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How Generative AI is Transforming Business and Compliance in 2025

One thing I have learned from the digital age is that to stay ahead, we must stay informed and proactive about how new technologies impact corporate governance, ethics, and operational compliance. In this context, generative AI (Gen AI) is no longer a futuristic concept; it is embedded deeply in our everyday activities. Marc Zao-Sanders’ article in Harvard Business Review (HBR), “How People Are Really Using Gen AI in 2025,” presents an excellent opportunity to reflect on how these developments impact compliance, governance, and risk management.

Zao-Sanders highlights a critical shift in how generative AI is utilized: from purely technical assistance towards significantly more personal and emotive applications. With “Therapy/Companionship,” “Organizing my life,” and “Finding purpose” emerging as the top three use cases, it’s clear that users seek emotional and organizational support, demonstrating Gen AI’s versatility beyond traditional technological roles.

Compliance professionals must recognize that as AI increasingly becomes integral to both professional services and personal well-being, the accompanying risk and compliance implications magnify exponentially. The nature of these interactions, often intimate or deeply personal, demands robust data privacy protections and stringent ethical governance frameworks. Businesses integrating these technologies need precise, transparent policies and effective oversight mechanisms to mitigate new compliance risks.

Implications for Compliance Professionals

Enhanced Data Privacy and Ethical Considerations

Zao-Sanders emphasizes the rising prominence of personal and professional support through Gen AI, especially in areas such as AI-based therapy, emotional companionship, and life organization. As users entrust AI with highly sensitive personal data, compliance professionals face increased responsibilities regarding data privacy, security, and the ethical use of data. This scenario elevates the stakes considerably. He notes, “data safety is not a concern when your health is deteriorating,” highlighting users’ willingness to sacrifice privacy for crucial emotional or medical support. Such conditions can quickly lead to ethical and compliance vulnerabilities if businesses fail to manage and protect sensitive user data rigorously.

Organizations must reinforce their compliance strategies to manage ethical risks inherent in AI-human interactions. As Zao-Sanders indicates, professional services, including medical, legal, and financial advisement, are increasingly relying on generative AI, pushing regulatory boundaries. Notably, EY’s deployment of 150 AI agents specifically for tax-related tasks highlights the profound impact of generative AI on professional services, adding layers of complexity to compliance strategies.

Regulatory Response and Enforcement Trends

The article briefly touches on the growing regulatory scrutiny that Gen AI is attracting globally, noting explicitly that governments are “taking more emphatic and explicit positions” due to heightened stakes surrounding AI technology. For compliance professionals, this should serve as a clarion call: regulatory oversight is intensifying. Preparing for audits, demonstrating compliance, and actively engaging with regulatory developments will be essential. The rapid pace of AI adoption necessitates an agile and proactive approach to compliance management that anticipates, rather than merely reacts to, regulatory shifts.

Balancing AI Dependence with Human Oversight

A striking tension highlighted in the article is the debate over the impact of generative AI on human cognitive abilities, decision-making, and ethical judgment. Users express genuine concern about becoming overly reliant on AI, which could erode their ability to think critically and make independent, ethical decisions.

This reliance poses significant implications for compliance officers charged with safeguarding ethical decision-making. Effective compliance programs must emphasize human oversight, cultivating a culture where AI supports rather than supplants human judgment. Investing in AI literacy among employees can mitigate potential over-reliance, fostering an environment where staff understand both the capabilities and limitations of AI.

Compliance in AI-Driven Professional Services

Zao-Sanders illustrates how AI integration into professional tasks is increasingly sophisticated. For instance, the transformation underway at EY, training employees extensively in generative AI, reflects broader industry trends. Compliance officers must respond to these developments by establishing clear standards and compliance checkpoints. It is crucial to determine whether AI outputs meet professional standards, remain unbiased, and do not inadvertently violate regulatory obligations.

Given AI’s pervasive integration into professional judgments (such as tax preparation, legal advice, and medical diagnosis), the accuracy and regulatory compliance of AI-driven outputs become paramount. Compliance programs must integrate AI auditability, accountability, and transparency deeply into corporate governance frameworks.

Practical Compliance Steps in the Gen AI Era

1. Proactive Policy Development and Training

Develop clear policies that outline the acceptable use of generative AI, including specific guidelines on data handling, ethical considerations, and regulatory obligations. Embed these policies into your organization’s culture through rigorous training and communication strategies.

2. Rigorous Risk Assessment and Ongoing Monitoring

Gen AI compliance must adopt continuous monitoring. Regular risk assessments and periodic audits of AI systems will promptly detect and rectify issues. Compliance officers should remain actively involved in assessing new AI technologies for ethical, privacy, and regulatory considerations before full-scale implementation.

3. Transparent Data Practices

Given the heightened public sensitivity to data privacy concerns, as noted by Zao-Sanders’ mention of users’ concerns around data privacy and their cynicism toward Big Tech, companies must prioritize transparent data practices. Clear communication about data usage, consent, and protection measures will foster trust and reduce compliance risks.

4. Ethical AI Governance Frameworks

Design and deploy ethical AI governance frameworks that address algorithmic fairness, transparency, and accountability, ensuring responsible use of AI. These frameworks ensure generative AI tools are deployed responsibly and ethically, aligning with stakeholder expectations and regulatory standards.

5. Encourage Human-AI Collaboration

Foster a balanced approach between AI-driven solutions and human judgment. Reinforce the importance of human oversight to ensure compliance, accuracy, and ethical decision-making, thus minimizing over-dependence on AI.

Looking Ahead—The Compliance Imperative in the Gen AI Landscape

As we approach a future increasingly defined by AI integration, compliance professionals have a unique opportunity to lead their organizations proactively. Understanding and managing the compliance and ethical dimensions of Gen AI is now critical, not optional. The risks and opportunities outlined in Zao-Sanders’ article underscore the urgent need for a strategic, well-informed approach to integrating generative AI into corporate compliance frameworks.

