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Compliance Into the Weeds

Compliance into the Weeds: New Fraud Section Guidelines

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into compliance-related topics, literally going into the weeds to explore them more fully. Looking for hard-hitting compliance insights? Look no further than Compliance into the Weeds! In this episode of Compliance into the Weeds, Tom Fox and Matt Kelly discuss the DOJ’s new Fraud Division enforcement priorities.

The DOJ’s Fraud Division enforcement priorities matter because they can quickly reshape a company’s compliance risk, especially when prosecutors are told to focus on patterns like widespread victimization, large losses, senior management involvement, and obstruction of investigations. Tom argues updates are a practical cue for compliance leaders to reopen discussions with senior management, the audit committee, and the board, while also treating whistleblower incentives and even political risk as real factors on the company risk register. Matt similarly argues that the DOJ’s new posture has changed enforcement risk and that companies should respond by refreshing risk assessments, sharpening internal controls, and briefing leadership before problems become more costly. Both perspectives are shaped by their long experience covering corporate compliance and enforcement, with Fox emphasizing proactive governance and Kelly stressing the need to translate DOJ signals into concrete, business-specific risk management.

Key highlights:

  • 10-Factor Fraud Prosecution Memo for Corporations
  • Multiple Small Fraud Indicators, Material Weakness Risk
  • DOJ Shift Raises Compliance Costs and Stakes
  • Declinations for Companies That Voluntarily Self-Disclose
  • Corporate Enforcement Section and 2024 ECCP

 Resources:

Matt in Radical Compliance

 Tom

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A multi-award-winning podcast, Compliance into the Weeds was most recently honored as one of the Top 25 Regulatory Compliance Podcasts, a Top 10 Business Law Podcast, and a Top 12 Risk Management Podcast. Compliance into the Weeds has received Davey, Communicator, and W3 Awards, all for podcast excellence.

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Modern Philosophers and Compliance: Part 3 – John Rawls and Fairness in the Corporate Compliance Program

This week we will conclude our lengthy exploration of the philosophical underpinnings of the modern corporate compliance program. We have examined Hannah Arendt and her concepts of personal responsibility and how they relate to the modern compliance program, and Simone de Beauvoir and the conditions for ethical action in a corporation. We will review Jürgen Habermas and the governance of speaking up and Hans Jonas and responsibility for the future of corporate compliance. Today we continue with John Rawls and the twin concepts of Institutional Justice and Institutional Fairness in a corporate compliance program.

A compliance program promises how the company will exercise power. Employees are asked to follow rules, disclose concerns, cooperate with investigations, and accept consequences when misconduct is established. In return, they should be able to expect a process whose protections and standards do not depend on their commercial value or proximity to leadership. John Rawls gives compliance professionals a practical way to examine that promise.

In the first two posts, we considered personal responsibility through Hannah Arendt and the conditions for ethical action through Simone de Beauvoir. Today, in Part 3, Rawls brings us to the design of the institution itself. Would employees accept its rules if they did not know which position they would occupy when those rules were applied?

Justice as Fairness and the Corporate Institution

Rawls was an American political philosopher whose A Theory of Justice, published in 1971, developed an account of justice as fairness. His theory addresses society’s basic structure, including the institutions that distribute rights, opportunities, and advantages. It prioritizes equal basic liberties and addresses fair opportunity and the conditions under which economic inequalities can be justified.

A corporation is a different kind of institution. Rawls’s principles cannot simply be converted into an employee handbook. The useful connection is an approach to justification: examine institutional arrangements from a standpoint that limits the influence of personal advantage.

Rawls developed this approach through the original position, a hypothetical situation in which people select principles behind a veil of ignorance. They lack knowledge of their own social position and particular advantages, while retaining general knowledge relevant to institutional design. The restriction prevents them from tailoring principles to their individual circumstances.

In compliance, we can adapt that thought experiment. Imagine designing a disciplinary process without knowing whether you will be a junior employee, a regional executive, a witness, or the person accused. What protections would you require? Which differences in treatment could you defend? The exercise asks policy owners to step outside the interests associated with their current roles.

Designing the Process Before Knowing the Employee

Consider this hypothetical. A multinational company discovers that a regional sales director submitted personal expenses as business entertainment. The investigation establishes that he knowingly mischaracterized the expenses and had received clear training. He has no prior disciplinary record. His business unit produces a significant share of company revenue.

Six months earlier, the company dismissed a junior account manager for knowingly submitting comparable personal expenses. Assume the amounts, evidence of intent, training, and disciplinary history are materially similar, and no relevant legal difference exists. The sales director’s sponsor now recommends a warning because losing him could disrupt customer relationships.

The CCO faces a concrete governance question. Is the proposed distinction consistent with a defensible standard, or has commercial importance become a private exemption? The hypothetical deliberately holds relevant factors constant so that management must address the remaining reason for different treatment.

Apply the veil of ignorance. Would employees endorse a policy under which the consequences for deliberate expense falsification depend on how difficult the offender is to replace? Would leaders accept that principle if they expected to occupy the junior role? Asking those questions before deciding the case makes the underlying rule visible.

The company must still manage business continuity. It can plan customer coverage and succession while determining an appropriate response. Those operational responsibilities should be distinguished from the criteria used to assess misconduct. Otherwise, the need to retain an individual can quietly become the standard for deciding accountability.

The DOJ Connection Through Consistent Discipline

The Department of Justice’s Evaluation of Corporate Compliance Programs (ECCP) explicitly examines whether discipline and incentives are applied fairly and consistently. In Rawlsian terms, these map to what we call Institutional Fairness and Institutional Justice. The ECCP asks whether comparable misconduct received different treatment, why differences occurred, and how consistency is assessed across organizational levels and locations.

That inquiry aligns with the practical question raised by our hypothetical: can the company explain the distinction using relevant facts and established criteria? Rawls supplies a philosophical lens for examining the justification. The ECCP supplies an enforcement framework for scrutinizing actual practice.

