance-related topic, going into the weeds to explore a subject more fully and looking for some hard-hitting insights on sanctions compliance. Look no further than Compliance into the Weeds!

In this episode, co-hosts Tom Fox and Matt Kelly dissect the Navex 2023 State of Risk and Compliance Report. Tom and Matt delve into Navex’s annual benchmarking report, which surveyed 1,300 compliance professionals. The report revealed that 53% of respondents described their compliance programs as mature. Matt and Tom question whether the board is driving the conversation or if compliance officers request updates due to potential liability. The report’s findings on cybersecurity and privacy concerns, survey results on where compliance should reside in a company, and the importance of having a mature anti-bribery anti-corruption compliance program are all discussed. Tune in to hear more about how compliance officers can address pressing concerns such as cybersecurity breaches and attacks.

Key Highlights:

  • Navex’s benchmark report on compliance programs
  • Board-Compliance Officer Relationship & Cybersecurity in Compliance
  • The necessity of Dedicated Compliance Committees
  • Survey Finds Diverse Views on Compliance Placement in Companies
  • The Importance of Anti-Bribery Compliance for Cybersecurity
  • Compliance Officer Reporting to CISO Dynamics

 Resources:

Matt 

LinkedIn

Blog Post in Radical Compliance

Tom 

Instagram

Facebook

YouTube

Twitter

LinkedIn

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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program with Boards – Three Areas of Board Inquiry

Directors should focus on three core areas to help establish and maintain an effective compliance program: structure, culture, and risk management.

Structural questions. This area consists of questions that will aid in determining the fundamental sense of a company’s overall compliance program. The questions should begin with the basics of the program through to how the program operates in action.

Cultural questions. This area of inquiry should focus on the organization’s culture regarding compliance. Board members should understand what message senior management and middle management communicate. Equally important, the Board needs to understand what message is being heard at the lowest levels within the company.

Risk management questions. Board members need to understand the company’s process being used to identify emerging risks, their evaluation, and management. Such risk analysis would be broader than simply a compliance risk assessment and should be tied to other broader corporate matters.

Three key takeaways:

  1. A Board of Directors should inquire into the structural component of the compliance program as it will aid in determining the fundamental sense of a company’s overall compliance program.
  2. Cultural questions should be asked to understand what message is being communicated by senior and middle management.
  3. Risk management questions should be asked to understand the company’s process being used to identify emerging risks, their evaluation, and management.
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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program with Boards – Incorporating Compliance into a Long-Term Corporate Strategy

How can a Board work incorporate the compliance function into a long-term business strategy of the organization?

The starting point for a Board of Directors is to develop a framework for incorporating compliance into your long-term strategy. To set up the framework for evaluating compliance into your Board’s long-term strategy is a three-step process, which you can use to determine how comprehensive the Board’s role in your compliance program is as a starting point.

1. Has the company identified the compliance issues relevant to the Board?

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

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 KPIs, which a Board should 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 the company’s long-term strategy and have the CCO detail the long-term strategy for the compliance function.

The Board should oversee incorporating KPIs into senior management performance evaluations and compensation. Once again building upon the 2020 Update, which asks how the company monitors its senior leadership’s behavior and how senior leadership models 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 disclose to shareholders the material compliance issues that drive compensation, the specific goals or performance targets that management must 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 it is also, as the 2020 Update makes clear, what the government expects is the operationalization of compliance going forward.

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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31 Days to More Effective Compliance Programs

One Month to a More Effective Compliance Program with Boards – The Board and Succession Planning

The 2023 ECCP mandated a Board of Directors ensure “the sufficiency of the personnel and resources within the compliance function, in particular, whether those responsible for compliance have: (1) sufficient seniority within the organization; (2) sufficient resources, namely, staff to effectively undertake the requisite auditing, documentation, and analysis; and (3) sufficient autonomy from management, such as direct access to the board of directors or the board’s audit committee.”

It went on to pose the following questions about the “sufficiency of the personnel” in the following manner. Under the topic, Seniority, and

 Stature, are the following questions:

How does the compliance function compare with other strategic functions in the company in terms of stature, compensation levels, rank/title, reporting line, resources, and access to key decision-makers? and What role has compliance played in the company’s strategic and operational decisions?

Under the topic Experience and Qualifications are the following questions:

Do compliance and control personnel have the appropriate experience and qualifications for their roles and responsibilities? Has the level of experience and qualifications in these roles changed over time? How does the company invest in further training and development of the compliance and other control personnel? Who reviews the performance of the compliance function and what is the review process?

All of this leads to the inescapable conclusion that the Board of Directors needs to be involved in not only the hiring process for a CCO but also the succession planning. Yet many Boards fall short on that score. In a Chapman and Cutler LLP quarterly update, entitled, Advancing Board Refreshment Through the Director Succession Planning Process, William Libit and Todd Freier laid out a framework for Boards to use which I have adapted for CCO succession. There are some key traits you should consider in succession planning for any senior management position, including a CCO.

  1. Examine the key corporate documents.
  2. Use an assessment framework.
  3. Conduct due diligence.
  4. Maintain a pipeline.
  5. Assess Board policies.
  6. Disclose your succession strategy.
  7. Benchmark your succession strategy.

 Three key takeaways:

1. Refreshment is a hot topic in corporate governance.

2. Review your Board policies to understand what your company will need going forward.

3. Transparency in succession planning.