Compliance professionals should view this moment as an opportunity to demonstrate thought leadership, to guide ethical AI adoption, and to establish robust frameworks that enable businesses to thrive responsibly. By proactively addressing the compliance and moral challenges presented by generative AI, we not only fulfill our professional obligations but also position our organizations as ethical, forward-thinking leaders in the digital age. The compliance journey ahead is demanding, but equally, it offers profound opportunities to influence and shape a responsible, compliant, and ethically robust AI-driven future.

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Integrity Under Fire: Key Compliance Lessons from the Suzanne Ballek SEC Enforcement Action

In the realm of corporate compliance, integrity is a foundational principle. It underscores the effectiveness of every compliance program, defines the culture of an organization, and acts as a safeguard against misconduct. When integrity is compromised, compliance programs crumble. The recent administrative proceeding by the Securities and Exchange Commission (SEC) against Suzanne Ballek, the former Chief Compliance Officer (CCO) of an SEC-registered investment adviser (“Adviser A”), underscores this critical truth. (The Ballek Order) The SEC’s findings and resulting sanctions offer vital lessons for compliance professionals. Today, we examine what happens when a CCO goes awry and identify the essential lessons that every compliance professional should adopt.

Overview

Suzanne Ballek served as Vice President and CCO for Adviser A, an investment adviser that managed approximately $249 million in assets. The heart of the SEC’s action was that Ballek falsified and manipulated compliance records requested during an SEC examination. Specifically, she altered pre-clearance trading forms, backdated signatures, completed missing entries, and even created new forms without authorization, all to give the false appearance of compliance with the company’s trading pre-clearance policy.

Ultimately, Ballek’s actions violated Sections 204(a) and 206(4) of the Investment Advisers Act of 1940, prompting the SEC to impose a cease-and-desist order, a three-year prohibition on her acting in any compliance capacity, and a $40,000 civil penalty.

Compliance Lessons from the Ballek Administrative Order

Ballek presents several significant lessons for compliance professionals. Here are the top takeaways:

1. Integrity Must Guide Compliance Efforts

Compliance officers are custodians of organizational integrity. The Ballek Order emphasizes the importance of maintaining honest and accurate compliance documentation and record-keeping practices. Integrity is non-negotiable. Even under pressure from internal or external examinations, compliance professionals must resist any impulse to alter or falsify records. Ballek’s lapse serves as a stark reminder of how rapidly ethical transgressions can escalate, creating compliance risks that undermine entire organizations.

2. Maintain True and Accurate Records

The case highlights the importance of accurate record-keeping, a core responsibility codified in the Investment Advisers Act and Rule 204A-1. Adviser A was required to maintain true and accurate records of its pre-clearance trading activities. Instead, Ballek engaged in backdating, altering dates, filling out missing fields after the fact, and fabricating records entirely. Compliance officers must establish clear documentation procedures, train employees on those expectations, and conduct regular internal audits to ensure accurate records and immediate corrections of any identified discrepancies.

3. Implement Robust Policies and Procedures

Having written policies is essential, but they must be diligently and consistently followed. Adviser A had policies requiring prior approval of trades by access persons and mandated record retention for six years. However, these policies were consistently violated in practice. The Ballek Order emphasizes that maintaining a façade of compliance, particularly through document falsification, is insufficient. Compliance programs must include proactive monitoring and periodic testing of policies and procedures to ensure ongoing effectiveness and efficacy. Compliance officers need to embed policies into daily operational practices rather than treating them as mere formalities or check-the-box requirements.

4. Transparency During Regulatory Examinations

The SEC views transparency and honesty during examinations as fundamental compliance obligations. Ballek misrepresented the truth by submitting falsified documents and subsequently misleading examiners. Providing accurate, unaltered documentation to regulators is crucial. If errors or gaps in records are found, they should be openly disclosed, accompanied by a clear action plan to rectify deficiencies. Transparency with regulatory bodies builds credibility and can mitigate potential enforcement actions. Conversely, a lack of transparency can significantly exacerbate penalties and sanctions, as seen in this enforcement action.

5. Leadership Must Exemplify Compliance

Every compliance officer must embody the principles of compliance, acting as a model for the rest of the organization. In this case, the failure originated from the CCO herself, the person responsible for enforcing adherence to compliance norms. Compliance officers must exhibit behaviors they wish to see across the organization. When compliance leadership itself falters, the damage to organizational culture and employee confidence is profound and challenging to repair.

6. Beware of Slippery Slopes

Lawyers are familiar with the gradual escalation from minor oversights to serious misconduct, a phenomenon known as the slippery slope. Ballek’s missteps likely started small but eventually ballooned into substantial and systematic falsification. Compliance professionals must remain vigilant for early indicators of lax procedures or ethical compromises and address them immediately. Regular ethical training, scenario-based exercises, and creating a culture that encourages speaking up when irregularities arise can help organizations stay ahead of this slippery slope.

7. Prompt and Accurate Internal Reporting

The Ballek Order matter emphasizes the importance of encouraging honest internal reporting. Compliance professionals should foster a culture that encourages employees to report compliance concerns or failures without fear of retribution or retaliation. Effective internal reporting mechanisms and whistleblower protections enable organizations to identify and address issues before they escalate into regulatory violations. If Adviser A had promoted more robust internal communication around compliance deviations, this unfortunate event might have been avoided entirely.

8. Ensure Segregation of Compliance Duties

One significant issue highlighted by this case is the risk associated with concentrating compliance oversight and documentation responsibilities within one individual. To safeguard against record alteration and concealment, organizations should institute checks and balances, including periodic independent reviews and segregation of compliance duties. Compliance tasks should never be assigned solely to a single individual. This practice fosters accountability, mitigates fraud risk, and promotes a culture of healthy compliance.