Consistency requires judgment. An inadvertent mistake and deliberate concealment can warrant different responses. Supervisory responsibility, repeated misconduct, cooperation, harm, and applicable legal requirements may also matter. The organization should identify the factors it considers and document how they affect the outcome.

Return to the sales director. The decision-makers should examine the earlier case and any genuinely relevant distinctions. They should also consider whether the earlier response was itself appropriate. Fairness does not require repeating an unjustified sanction merely to preserve a record of identical outcomes. If the standard needs correction, the company should explain the correction and, with counsel and human resources, consider its implications for prior cases.

Fair Investigations Protect the Credibility of Findings

Institutional Fairness depends on a credible investigation. An organization cannot justify a consequence through careful reasoning if favoritism, prejudgment, or a refusal to examine contradictory evidence shaped the underlying inquiry.

The ECCP examines whether investigations are independent, objective, appropriately scoped, and documented. Applying Rawls’s thought experiment adds a practical design question: what process would we accept without knowing whether we would make the allegation or have to answer it?

Both positions deserve consideration. A reporter should have a reliable route for raising concerns and protection against retaliation. An accused person should have an appropriate opportunity to respond to material allegations before final findings, subject to legitimate investigative and legal constraints. Witnesses should be treated respectfully, and credibility assessments should rest on evidence.

These are proposed governance safeguards, rather than a claim that Rawls or the ECCP establishes a uniform corporate procedure. Companies must adapt their protocols to the circumstances and applicable law. They should nonetheless be able to explain why any significant departure was necessary and who authorized it.

In our hypothetical, an investigator whose promotion depends on the sales director may face a conflict. An independent assignment can protect the inquiry. The executive sponsor should supply relevant information without controlling findings. Clear roles reduce the opportunity for commercial pressure to influence the factual record before a disciplinary decision is even considered.

Exceptions Need Reasons That Survive Scrutiny

Policies inevitably encounter circumstances their authors did not anticipate. A mature compliance program needs a disciplined method for handling exceptions. The question is whether the justification would apply to another similarly situated person.

Consider a policy requiring advance approval for certain travel. An emergency evacuation and a preferred executive’s scheduling convenience present different reasons for an exception. The decision record should identify the relevant circumstances, the authority approving the departure, and any compensating safeguards. A personal relationship with the approver is not a defensible criterion.

Rawls also used reflective equilibrium, a method of working toward coherence among considered judgments and principles through revision. Applied by analogy, it encourages the CCO to examine difficult cases alongside the stated policy. A recurring, well-founded exception may reveal a defective rule. A convenient exception may reveal unwillingness to enforce a sound one.

The response should follow the evidence. Revise an impractical requirement where warranted, communicate the change, and preserve the underlying control objective. Where the rule is appropriate, address unauthorized departures. Employees should be able to understand how the company reaches these conclusions without needing personal access to influential decision-makers.

Testing Fairness and Reporting It to the Board

Fairness should be examined through case review and data. The ECCP addresses disciplinary transparency and monitors consistency in investigations and discipline. This is Institutional Justice in practice. For the same misconduct, does an employee in Brazil face the same consequences as your top salesperson in the United States? A practical review can compare similar matters while preserving the factual differences needed to interpret outcomes.

Start with a defined category, such as deliberate expense falsification. Compare findings, disciplinary history, role responsibilities, sanctions, and the reasons recorded for departures from the usual approach. Also review investigation duration and decision ownership. An unexplained delay involving an influential leader can warrant scrutiny even before determining a sanction.

Differences in outcomes signal the need for inquiry. Small samples, different legal requirements, and materially different conduct can make aggregate comparisons misleading. A dashboard should help reviewers identify questions that require examination of the underlying cases. It should not assign a fairness score that disguises unresolved factual distinctions.

The board needs visibility into material exceptions and management’s response to unexplained disparities. Directors should ask whether a disciplinary recommendation involving a senior leader was changed, who changed it, and why. The answer should include the relevant evidence and the standard applied, with appropriate protection for confidential information.

Communication with employees also deserves deliberate attention. The company can explain its decision criteria and use carefully anonymized examples without exposing private case details. When confidentiality limits disclosure, explain the process that supports accountability. Leaving employees to infer the rules from departures and rumors weakens the company’s ability to demonstrate fairness.

Five Key Rawls Takeaways for the Compliance Professional

  1. Test policies without assuming your own position. Ask whether you would accept a process as a junior employee, reporter, witness, or accused executive. Use the answers to identify protections that should not depend on influence.
  2. Define the reasons that justify different outcomes. Document relevant distinctions such as intent, responsibility, prior conduct, and legal requirements. Examine claims of commercial indispensability with particular care.
  3. Protect the integrity of the investigation. Identify conflicts, assign appropriate independence, examine contradictory evidence, and provide a fair opportunity to respond. Record the reasons for significant procedural departures.
  4. Review exceptions as evidence about the program. Determine whether they expose a policy defect or selective enforcement. Correct flawed rules transparently and address departures that lack a defensible basis.
  5. Give the board a clear account of consistency. Present material disparities, executive exceptions, and corrective actions with sufficient context to assess them. Use case evidence to explain what aggregate measures cannot resolve.

Rawls gives the compliance professional a demanding question: could we justify this rule before knowing whom it would benefit? For boards, the corresponding test is whether the company applies standards it would defend to employees at every level. The program’s credibility depends on the answers demonstrated in actual decisions.

In Part 4, we will turn to Jürgen Habermas and the role of reasoned dialogue in corporate compliance. Having examined fair institutional rules with Rawls, we will consider how employees can question those rules, challenge decisions, and have their concerns meaningfully considered. That discussion takes us into speak-up culture and the governance of disagreement.

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Modern Philosophers and Compliance: Part 2 – Simone de Beauvoir and the Conditions for Ethical Action

This week we will conclude our lengthy exploration of the philosophical underpinnings of the modern corporate compliance program. We have examined Hannah Arendt and her concepts of personal responsibility and how they relate to modern compliance programs. We will look at John Rawls and institutional justice and fairness in a corporate compliance program; Jürgen Habermas and the governance of speaking up; and Hans Jonas and the responsibility for the future of corporate compliance. Today we continue with Simone de Beauvoir and the conditions for ethical action in a corporation.

A company that asks employees to act ethically must examine the conditions under which they make decisions. An employee may understand the code of conduct, recognize a problem, and know how to report it, yet reasonably fear that speaking up will jeopardize a livelihood. That fear is a governance issue. Simone de Beauvoir helps compliance professionals understand why.

In Part 1, Hannah Arendt brought personal responsibility into the corporate approval process. We examined whether individuals exercise judgment when organizational routines encourage deference. Beauvoir takes the discussion further by asking how circumstances affect the ability to act on that judgment. Responsibility matters, and so does the distribution of power around the person expected to exercise it.

For the chief compliance officer, this means examining the distance between what a policy permits and what employees believe they can safely do. A reporting mechanism becomes credible when the company understands that distance and takes concrete steps to reduce it.

Freedom Exists Within Real Circumstances

Beauvoir was a French philosopher whose work explored freedom, responsibility, and oppression. In The Ethics of Ambiguity, published in 1947, she examined human beings as both capable of choosing and constrained by circumstances they did not choose. We pursue our own projects while depending on a world shared with other people. Ethical responsibility includes concern for their freedom as well as our own.

Ambiguity, in this sense, does not make every choice equally acceptable. It describes a condition of human life: we act with limited knowledge and within circumstances we cannot fully control, yet our decisions affect others. We must take responsibility without assuming that a simple formula will resolve every conflict.

In The Second Sex, published in 1949, Beauvoir examined how women were defined in relation to men and constrained by social expectations, institutions, and material dependence. Her analysis of women as the Other challenged the treatment of one group’s experience as the norm against which everyone else was measured.

The compliance application interprets these ideas. Beauvoir did not prescribe hotline procedures or investigation protocols. Her work asks us to attend to people’s actual circumstances. Inside a corporation, that means considering who controls pay, work assignments, advancement, and access to decision-makers. Those relationships can shape whether an employee sees an ethical option as practically available.

The Employee Who Knows How to Report

Consider this hypothetical. A junior procurement analyst discovers that a supplier submitted invoices for services without supporting documentation. Her manager directs her to process them before the reporting period closes. He says the supplier is important and that asking further questions will make the department look uncooperative.

The analyst has completed compliance training. She knows the hotline number. She also knows that the manager controls desirable assignments and will soon recommend whether her temporary position becomes permanent. A colleague who challenged him previously lost important responsibilities. She does not know whether that change was retaliatory, but she understands its warning value.

From headquarters, the reporting system appears accessible. From her position, the choice carries immediate economic consequences. The uncertainty about those consequences affects her decision even before anyone makes an explicit threat.

Beauvoir helps us examine that difference. The analyst retains responsibility for her conduct, while management remains responsible for the conditions it creates. Telling her to demonstrate courage leaves the governance problem unresolved. The company must examine how managerial discretion, employment insecurity, and prior experience shape how controls are used.

For the CCO, this requires asking whose perspective informed the policy. A senior employee with financial security and direct access to legal matters may experience the same reporting procedure very differently from someone whose continued employment depends on the person named in the concern.

The DOJ Connection Through Trusted Reporting

The Department of Justice’s Evaluation of Corporate Compliance Programs (ECCP) examines whether reporting mechanisms are trusted and whether employees feel comfortable using them. It also asks whether organizational practices discourage reporting and whether the company assesses employees’ willingness to raise concerns.

These inquiries create a substantive connection to Beauvoir’s emphasis on circumstances. Publishing a telephone number establishes an available channel. To understand whether employees can use it, you need evidence of their experience. The ECCP’s attention to proactive retaliation prevention reinforces that distinction.

In our hypothetical, the CCO should examine whether the analyst can reach someone outside the manager’s reporting line, whether temporary employees understand the available protections, and how concerns involving powerful managers are routed. The company should also explain the limits of confidentiality. In a small team, the facts themselves may reveal who reported.

An effective response could include an independent contact, a documented protection plan proportionate to the circumstances, and follow-up with the analyst. Those are practical design choices flowing from the identified risk. The organization should explain what it can do and who will act, rather than offer assurances that nobody can reliably deliver.

Whose Experience Shapes the Compliance Program

Beauvoir’s analysis of the Other offers another lesson for policy design. Organizations can mistake the experience of their most influential employees for the experience of the workforce. A policy written around headquarters staff may overlook workers who lack private computer access, work overnight, or depend on a supervisor to interpret company communications.

The ECCP asks about language and other barriers to accessing policies, as well as how the company confirms that employees know where to find them. Compliance professionals can use those questions to investigate whether the program works across different employment conditions.

Review a reporting process with employees who actually use it. Can a warehouse worker obtain guidance without leaving a visible record on a shared terminal? Can an employee working through a staffing agency identify the correct reporting route? Does the policy clearly explain where a concern about a supervisor should go? Answers should inform the process design.

This work requires listening without assuming that a category determines someone’s experience. Employees facing similar constraints may make different choices. The objective is to identify specific barriers and address them. Participation in policy testing gives the company evidence that a headquarters review cannot supply.

Protection Must Extend Beyond the Initial Report

A report begins a period of heightened responsibility for the organization. Once the analyst raises her concern, management decisions about her assignments, evaluation, and employment status may require additional scrutiny. The practical risk extends beyond formal dismissal.