9. Understand Consequences of Non-Compliance

The SEC’s enforcement action illustrates severe professional and financial consequences. Beyond monetary penalties, reputational damage and restrictions on future employment in compliance roles serve as powerful deterrents. Compliance professionals must ensure the entire organization, from executives to entry-level employees, fully understands these potential ramifications. Periodic compliance training emphasizing the severity of regulatory penalties and personal liability should reinforce adherence to rules and ethical standards.

10. Continuously Improve and Adapt Compliance Practices

Finally, the compliance function must be adaptive and responsive to evolving regulatory requirements and risks. Continuous improvement of compliance practices, through regular assessments and the incorporation of lessons from regulatory actions such as the Ballek order, helps maintain a proactive stance. Updating policies, strengthening internal controls, and enhancing compliance monitoring based on enforcement insights will help safeguard organizations from similar incidents in the future.

The SEC’s administrative order against Suzanne Ballek serves as a wake-up call for compliance professionals everywhere. It provides a poignant example of how ethical lapses, particularly from compliance leaders, can devastate an organization. By internalizing and applying these ten compliance lessons, organizations can reinforce integrity, build robust compliance frameworks, and protect themselves against regulatory actions.

In the world of compliance, integrity is not optional; it is the cornerstone of everything we do. Remembering this truth, compliance professionals must lead the charge toward uncompromising ethical standards. Only then can true compliance be achieved, fostering sustainable corporate growth and credibility.

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Rewarding Integrity: Five Lessons from the DOJ – USPS Whistleblower MOU

⁠As compliance professionals, we stand at the forefront of integrity, transparency, and accountability within our organizations. Recently, an important document has emerged from the Antitrust Division of the United States Department of Justice (Antitrust Division), the United States Postal Service (USPS), and the United States Postal Service Office of Inspector General (USPS OIG)—the Memorandum of Understanding (MOU) regarding the Whistleblower Rewards Program. This MOU represents a significant advancement in promoting corporate transparency, encouraging ethical behavior, and strengthening the reporting channels for criminal antitrust violations.

Understanding the MOU

The MOU is a collaborative agreement among the Antitrust Division of the DOJ, the USPS, and the USPS OIG, designed to establish and operationalize a Whistleblower Rewards Program. The overarching purpose is to incentivize whistleblowers to step forward and report credible and substantial evidence of criminal violations, especially those related to antitrust activities that directly impact the Postal Service’s operations or revenues.

Specifically, this program addresses serious federal criminal offenses, including price fixing, bid rigging, market allocation, and other forms of economic collusion, as well as associated fraud schemes that undermine the integrity of government procurement processes. The initiative reflects a comprehensive and coordinated effort among the Antitrust Division, the USPS, and the USPS OIG to foster accountability and transparency in federal contracts, procurements, and market practices.

A critical component of this MOU is the articulated process for whistleblower engagement and eligibility for rewards. Whistleblowers are encouraged to voluntarily submit original information, which must be specific, credible, timely, and previously unknown to any of the enforcement authorities. Once submitted, this information undergoes a rigorous review by the Antitrust Division, which evaluates its validity, specificity, and potential impact. If the initial assessment finds merit, the information is forwarded to the USPS Inspection Service (USPIS), which determines its relevance to the Postal Service’s operations or finances.

A distinctive feature of the Whistleblower Rewards Program, as detailed in the MOU, is the financial incentive offered to successful whistleblowers. Individuals whose reports lead directly to a criminal prosecution, conviction, deferred prosecution agreement, or non-prosecution agreement resulting in a monetary fine or recovery of at least $1 million may receive financial rewards ranging from 15% to 30% of the collected fine. This explicit reward structure serves to underscore the commitment of federal authorities to rewarding transparency, integrity, and courageous reporting of wrongdoing, providing a clear incentive for ethical action within organizations.

By outlining clear processes, defined roles, specific reporting criteria, and attractive financial incentives, this MOU establishes a strong blueprint for enhancing corporate and governmental compliance efforts, underscoring the critical role whistleblowers play in upholding economic integrity and ethical business conduct.

Five Key Takeaways for the Compliance Professional

1. Embrace Proactive Whistleblower Policies

A primary lesson from this MOU is the importance of proactively establishing robust whistleblower frameworks within your organization. This program demonstrates how structured whistleblower initiatives, backed by clear protocols and monetary incentives, significantly bolster compliance efforts. Organizations should similarly adopt proactive approaches, ensuring their whistleblower programs are transparent, well-publicized, and accessible to all employees and stakeholders. Always remember that 80% of all reported whistleblowers either attempt or do report internally. It is the remaining 20% who go to the government.

2. Original Information and Clear Reporting Channels

Compliance programs must ensure clarity around what constitutes “original information,” as defined by this MOU. Information must be independently obtained, credible, specific, and previously unknown to the enforcement authorities. Clear communication channels and robust internal reporting mechanisms are essential for employees to feel confident in sharing valuable insights, thus fostering an internal culture of integrity and vigilance.

3. Integration with Law Enforcement

Another critical takeaway is the integration and alignment of organizational compliance with external law enforcement agencies. By closely coordinating with entities such as the DOJ Antitrust Division, organizations not only enhance their compliance measures but also demonstrate their commitment to lawful operations and proactive detection of violations. Regular dialogue and clear lines of communication with regulatory and enforcement authorities can ensure alignment and swift action on identified risks.

4. Transparency in Award Determination

The MOU emphasizes transparency and fairness in the distribution of rewards. Rewards are stipulated to range from 15% to 30% of the collected criminal fines, promoting trust and clarity among potential whistleblowers. Compliance professionals must adopt a similarly transparent approach within internal reward and recognition structures, clearly communicating criteria, processes, and the rationale behind award decisions. Transparency fosters trust, boosts morale, and encourages active participation in compliance initiatives.

5. Limitations and Conditions for Whistleblowers

Understanding the MOU’s explicit exclusions and conditions is essential. Individuals excluded from whistleblower eligibility include those who instigated the violation, those with privileged or confidential compliance responsibilities, and those employed by law enforcement or regulatory bodies. Compliance professionals must delineate roles and responsibilities within their organizations, ensuring all team members understand their obligations, the nature of confidential and privileged information, and the boundaries of reporting mechanisms.