Retaliation can take forms that appear routine when viewed separately: exclusion from meetings, reduced access to training, undesirable shifts, or a sudden change in performance assessments. Such actions require fact-specific investigation. Their occurrence after a report does not automatically establish retaliation, but it can justify closer review.

The ECCP examines retaliation policies, training, complaint handling, and follow-up. It also asks whether investigations are independent, objective, appropriately conducted, and documented [3]. A company should translate those expectations into assigned responsibilities for protecting reporters and assessing concerns about adverse treatment.

In our hypothetical, compliance and human resources could arrange an independent review of material employment decisions concerning the analyst during an appropriate monitoring period. The review should consider existing performance evidence and legitimate business reasons. Protection should preserve fair management processes while reducing the risk that discretionary decisions become instruments of punishment.

The analyst should also have a named contact and a realistic explanation of what follow-up to expect. A company can communicate that it has addressed a concern without disclosing confidential personnel information. Silence after intake can leave a reporter uncertain about both the investigation and personal safety within the organization.

Power Must Be Part of the Investigation

Beauvoir’s perspective also changes the questions investigators ask. If the analyst processed unsupported invoices before reporting, the investigation should establish the instructions she received, how she understood them, the authority she had, and the options she believed were available. Pressure is relevant evidence. It does not predetermine the outcome.

Investigators should examine the manager’s conduct with the same care. Did he discourage inquiry? Had employees raised similar concerns? Did commercial targets reward removing inconvenient checks? Were previous complaints dismissed because his department delivered strong results?

The ECCP examines whether managers encouraged unethical conduct or tolerated greater compliance risk to pursue business objectives. It also addresses consistent discipline and accountability for supervisory failures. These expectations support an investigation that follows power and responsibility through the organization.

A Board should receive enough information to assess whether influential managers are obstructing the program. Relevant reporting might identify repeated concerns within a business unit, unresolved retaliation allegations, or exceptions involving senior personnel. Aggregate results should be interpreted carefully. Few reports can reflect confidence in local management, fear of reporting, or other conditions requiring inquiry.

A useful governance discussion therefore asks what the company knows about the employees least able to challenge authority. The answer should connect employee experience with management action, including who owns unresolved issues and when the board will receive an update.

Five Key Beauvoir Takeaways for the Compliance Professional

  1. Assess the conditions surrounding ethical choices. Examine who controls an employee’s income, assignments, evaluation, and future opportunities. Use that understanding to identify situations where dependence may discourage questions or reporting.
  2. Test policies with employees in different circumstances. Include workers with limited access to technology, language barriers, insecure employment, or little access to senior leaders. Ask them to demonstrate how they would obtain guidance or report a concern.
  3. Treat reporter protection as an assigned responsibility. Establish independent contacts, appropriate follow-up, and proportionate review of potentially adverse treatment. Explain confidentiality limits and avoid promises the organization cannot keep.
  4. Investigate power alongside individual conduct. Determine what instructions, pressures, and authority shaped decisions. Preserve fair accountability for employees while examining managers’ actions and supervisory responsibilities.
  5. Give the board evidence about barriers to ethical action. Report material retaliation risks, repeated concerns involving influential leaders, and progress on corrective action. Explain what remains uncertain and how the company will investigate it.

Beauvoir’s contribution to compliance is practical: ethical expectations must be considered alongside the conditions in which people are asked to fulfill them. The CCO should ask which employees face the greatest personal cost when they follow the code. The board should ask what management has done to reduce that cost.

In Part 3, we turn to John Rawls and the twin concepts of institutional justice and institutional fairness. After considering responsibility with Arendt and the conditions for ethical action with Beauvoir, Rawls shows a compliance professional how a company can design policies, investigations, and discipline that employees can regard as fair, regardless of their position or influence.

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Modern Philosophers and Compliance: Part 1 – Hannah Arendt and Personal Responsibility in Corporate Compliance

This week we will conclude our lengthy exploration of the philosophical underpinnings of the modern corporate compliance program. We will examine Simone de Beauvoir and the conditions for ethical action in a corporation; John Rawls and institutional justice and fairness in a corporate compliance program; Jürgen Habermas and the governance of speaking up; and Hans Jonas and responsibility for the future of corporate compliance. Today we begin with Hannah Arendt and her concepts of personal responsibility and how they relate to the modern compliance program.

Every approval in a compliance process represents a decision. Someone accepts an explanation, authorizes a payment, resolves a concern, or allows business to proceed. The central question is whether that person understands and takes responsibility for the decision. Hannah Arendt gives compliance professionals a powerful way to examine what happens when organizational routines weaken that connection.

Our examination of ancient and Enlightenment thinkers established the importance of inquiry, ethical habits, institutional order, and evidence. We now turn to twentieth-century philosophy, beginning with responsibility inside complex organizations. Arendt asks us to consider the individual who operates within the system. What happens when that person stops examining the meaning and consequences of the work?

For a Chief Compliance Officer, this question reaches directly into third-party approvals, internal investigations, management conduct, and board oversight. A company can assign responsibilities in a policy while its employees learn to defer judgment to someone else. An effective compliance program must address that gap.

Thinking and Judgment as Compliance Responsibilities

Arendt was a German-born Jewish political thinker who fled Nazi Germany and eventually settled in the United States. Her experiences of persecution and displacement informed her examination of totalitarianism, political life, and personal responsibility. In essays including “Personal Responsibility Under Dictatorship” and “Thinking and Moral Considerations,” she explored the relationship between independent thought, moral judgment, and conduct.

Her account of Adolf Eichmann and the phrase “banality of evil” remain controversial, if not one of the most well-known phrases to describe Nazi Germany. The phrase did not mean that the crimes were ordinary or insignificant. Her interpretation emphasized his failure to think critically about what he was doing, although scholars have challenged her assessment of his motivations. The historical crimes she examined must retain their specificity and gravity.

The compliance application is narrower: institutional roles do not eliminate the need for personal judgment. Arendt was not writing a corporate governance manual. Her work nevertheless provides a basis for asking whether employees examine what their actions enable, particularly when organizational language makes questionable conduct appear routine.

That question builds on Socrates. Socratic inquiry tests assumptions through questioning. Arendt directs our attention to the person who must decide whether to accept the answer and participate in the conduct. For compliance professionals, that is where inquiry becomes responsibility.

When Approvals Divide Responsibility

Consider this hypothetical. A multinational manufacturer proposes hiring an intermediary to help secure business with a state-owned customer. The commission is unusually high. The service description is vague, and the intermediary requests payment to an account outside its home jurisdiction.

Sales confirms the commercial opportunity. Procurement verifies that the vendor record is complete. Legal reviews contractual provisions. Finance checks that the required approvals appear in the payment system. Compliance previously reviewed the intermediary, but the proposed payment arrangement has changed since that review. Each function assumes another has addressed the remaining concern—the payment proceeds.

No single feature establishes bribery. Together, these facts warrant further inquiry. The governance failure is that nobody takes responsibility for obtaining a satisfactory explanation before payment. Each participant can describe a completed task. The organization cannot explain who assessed the unresolved risk.

This is where Arendt becomes useful to the CCO. Division of labor is necessary in a large company. It must be accompanied by clear obligations to recognize concerns, communicate them, and seek an appropriate decision. Otherwise, specialization can allow important facts to disappear between functions.

The practical response is to specify what each approval means. Does the approver confirm budget availability, verify services, resolve due diligence findings, or authorize an exception? What changes require renewed review? Who owns the decision when concerns remain? These questions turn personal responsibility into an operating requirement.

The DOJ Connection Through Gatekeepers and Escalation

The Department of Justice’s Evaluation of Corporate Compliance Programs (ECCP) addresses this issue directly. Under policies and procedures, the ECCP asks about guidance and training for gatekeepers with approval or certification responsibilities. It examines whether they recognize misconduct and understand when and how to escalate concerns.

This is a substantive connection to Arendt’s work, rather than a claim of philosophical influence on DOJ. The compliance question concerns whether an employee’s assigned role includes meaningful judgment. An approval control weakens when its operator understands the mechanics but cannot identify the circumstances that require further review.

Return to our hypothetical. The finance employee should understand whether the changed bank account requires renewed diligence. The business sponsor should explain the services and commercial rationale. Compliance should receive material changes to the information on which its earlier review depended. The final decision should record how identified concerns were resolved.

The CCO can test this through a sample of actual transactions. Interview the approvers. Ask what they believed their approval represented, what information they reviewed, and what would have caused them to stop. Compare those answers with the procedure. The gap between intended and understood responsibility is a control issue that requires attention.

Training Employees to Recognize the Decision

Arendt’s emphasis on thinking also offers a practical lesson for training. Employees need opportunities to examine a situation before organizational habit supplies the answer. A course can explain a prohibition accurately while leaving participants uncertain about how to respond when a manager presents a questionable request as urgent and routine.

The ECCP examines whether training is tailored to relevant employees and risks, whether employees can ask questions, and how the company evaluates learning and training’s effect on behavior or operations.[4] Those inquiries support training that develops judgment within defined responsibilities.

Use the hypothetical intermediary payment as an exercise. Give participants the initial facts, then introduce the changed bank account after approval. Ask them to identify what requires renewed attention, which function should act, and what must happen before payment. Require an explanation for the proposed response.

Include the manager who says the transaction has already been approved. That intervention tests whether employees understand the limits of an earlier decision. The training should leave them with a usable escalation route and a clear account of their authority. Asking people to exercise judgment carries a corresponding obligation to equip them to act.

Leadership Determines Whether Judgment Is Welcome

Employees learn what management expects by watching what happens when someone raises a concern. A company may encourage questions in training while a business leader treats delay as disloyalty. Over time, employees may conclude that completing the transaction is safer than examining it.

The ECCP assesses how senior and middle management demonstrate commitment to compliance. It also examines whether employees feel comfortable reporting concerns and whether the company maintains an effective approach to preventing retaliation.[5] These are relevant tests of the environment in which personal judgment operates.

For the CCO, the practical inquiry should include decisions under pressure. When did a manager support an employee who paused a transaction? What happened to an unresolved concern near quarter-end? Did a policy exception receive appropriate scrutiny when the business sponsor was influential? Such examples help explain whether the stated expectations survive commercial pressure.

Boards also have a role here. The ECCP examines compliance access to governing authorities and opportunities for private discussions. It also cites the Sentencing Guidelines’ expectations concerning governing authority knowledge and oversight.[5] Directors should use that access to ask where management pressure is weakening escalation and whether the compliance function can obtain timely decisions on unresolved concerns.

Investigations Must Examine the Approval Chain

When misconduct emerges, Arendt’s focus on personal responsibility should sharpen the investigation without prejudging anyone’s culpability. The inquiry must establish what individuals knew, what their roles required, what authority they possessed, and how they responded. Participation in a process alone does not establish intentional wrongdoing.

In our hypothetical, investigators should trace the changed payment instructions through the approval chain. Who received them? Did the system alert compliance? Did anyone ask for an explanation? Was a concern overridden, misunderstood, or never transmitted? Those facts distinguish deliberate avoidance from inadequate training, poor system design, or reasonable reliance on incomplete information.

The ECCP asks whether investigations identify system vulnerabilities and accountability failures, including those involving supervisory managers and senior executives. Its remediation questions address failed controls, missed opportunities, and accountability for supervisory failures.[6] An investigation that stops at the person who released the payment may leave the conditions that enabled the problem intact.

Fair accountability therefore requires attention to both conduct and context. Discipline should reflect facts and relevant responsibilities. Remediation should repair the information flows, authority gaps, and incentives that shaped the decision. The organization must be able to explain what it learned and how that learning changes future approvals.