Final Thoughts

This Whistleblower Rewards Program MOU is a robust model for fostering a compliance culture and encouraging ethical conduct within corporations. By providing clear incentives, establishing transparent processes, and maintaining close collaboration with regulatory bodies, this program sets a high standard for organizations across industries.

As compliance leaders, it is our responsibility to champion these principles within our organizations, advocating for stronger whistleblower protections, clearer reporting channels, and greater collaboration with external oversight authorities. Only by doing so can we build resilient, transparent, and ethically robust organizations prepared to face tomorrow’s compliance challenges head-on.

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Operationalizing AI for Compliance: Turning Potential into Practice

If you have spent any time around corporate compliance in the past several months, you have undoubtedly heard a great deal about artificial intelligence (AI). It is promised as a game changer, touted as the next big thing, and often presented with buzzwords that sound more like science fiction than practical business tools. Indeed, I wrote a book about its promise, Upping Your Game. However, compliance professionals consistently face one crucial question: How can we operationalize AI effectively within our compliance functions?

I used this title, as I have long advocated Operationalizing Compliance. Indeed, in 2016, I published a book with just that title. Therefore, in today’s blog, we will explore precisely that: how compliance leaders can strategically integrate AI solutions into existing compliance frameworks, drive effectiveness, and transform potential into sustainable value.

Understanding AI’s Value Proposition for Compliance

Operationalizing AI begins with recognizing why AI matters in the context of compliance. Fundamentally, compliance is about managing risk through monitoring, detection, investigation, and remediation. AI excels in these core compliance activities due to its ability to process massive volumes of data rapidly, identify patterns that humans may miss, and provide predictive insights.

AI, in short, enhances your compliance team’s ability to stay ahead of risk, transforming reactive processes into proactive strategies. Consider the traditional compliance approach to monitoring. Usually reliant on sampling and periodic audits, it can leave gaps for misconduct to slip through. AI-driven continuous monitoring solutions eliminate these gaps, spotting anomalies in real-time and flagging them immediately for action.

Yet, for all its promise, AI is not a “plug and play” solution. To operationalize AI, compliance teams must approach it methodically, intentionally, and with transparent governance in place.

Step 1: Define Your Objectives Clearly

The first step in operationalizing AI for compliance is clarity of purpose. Compliance leaders must define the specific outcomes they hope to achieve through AI. Ask yourself, “What problem are we trying to solve, and why is AI a suitable solution?”

Objectives may include:

  • Real-time detection of suspicious financial transactions.
  • Automated due diligence on third-party vendors.
  • Predictive analytics to flag high-risk regions or business units.
  • Enhanced hotline management through AI-powered triage.

Articulated objectives become the roadmap guiding your AI initiative, helping you select appropriate tools and measure success effectively.

Step 2: Data Readiness and Integration

Next, compliance professionals must tackle a critical operational requirement: data readiness. AI thrives on data; thus, operationalizing AI depends on ensuring your data is accessible, reliable, secure, and comprehensive.

Data silos present a significant challenge. Compliance functions often manage fragmented data from HR systems, financial databases, third-party diligence platforms, and internal reporting channels. Integrating these data streams into a unified compliance data lake or repository is a foundational step.

A successful integration strategy includes:

  • Conducting a data inventory and assessing data quality.
  • Standardizing data formats across various systems.
  • Implementing robust data governance practices ensures the accuracy and integrity of data.

Addressing these integration challenges upfront ensures your AI compliance solutions have high-quality fuel to drive accurate and valuable insights.

Step 3: Choose the Right AI Technology Partners and Tools

There’s no shortage of AI vendors promising solutions tailored for compliance needs. But choosing the right partner requires thorough due diligence, evaluating both technological capability and ethical alignment.

Compliance leaders should look for partners with:

  • Demonstrable experience in corporate compliance and regulatory environments.
  • Transparent and auditable AI algorithms to ensure explainability.
  • Robust data privacy and cybersecurity frameworks.
  • Scalable solutions that evolve with regulatory demands and business needs.

Furthermore, compliance professionals should carefully pilot and test AI solutions before implementing them on a full scale. Start small by piloting the solution within a specific compliance area, such as third-party due diligence or fraud detection, and expand gradually based on proven outcomes and clear metrics.

Step 4: Build AI Ethics into Your Compliance Framework

Operationalizing AI comes with significant ethical implications, particularly regarding bias, transparency, and accountability. Compliance officers play a pivotal role in ensuring that AI systems align with a company’s values, ethics, and regulatory expectations.

An ethical AI framework includes:

  • Regular algorithmic auditing to detect and mitigate bias.
  • Transparent processes that allow for the explainability of AI-driven decisions.
  • Mechanisms to oversee and correct AI systems continuously.

AI ethics isn’t an add-on; rather, it is integral to operationalizing AI responsibly. Compliance teams should be at the forefront of this conversation, partnering with data scientists and technology leaders to integrate ethical oversight into AI deployment from the outset.

Step 5: Training, Culture, and Change Management

Operationalizing AI also means preparing your team and organization to adapt to new ways of working. AI is not a replacement for compliance professionals; it’s a tool to augment their expertise. However, integrating AI successfully demands a culture receptive to technology-driven change.

Compliance leaders must focus on:

  • Continuous AI literacy training to ensure that compliance teams understand how to interact effectively with AI tools.
  • Establishing clear communication channels explaining AI’s role, scope, and limitations.
  • Encouraging a culture of curiosity and innovation within compliance teams, reinforcing that AI enables them to perform their roles more effectively, not replace them.

Managing organizational change proactively reduces resistance, fosters engagement, and ensures your compliance team leverages AI’s full potential.