Five Key Arendt Takeaways for the Compliance Professional

  1. Define the responsibility within each approval. Identify what the approver must assess, the evidence required, and the conditions that trigger escalation. Test whether employees understand these obligations in actual transactions.
  2. Train for judgment under realistic pressure. Use scenarios involving changed facts, urgent requests, and influential sponsors. Assess whether employees can explain a concern and identify the appropriate response.
  3. Make challenge operationally possible. Give employees clear escalation routes and appropriate authority to pause decisions. Examine how managers respond when employees use those mechanisms, including whether adverse consequences follow.
  4. Follow accountability through the management chain. Investigate who knew what, who exercised authority, and where supervision failed. Apply fair standards to senior leaders and high performers as well as frontline employees.
  5. Give the board evidence of independent judgment. Report material overrides, unresolved concerns, and lessons from investigations. Explain where employee challenge changed a decision and where management action is still required.

Arendt helps us see that personal responsibility must remain visible inside institutional processes. The CCO’s task includes designing controls that preserve that responsibility and creating conditions in which employees can exercise it. A useful board question follows: Where could our processes allow every participant to believe that someone else was responsible for examining the risk?

Join us tomorrow in Part 2, as we turn to Simone de Beauvoir and discuss the conditions that make ethical action possible. If Arendt asks individuals to exercise judgment, Beauvoir helps us examine how unequal power, dependence, and vulnerability affect their ability to act on it. That inquiry leads directly to reporting culture, retaliation prevention, and the lived experience of corporate compliance.

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Southern Glazer’s Compliance Roadmap: How the ECCP Helped Turn Serious Misconduct into an NPA

For years, compliance professionals have turned to the Department of Justice’s Evaluation of Corporate Compliance Programs (ECCP) to answer a fundamental question: What does an effective compliance program actually look like? Unfortunately, given statements from the early Trump Administration, many compliance professionals feared the Administration would withdraw or otherwise eviscerate the ECCP.

Southern Glazer’s resolution gives us one of the clearest answers in recent memory. The answer is a resounding no: the ECCP is alive and well, even under this DOJ.

Southern Glazer’s entered into a two-year Non-Prosecution Agreement (NPA) with the U.S. Attorney’s Office for the Northern District of California and agreed to pay $12.5 million to resolve a federal criminal investigation involving improper payments, gifts, travel, gift cards, and other benefits. Some of those benefits were facilitated through third-party vendors and concealed through false invoices.

The underlying conduct was serious. Five former Southern Glazer’s employees were indicted in March 2026 for an alleged conspiracy involving commercial bribery and obstruction. Prosecutors alleged that approved vendors and suppliers were used to disguise payments for prepaid gift cards, luxury items, and other benefits through false invoices. Yet Southern Glazer’s itself received an NPA.

For compliance professionals, the most important part of this resolution may be why. The government expressly credited Southern Glazer’s with making significant enhancements to its compliance program beginning in 2023 and, remarkably, specifically noted that the company had aligned those improvements with the factors contained in the ECCP. That makes Southern Glazer’s much more than another bribery enforcement action. It provides a roadmap for remediation.

The ECCP Is Not Sitting on the Shelf

There has been plenty of discussion about what role the ECCP would play in the current enforcement environment. Southern Glazer’s provides a concrete answer. DOJ didn’t merely mention that the company improved compliance. The NPA expressly credited Southern Glazer’s for its “significant efforts to enhance its Compliance Program” and to align that program with DOJ’s evaluation guidance.

That is important. The ECCP should not be treated as an academic document or something pulled from the shelf only after the government arrives. It is a blueprint for building, assessing, and improving a compliance program. Southern Glazer’s demonstrates the potential value of using that blueprint during remediation.

The company did not start from zero. DOJ acknowledged that during the relevant period Southern Glazer’s had compliance policies, a Code of Conduct and employee handbook, trade-practice training, and mechanisms for reporting, investigating, and remediating misconduct. In 2019, the company also notified certain third-party marketing companies that it would no longer process incentives through them and terminated their ability to handle incentives and gift cards. Yet the Statement of Facts makes clear that problems persisted. Employees continued using outside mechanisms for gift cards, travel funds, and other benefits after the 2019 intervention.

This case offers an important compliance lesson. Remediation cannot stop at closing the door through which misconduct previously traveled. Compliance must determine whether employees simply found another door.

Put Resources Behind Compliance

Southern Glazer’s response beginning in 2023 was substantial. Between 2022 and 2024, the company increased compliance headcount by 85 percent and compliance funding by more than 65 percent. It also retained outside compliance experts to advise on program enhancements and best practices. Those numbers matter.

DOJ has repeatedly focused through the ECCP on whether compliance has sufficient resources and authority. Southern Glazer’s provides a practical example of what investment can look like when an organization concludes that its existing compliance infrastructure does not adequately address its risks. This was not simply hiring more investigators after misconduct occurred. Southern Glazer strengthened its compliance architecture.

The General Counsel was promoted to Executive Vice President, Chief Legal and Compliance Officer, reporting directly to the CEO. The company created and filled a Senior Vice President of Compliance & Ethics position. It hired a Vice President and Associate General Counsel for the West region and remapped compliance around five business regions. That is a significant point for boards. If management says compliance is important, look at the organization chart and the budget. Resources are evidence of priorities.

Accountability Had to Follow Misconduct

Southern Glazer’s also addressed individual accountability. The NPA credits the company with removing certain vice presidents and managers for violations of company policy, disciplining additional employees, and replacing senior leadership for California and the West Region. That matters because compliance programs lose credibility quickly when discipline stops at organizational rank.

The Corporate Compliance Agreement takes this concept further. It requires applying disciplinary procedures consistently and fairly, regardless of an employee’s position or perceived importance. When misconduct is discovered, the company must also remediate the resulting harm and assess whether the compliance program itself requires modification. That is precisely the right question after misconduct:

Not simply, Who violated the policy?