Step 6: Establish Metrics and Measure Impact

Operationalizing AI requires rigorous performance monitoring. Compliance professionals must establish clear benchmarks and metrics to assess the effectiveness of AI continually. Typical metrics could include:

  • Reduction in false positives during transaction monitoring.
  • Improvements in detection accuracy and timeliness.
  • Reduction in compliance breaches and associated remediation costs.
  • Increased efficiency in compliance investigation processes.

These metrics provide tangible evidence of AI’s impact, allowing compliance leaders to make data-driven decisions about expanding or adjusting their AI initiatives.

Step 7: Continuous Improvement and Adaptation

Finally, operationalizing AI is not a one-time event but an ongoing cycle of continuous improvement. AI models and technologies evolve rapidly, as do regulatory environments and compliance risks. Regularly revisiting your AI strategy ensures continued alignment with organizational needs and compliance objectives.

Embrace a feedback loop approach:

  • Regularly solicit feedback from users about the AI tool’s effectiveness.
  • Stay informed about regulatory changes that may impact AI compliance practices.
  • Update algorithms and recalibrate models to maintain accuracy and relevance.

A compliance function committed to continuous learning, adaptation, and iteration is best positioned to reap long-term benefits from AI.

Turning AI from Concept to Compliance Reality (Operationalizing AI)

Operationalizing AI for compliance is not merely about adopting cutting-edge technology; it is about strategic integration, ethical oversight, proactive training, and continuous improvement. When compliance leaders approach AI thoughtfully, methodically, and responsibly, the result is transformative, turning AI’s promise into a practical reality that enhances compliance effectiveness, risk mitigation, and organizational integrity.

As compliance professionals, we stand at an exciting crossroads. AI has moved beyond theoretical potential; it is a tangible, operational reality. By clearly defining objectives, managing data effectively, choosing the right partners, embedding ethics, preparing our teams, and committing to continuous improvement, compliance can lead the way in responsibly harnessing AI’s power.

The AI revolution in compliance is here. The question is not whether compliance teams can operationalize AI but how effectively and ethically they can do so. The answer lies in the strategic, thoughtful, and deliberate steps we take today.

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Chasing Shadows: Five Compliance Lessons from the Hound of the Baskervilles

“The Hound of the Baskervilles,” penned by Sir Arthur Conan Doyle, is not only the most famous Sherlock Holmes story and a riveting detective tale but also presents timeless lessons in compliance applicable to corporate governance and risk management. Through its intricate plot and detailed character portrayals, the novel underscores several critical principles that every compliance professional should heed.

The story itself blends mystery, suspense, and supernatural elements. Sherlock Holmes and Dr. Watson investigate Sir Charles Baskerville’s mysterious death on the eerie Devonshire moors, connected to a legendary demonic hound curse. Holmes sends Watson with his heir, Sir Henry Baskerville, to the estate, where suspicious servants, an escaped convict, and peculiar neighbors—the Stapletons—heighten tensions. Watson’s observations reveal Jack Stapleton’s instability and jealousy over Sir Henry’s attention to Beryl Stapleton. Secretly investigating, Holmes identifies Stapleton as a Baskerville relative plotting Sir Henry’s death to claim the inheritance. Stapleton’s deception includes staging supernatural events to exploit local superstition. In the climax, Stapleton releases a phosphorus-painted hound to kill Sir Henry, but Holmes and Watson intervene, killing the beast. Stapleton flees, presumed dead in the Grimpen Mire. Holmes’s rational deductions triumph, dismissing supernatural fears and reinforcing logic and reason. Watson’s meticulous work is instrumental, showcasing his courage and skill. The novel concludes by affirming reason over superstition, demonstrating the dangers of irrational fear.

Here are five key compliance lessons derived from specific events within this classic tale.

Lesson 1: Avoiding Complacency in Risk Assessment

The initial approach to the mystery of Sir Charles Baskerville’s death illustrates a critical lesson in risk assessment: the importance of maintaining vigilance. Dr. Mortimer initially attributes the death to supernatural causes, influenced by local legends of a family curse. Sherlock Holmes immediately challenges this complacency, emphasizing the need for rational investigation over reliance on myths or unexamined assumptions. Holmes insists on examining evidence logically rather than accepting straightforward, sensational explanations.

Compliance professionals must similarly avoid complacency. It is easy for an organization to rely on historical assumptions or superficial risk assessments. However, genuine vigilance requires continuous questioning and reevaluation of all potential threats. By regularly revisiting risk assessments and remaining skeptical of conventional wisdom, compliance teams can better anticipate, mitigate, and respond to potential compliance failures before they escalate into significant issues.

Lesson 2: Effective Use of Data and Evidence

Throughout “The Hound of the Baskervilles,” Holmes’s meticulous use of evidence exemplifies the necessity of thorough documentation and analysis in achieving effective compliance outcomes. One key example is Holmes’s careful examination of Sir Henry Baskerville’s stolen boots. Holmes correctly deduces that the shoes were stolen to provide the hound with Sir Henry’s scent. This attention to minute detail and systematic analysis underscores the importance of robust documentation and record-keeping.

Compliance professionals should similarly prioritize precise data collection, rigorous documentation, and evidence-based decision-making. Proper documentation provides transparency, facilitates effective audits, and ensures clarity when addressing compliance issues or regulatory inquiries. By fostering a culture where data-driven decision-making is standard practice, organizations can strengthen their compliance programs and more effectively prevent violations.

Lesson 3: Maintaining Independence and Objectivity

A pivotal moment in the novel occurs when Holmes secretly arrives on the moor, independent of Watson’s investigation. Holmes understands the importance of maintaining independence to gather unbiased information. By conducting a parallel investigation that is free from local biases and personal relationships, Holmes preserves objectivity and ultimately identifies the true culprit, Jack Stapleton.

For compliance professionals, maintaining independence and objectivity is equally vital. Conflicts of interest can obscure judgment and compromise investigations. Compliance officers must be empowered to act independently, free from undue influence, to ensure the integrity of their findings and recommendations. Establishing clear reporting structures and supporting unbiased investigative procedures can significantly enhance an organization’s overall compliance effectiveness.

Lesson 4: Transparent Communication and Reporting

Transparency is repeatedly highlighted as essential throughout Conan Doyle’s narrative. Watson’s regular and detailed correspondence with Holmes exemplifies clear, transparent reporting. Watson meticulously records his observations, suspicions, and interactions, ensuring Holmes remains informed of developments in real time. This ongoing communication proves instrumental in Holmes’s eventual successful intervention.

In the realm of corporate compliance, transparent communication and reporting are equally critical. Employees must feel encouraged and supported in reporting suspicious activities or compliance concerns without fear of retaliation or retribution. Implementing precise and accessible reporting mechanisms, while ensuring open lines of communication, fosters a culture that is compliant-friendly. This transparency enables compliance teams to detect and address issues promptly, thereby reducing organizational exposure to risk and promoting an ethical business environment.

Lesson 5: Importance of Culture and Ethics

The actions and eventual downfall of Jack Stapleton underscore a profound lesson in compliance regarding organizational culture and ethics. Stapleton manipulates local fears and exploits the legend of the supernatural hound to facilitate his criminal plans. His unethical behavior, driven by greed and a disregard for human life, ultimately led to his ruin.

Organizations must prioritize building and maintaining a strong ethical culture. Leadership should exemplify ethical behavior, clearly communicate expectations, and swiftly address unethical actions. Regular training and communication regarding ethical standards reinforce an organization’s values and expectations. By cultivating a robust ethical culture, organizations not only reduce the likelihood of compliance violations but also enhance their reputation and long-term sustainability.

“The Hound of the Baskervilles” offers rich insights for compliance professionals. Avoiding complacency, emphasizing evidence-based decision-making, maintaining independence, ensuring transparent communication, and fostering a robust ethical culture are foundational principles that are vividly highlighted throughout Conan Doyle’s timeless narrative. These lessons, illustrated through specific events and character decisions within the story, remain deeply relevant in guiding modern corporate compliance practices.

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Innovation in Compliance

Innovation in Compliance – Allison Lagosh on Proactive Compliance Planning for Regulatory Changes

Innovation is present in many areas, and compliance professionals must not only be prepared for it but also actively embrace it. Join Tom Fox, the Voice of Compliance, as he visits with top innovative minds, thinkers, and creators in the award-winning Innovation in Compliance podcast. In this episode, host Tom Fox visits with Allison Lagosh, Head of Compliance at Saifr.ai, to discuss the current and future landscape of regulatory compliance.

With over two decades of experience in asset management, compliance, and regulatory affairs, Lagosh anticipates a pivotal shift towards AI and cryptocurrency regulations. She predicts a lighter enforcement landscape but stresses the importance of a conservative, informed approach to compliance, encouraging firms to future-proof their programs by staying abreast of regulatory changes and engaging in cross-team collaboration. Her insights, shared on platforms like the “Innovation in Compliance” podcast, highlight the necessity of strong leadership support and continuous learning to effectively navigate the dynamic regulatory environment, particularly in the realm of emerging technologies.

Key highlights:

  • Regulatory Futurism: AI and Crypto Compliance
  • “Colorado’s Groundbreaking AI Safety Legislation”
  • Proactive Compliance Planning for Regulatory Changes
  • Navigating Compliance Uncertainties with AI Integration
  • Regulatory Insights on Safer.AI Website

Resources:

Allison Lagosh on LinkedIn

Saifr.ai

Tom Fox

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Check out my latest book, Upping Your Game—How Compliance and Risk Management Move to 2023 and Beyond, available from Amazon.com.

Innovation in Compliance was recently honored as the number 4 podcast in Risk Management by 1,000,000 Podcasts.

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Adventures in Compliance

Adventures in Compliance: The Novels – The Hound of the Baskervilles: Uncovering Compliance – Lessons from The Hound of the Baskervilles

In this new season of Adventures in Compliance, host Tom Fox takes a deep dive into the Sherlock Holmes novels. Over this season Tom will take a deep dive into each novel over a four part series. The four novels we will consider from the ethics and compliance perspective are A Study in Scarlet, The Sign of Four, The Hound of the Baskervilles and The Valley of Fear. For the month of July we are considering lessons from The Hound of the Baskervilles.

Fiona and Timothy are back to extract five key compliance lessons from the story, including combating complacency, effective data use, maintaining objectivity, transparent communication, and ethical culture. These principles, drawn from a Victorian mystery, prove profoundly relevant for modern corporate compliance.

Highlights include:

  • Overview of Compliance Lessons from Sherlock Holmes
  • Lesson 1: Avoiding Complacency
  • Lesson 2: Power of Effective Data and Evidence
  • Lesson 3: Independence and Objectivity
  • Lesson 4: Transparent Communication and Reporting
  • Lesson 5: Importance of Culture and Ethics

Resources:

The New Annotated Sherlock Holmes

Sherlock Holmes FAQ by Dave Thompson

Sherlock Holmes, The Novels, with an introduction by Michael Dirda

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COSO’s Corporate Governance Framework: What It Means for Compliance

For decades, COSO has been the gold standard in internal controls and enterprise risk management. But with the release of its new Corporate Governance Framework (CGF), now open as a Public Exposure Draft, COSO has thrown down the gauntlet to the compliance profession. This isn’t just a governance checklist. It is a call to action: step up, shape governance, and lead your organization into the future.

After exploring each of the six CGF Components in depth, I wanted to conclude this series by bringing it all together. What does the new COSO framework mean for compliance professionals? How should you adjust your strategy, your conversations with the board, and your daily work? Here are the big lessons and the practical next steps.

1. The Big Picture: A New Era for Governance and Compliance

The COSO CGF is a principles-based, integrated system designed to make governance everyone’s business, not just the sole responsibility of a Board of Directors. The six Components—Oversight, Strategy, Culture, People, Communication, and Resilience, each include key Principles with practical Points of Focus and leading-edge considerations. This is not a compliance framework by name, but it is a governance framework that places compliance at the heart of value creation, accountability, and enterprise resilience.