But also, What allowed them to do it?

An effective investigation should therefore generate two workstreams. One addresses individual accountability. The other addresses program failure.

Follow the Money

The Southern Glazer’s case is also a powerful internal-controls case. The alleged misconduct involved gift cards, travel, luxury goods, entertainment, marketing expenditures, supplier funds, bill-backs, expense reimbursements, and third-party vendors. According to the Statement of Facts, employees sometimes used altered invoices purporting to reflect legitimate business purposes to circumvent company accounting controls.

Southern Glazer’s responded by moving compliance closer to those transactions. The company imposed a Trade Practice Compliance Audit Program and implemented its “iShop” platform for marketing and promotional spending. It also added mandatory ethics and compliance training and additional compliance resources. That is another important lesson from the ECCP.

Training and policies matter, but compliance effectiveness ultimately has to reach the business process. If bribery risk resides in marketing spend, test marketing spend. If risk resides in bill-backs, audit bill-backs. If employees can manipulate expense descriptions, analyze expense data. If misconduct travels through Accounts Payable, build controls into Accounts Payable. The goal is not simply to tell employees not to engage in misconduct. It is to make misconduct harder to execute and easier to detect.

Rebuild Third-Party Risk Around Payment Controls

The third-party remediation may be the most instructive aspect of the Southern Glazer’s resolution. Third parties were not peripheral to the alleged misconduct. They were part of the mechanism through which value could be transferred and transactions disguised.

Southern Glazer’s responded with a Third-Party Management Program requiring vendors to agree to the company’s compliance and audit standards. Vendors became subject to enhanced due diligence and documentation requirements. The company obtained audit rights. Most importantly, vendors had to be approved before the company could issue payment. Southern Glazer’s also offboarded vendors because of the new requirements. That last point deserves attention.

Third-party compliance frequently becomes an onboarding exercise. Conduct diligence. Assign a risk rating. Obtain contractual language. Approve the vendor. Done. Southern Glazer’s demonstrates why that was insufficient. The control environment must connect onboarding to payment. Accounts Payable should not merely assume that a vendor appearing in the system has passed appropriate compliance controls. The process should prevent payment when required approvals have not occurred. That is compliance embedded into operations.

Compliance Has to Reach the Field

Southern Glazer’s also created a network of state-level “Compliance Champions” responsible for promoting awareness locally and providing additional compliance support. That is particularly relevant for geographically dispersed organizations. Corporate compliance can design excellent policies from headquarters. Risk occurs where employees interact with customers, suppliers, distributors, government officials, and other third parties.

Compliance therefore needs mechanisms to reach those employees and understand what is actually happening locally. The ECCP’s focus on whether a compliance program works in practice is important here. A policy residing on an intranet is not embedded compliance. Employees must know whom to call, understand the rules, and believe compliance understands their business.

Tone at the Top Still Matters

Southern Glazer’s also strengthened senior leadership messaging. The NPA specifically cites communications from the President and CEO reinforcing the importance of ethics and compliance. The company also updated its corporate values around “HEART”: Honesty, Excellence, Agility, Respect, and Teamwork.

Tone at the top is sometimes dismissed as soft compliance. It should not be. But tone only matters when behavior follows the message. Here, leadership messaging was backed by increased resources, management changes, discipline, audit mechanisms, training, third-party controls, and structural changes. That combination is important.

A CEO email saying compliance matters is communication. A CEO message backed by budget, personnel, discipline and controls is governance.

Test Whether the Remediation Actually Works

The final lesson is perhaps the most important. Southern Glazer’s did not simply promise that its enhanced program would work. The Corporate Compliance Agreement requires periodic risk assessments, annual review of policies and procedures, appropriate compliance independence and resources, training, confidential reporting mechanisms, adequately resourced investigations, discipline, M&A procedures, and periodic testing designed to evaluate and improve program effectiveness.

The company must also report annually to the USAO and TTB regarding remediation and implementation of its compliance measures during the NPA. At the end of the term, the CEO, Executive Vice President, and Chief Legal and Compliance Officer must certify that the company has implemented a compliance program that meets the agreement’s requirements and is reasonably designed to detect and prevent trade-practice violations throughout its operations.

That puts real accountability behind remediation.

The Southern Glazer’s Roadmap

Every CCO facing a significant compliance failure should study Southern Glazer’s. The lesson is not that remediation guarantees an NPA. The agreement expressly states that the government reached its decision based on the individual facts and circumstances of this case.

The lesson is that remediation matters, and DOJ has given compliance professionals an unusually detailed picture of what meaningful remediation can look like. Southern Glazer’s strengthened leadership. It increased resources. It brought in outside expertise. It disciplined employees and changed management. It strengthened tone at the top. It pushed compliance into the field. It created new audit mechanisms. It improved training. It rebuilt third-party controls. It connected vendor approval to payment. And it committed to continued risk assessment, monitoring, and testing.

Most significantly, it did these things by expressly aligning its compliance program with the ECCP. For CCOs, that may be the most important takeaway from this entire resolution. Do not wait for prosecutors to use the ECCP to evaluate your compliance program. Use it yourself.

Ask whether your program is well designed. Ask whether it is adequately resourced and empowered to function effectively. Ask whether it works in practice. Then test the answers against your actual risks, transactions, third parties, investigations, and control environment.

Southern Glazer’s demonstrates that the ECCP is more than DOJ guidance. Used properly, it can be a roadmap for remediation, a framework for explaining compliance investment to senior management and the board, and, when misconduct occurs, evidence that the company understood the failure and built a stronger program in response.

That is the compliance lesson from Southern Glazer’s. The best time to align your program with the ECCP is before misconduct occurs. The second-best time is when you discover your existing controls weren’t enough.