Compliance Takeaway: The CGF is arriving at a moment of regulatory complexity, stakeholder activism, and reputational volatility. Boards and management face evolving risks from AI, cyber, and ESG while being held to standards of transparency and trust by investors, employees, and society itself. If you’re a compliance leader, COSO just handed you the blueprint for embedding compliance deeper than ever before.

2. Oversight: Compliance’s Seat at the Table

Effective governance starts with the board, but it extends through management to every level of the organization. Oversight is about structure, independence, and accountability across board composition, executive delegation, and shareholder engagement. Do not be a bystander in governance; be a builder. Propose committee enhancements, brief leadership on independence and risk, and ensure compliance is on the board’s standing agenda. Your role is to clarify escalation protocols, support board effectiveness, and ensure oversight extends beyond mere numbers to encompass culture and ethical tone.

Compliance Takeaway: Start benchmarking your BOD structure and practices against COSO’s principles. Bring data to governance discussions and push for compliance metrics and risk topics to be regular board agenda items.

3. Strategy: From Afterthought to Co-Pilot

Strategy is no longer a C-suite sandbox. COSO makes clear: the board must oversee strategy, management must align it with purpose, and compliance must be at the table from planning to performance review. Step into the strategic conversation early. Embed compliance considerations into scenario planning, risk assessment, and incentive design. Move beyond being a “fixer” after decisions are made. You are now a co-pilot in shaping resilient, risk-aware, and stakeholder-driven strategy.

Compliance Takeaway: Map your organization’s strategic plan to the four COSO strategy principles: purpose, development, execution, and measurement. Create or enhance compliance dashboards with ethical and cultural KPIs, and ensure the board is briefed on them.

4. Culture: From Soft Topic to Measurable Mandate

Culture is not simply a poster on the wall; rather, it is how people behave when nobody is watching. The CGF calls for boards to own culture oversight, with management embedding values in every business process, from hiring to crisis response. Culture is now measurable, manageable, and mission-critical. Create culture dashboards, integrate ethics into leadership assessments, and bring employee sentiment to the board. Remember, misaligned culture leads to misconduct, and compliance has the data to prove it.

Compliance Takeaway: Launch a culture governance program with clear metrics (hotline use, training engagement, exit interview themes). Schedule regular board updates and recommend third-party culture assessments every few years.

5. People: Talent Is Governance in Action

People make or break both strategy and culture. COSO’s People Component focuses on workforce planning, succession, compensation, and development, with the board responsible for oversight of the front line—partner with HR on leadership development, succession planning, and ethics in incentives. Review onboarding and offboarding for compliance moments of truth, and advocate for ethics questions in performance reviews. Do not simply check the HR box; bring a compliance risk lens to every talent conversation.

Compliance Takeaway: Review how people-related risks (succession gaps, compensation misalignment) are addressed in board and committee agendas. Propose ethics- and compliance-driven enhancements to talent processes, and pilot 360-degree reviews for key leaders.

6. Communication: Governance’s Nervous System

Communication is not simply about reporting; rather, it is the way governance breathes. The CGF emphasizes trustworthy data, technology enablement, escalation protocols, and stakeholder engagement. Ensure your GRC systems provide real-time, accurate insights. If your compliance program runs on spreadsheets, it’s time for an upgrade. Push for integrated platforms, streamlined reporting, and regular “lookback” exercises after incidents.

Compliance Takeaway: Lead a review of your communication tools and escalation pathways. Bring technology-enabled dashboards to executive and board meetings, combining compliance, risk, and culture indicators for holistic governance oversight.

7. Resilience: From Compliance Cost Center to Value Enabler

Resilience is the ability to anticipate, withstand, and adapt to disruption. The Resilience Component weaves together risk, compliance, internal control, and continuous monitoring and positions compliance as a pillar of enterprise stability. Expand your oversight of internal controls beyond financials—leverage technology to automate high-risk monitoring. Lead post-incident reviews that turn mistakes into governance muscle. Compliance is not just about “bouncing back” from crisis; it is about building systems that don’t break in the first place.

Compliance Takeaway: Map compliance risks to strategic objectives and ensure alignment with enterprise risk management (ERM). Use predictive analytics to flag emerging cultural or ethical risks and brief the board on how compliance is driving not just compliance but resilience.

What Makes COSO’s CGF Different—and What You Should Do Now

Cross-functional by design. Each Component connects with others—culture shapes strategy, people enable resilience, and communication powers oversight.

Principle-based, not prescriptive. The framework is adaptable across industries and geographies. It is not about ticking boxes but building a system that fits your organization.

Tech-forward and future-focused. AI, data, and technology are built in from the start, not an afterthought.

Final Takeaways for Compliance Professionals:

  • Engage early and often: Do not wait for the board to call you. Proactively map your program to the CGF’s Components.
  • Benchmark and build: Use the framework as a lens to spot gaps, propose improvements, and advocate for compliance in new domains (talent, tech, ESG).
  • Educate and evangelize: Socialize the CGF across the C-suite, HR, IT, and risk. Make compliance the bridge that connects governance with value creation.

Closing Thoughts: A Call to Action

The new COSO Corporate Governance Framework is a leadership manual for the modern compliance professional. It challenges us to see compliance as more than defense; it is the engine of long-term value, trust, and resilience.

If you are ready to move from risk mitigator to governance architect, COSO just handed you the playbook. Now’s the time to roll up your sleeves, engage with the board, and help build a governance system that will stand the test of disruption, scrutiny, and change.

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Compliance Tip of the Day

Compliance Tip of the Day – Design-Centric Internal Controls

Welcome to “Compliance Tip of the Day,” the podcast that brings you daily insights and practical advice on navigating the ever-evolving landscape of compliance and regulatory requirements. Whether you’re a seasoned compliance professional or just starting your journey, we aim to provide you with bite-sized, actionable tips to help you stay on top of your compliance game. Join us as we explore the latest industry trends, share best practices, and demystify complex compliance issues to keep your organization on the right side of the law. Tune in daily for your dose of compliance wisdom, and let’s make compliance a little less daunting, one tip at a time.

Today, we look at design-centric controls that lay the groundwork for effective internal controls.

For more information on this topic, refer to The Compliance Handbook: A Guide to Operationalizing Your Compliance Program, 6th edition, recently released by LexisNexis. It is available here.

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Trekking Through Compliance

Trekking Through Compliance: Episode 40 – Prime Directive Decisions: Ethics in Action from Star Trek’s “Friday’s Child”

Star Trek has always been about more than adventure. It is often a mirror for our ethical challenges, especially for those tasked with steering organizations through the tricky space of corporate compliance. The original series episode “Friday’s Child” offers a compelling look at negotiation, trust, and ethics under fire. While set on the distant planet Capella IV, the dilemmas faced by Captain Kirk and his crew echo those in today’s boardrooms and compliance departments. Today, we set our phasers to “learn” and beam down five ethical lessons for compliance professionals, each tied to a defining scene from this classic episode.

Lesson 1: Respect Local Customs—Even When They Conflict With Your Own Values

Illustrated By: Upon arrival on Capella IV, Kirk and his landing party encounter the fiercely traditional Capellan society. The Capellans’ customs, particularly their views on leadership and the role of women, are in stark contrast to those of the Federation. Kirk and Dr. McCoy are forced to tread carefully, knowing that any misstep could lead to violence or destroy negotiations.

Compliance Lesson: Operating globally means working in environments where local laws and customs may clash with your organization’s values or home-country regulations. Compliance professionals must develop cultural intelligence and adapt without compromising core ethical standards. Kirk’s diplomacy demonstrates the importance of engaging with local practices respectfully, seeking understanding before judgment.

Provide training for teams working abroad, focusing on cultural sensitivity and practical ways to address conflicts between local customs and organizational policies. Create protocols for escalating issues when legal or ethical lines are at risk of being crossed.

Lesson 2: Integrity in Negotiation Is Non-Negotiable

Illustrated By: As the Federation seeks mining rights on Capella IV, the Klingons arrive to negotiate with the Capellans, bringing duplicity and manipulation. The Klingon emissary, Kras, offers bribes and deceit, but Kirk insists on transparency—even when it puts the mission at risk.

Compliance Lesson: Negotiations, whether with third parties or regulators, test ethical boundaries. While competitors may take shortcuts or resort to unethical tactics, a compliance-driven organization must prioritize integrity. Kirk’s refusal to engage in deception sets a tone of ethical leadership that earns the grudging respect of the Capellans.

Embed ethics in your negotiation strategy. Establish clear boundaries and a code of conduct for employees and third parties, making it clear that winning at any cost is not acceptable. Regularly audit negotiations for compliance with both law and company values.

Lesson 3: Protect the Vulnerable—Even When It’s Not Easy

Illustrated By: After the assassination of Akaar, the Capellan leader, his pregnant widow, Eleen, becomes the target of violence. Federation protocol would have Kirk and his team withdraw, but McCoy and Kirk insist on protecting Eleen and her unborn child, risking their safety and the mission.

Compliance Lesson: Organizations must safeguard those in vulnerable positions—whether whistleblowers, employees facing retaliation, or communities impacted by business decisions. The true ethical test is what you do when protecting the vulnerable is inconvenient, costly, or unpopular.

Establish robust whistleblower protection programs, anti-retaliation measures, and processes for identifying at-risk individuals or groups. Make it clear that ethical obligations to protect the vulnerable are not optional, but a core part of your compliance mission.

Lesson 4: Ethical Courage Means Making Unpopular Decisions

Illustrated By: When Eleen, following Capellan law, insists that she does not want her child, McCoy faces a stark ethical dilemma. He risks offending her and violating local tradition by insisting on the child’s birth, believing it to be in her and the child’s best interests. Ultimately, his actions save both Eleen and her child, who becomes the new heir.

Compliance Lesson: There are moments when ethical behavior demands standing alone, challenging consensus, or confronting deeply ingrained practices. McCoy’s “tough love” illustrates the courage required to make the right decision, even when it’s not the popular one.

Lesson 5: Transparency and Communication Build Trust in Crisis

Illustrated By: As Kirk, Spock, McCoy, and Eleen flee from the Capellans and Klingons, success depends on clear, honest communication. Kirk keeps his crew and even Eleen informed at every stage, which allows them to adapt quickly and survive the dangers they face together.

Compliance Lesson: During crises, be it a compliance investigation, regulatory challenge, or public scandal, transparency and timely communication are critical. Hiding information, even with good intentions, breeds suspicion and undermines trust. Kirk’s example shows that open communication is not a luxury but a necessity, especially under pressure.

Prepare crisis communication protocols in advance. Train leaders to communicate openly, honestly, and quickly during emergencies. Ensure employees know how, when, and where to report issues, and how updates will be provided as matters evolve.

Final ComplianceLog Reflections

“Friday’s Child” may be set on a planet of warriors, but its ethical lessons are universal. For compliance professionals, the episode is a case study in what it means to lead ethically when stakes are high, the rules are unclear, and the path is fraught with danger.

From respecting local customs to standing up for the vulnerable, even at great personal or professional cost, the crew of the Enterprise demonstrates that ethics is not a luxury, but the core of mission success. The compliance officer’s role is not unlike Kirk’s: to navigate complexity, negotiate with integrity, protect those at risk, summon courage in the face of unpopularity, and build trust through transparency.

In a world where every new market brings new challenges and every crisis tests our character, “Friday’s Child” offers this timeless guidance: set your course by your values, and let ethical leadership be your prime directive.

Resources:

Excruciatingly Detailed Plot Summary by Eric W. Weisstein

MissionLogPodcast.com

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