Other Resources

Tom and Matt Kelly took a deep dive into the Southern Glazer NPA on this episode of Compliance into the Weeds.

Matt Kelly looked at it on Radical Compliance.

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Compliance Into the Weeds

Compliance into the Weeds: Southern Glazer’s NPA: How Remediation and ECCP Alignment Drove a Favorable Settlement

The award-winning Compliance into the Weeds is the only weekly podcast that takes a deep dive into compliance-related topics, literally going into the weeds to explore a subject in greater depth. Looking for hard-hitting compliance insights? Look no further than Compliance into the Weeds! In this episode of Compliance into the Weeds, Tom Fox and Matt Kelly discuss the Southern Glazer NPA.

The Southern Glazer Wine and Spirits’ non-prosecution agreement is a rare example where prosecutors credited compliance program remediation, rather than self-disclosure or extensive cooperation, as central to a favorable outcome. Southern Glazer, the largest US liquor distributor, faced a major California kickback and bribery scheme involving five former employees, fabricated records, sham agreements, and luxury benefits to retailers and others, along with alleged tax impacts. The company resolved the matter with a $12.5 million payment and a two-year NPA requiring the CEO and CCO to certify program effectiveness. Tom and Matt review how the NPA affirms DOJ’s Evaluation of Corporate Compliance Programs as still relevant and detail remediation steps: major headcount and budget increases, upgraded compliance leadership, audits of marketing spend, enhanced training, strengthened third-party controls and AP payment blocks, outside reviews, and tone-at-the-top messaging.

Key highlights:

  • Southern Glazer Case Setup
  • Industry Risks and Scheme
  • ECCP Guidance Still Matters
  • Program Overhaul Timeline
  • Concrete Remediation Metrics
  • DOJ Signals Under Trump Era

Resources:

Matt in Radical Compliance

Tom

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A multi-award-winning podcast, Compliance into the Weeds was most recently honored as one of the Top 25 Regulatory Compliance Podcasts, a Top 10 Business Law Podcast, and a Top 12 Risk Management Podcast. Compliance into the Weeds has received Davey, Communicator, and W3 Awards, all for podcast excellence.

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Da Vinci Week: Part 3 – Leonardo’s Flying Machines and “Can We?” or “Should We?”

In the first two posts in the Leonardo Compliance Framework, the Mona Lisa gave us Refine, the principle that an effective compliance program improves as the organization learns from experience. Leonardo’s anatomical studies gave us Investigate, the discipline of looking beneath misconduct to understand root causes, control failures, incentives, management decisions, and the organizational systems that produced the outcome. The third principle is Innovate.

For that lesson, we turn to Leonardo’s studies of flight and his designs for flying machines. Leonardo examined birds, air movement, wings, and mechanical systems as he considered whether technology could allow human beings to fly. Many of his concepts were far beyond the practical capabilities of his time, but they demonstrate an important characteristic of Leonardo’s work: he imagined capabilities that did not yet exist and then studied the systems necessary to make them possible.

For corporate compliance professionals in 2026, the analogy to artificial intelligence is particularly useful. AI is expanding what companies can automate, analyze, predict, generate, and increasingly act upon. Organizations are moving beyond using generative AI to draft documents and summarize information. AI systems are becoming embedded in business processes, interacting with corporate data, supporting consequential decisions, communicating with customers, evaluating third parties, and, through increasingly agentic capabilities, taking actions that previously required human intervention.

The compliance challenge is not whether companies should innovate. They will. The challenge is establishing governance that lets innovation create business value without creating unmanaged legal, ethical, operational, or compliance risk.

AI Governance Is Enterprise Governance

Compliance professionals have sometimes approached emerging technology as primarily the responsibility of IT, Cybersecurity, Data Privacy, or Legal. That division becomes increasingly difficult with AI because these systems can influence many of the activities a corporate compliance team already oversees. Indeed, the Evaluation of Corporate Compliance Programs (ECCP) anticipates these very concepts in its 2024 edition.

AI may assist with third-party due diligence, contract review, procurement, transaction analysis, hiring, customer communications, investigations, fraud detection, marketing, or pricing. Each application creates a different risk profile. A due diligence system may generate inaccurate information about a business partner. An investigation tool may expose privileged or confidential information. A sales application may generate communications inconsistent with company policies. An agent connected to corporate systems may take actions that historically required human approval.

The ECCP asks the following:

  • How does the company assess the potential impact of new technologies, such as artificial intelligence (AI), on its ability to comply with criminal laws?
  • Is management of risks related to the use of AI and other new technologies integrated into broader enterprise risk management (ERM) strategies?
  • What is the company’s approach to governance regarding the use of new technologies such as AI in its commercial business and in its compliance program?
  • How is the company curbing any potential negative or unintended consequences resulting from the use of technologies, both in its commercial business and in its compliance program? 

Visibility and Risk Should Drive the Control Environment

By 2026, asking whether a company uses AI provides little useful information. Management needs to understand how AI is being used and what authority particular systems possess. A tool that summarizes a public document presents a very different risk profile from a system that influences hiring, approves a third party, communicates with customers, accesses confidential information, initiates a transaction, changes corporate records, or takes actions across interconnected systems.

An AI inventory should therefore identify meaningful use cases, including the business owner, intended purpose, relevant data, third parties involved, decisions influenced by the technology, degree of autonomy, and applicable controls. The objective is not simply to count tools. It is to give management sufficient visibility to identify where material risk exists.

That visibility should support risk classification. Not every AI application requires the same level of governance. Classification should consider the system’s purpose, data sensitivity, potential consequences of error, degree of autonomy, affected populations, ability to review or reverse decisions, and applicable legal or regulatory requirements.

This is familiar territory for compliance professionals. Risk-based programs have long applied different levels of scrutiny to third parties, transactions, investigations, and markets. AI should follow the same principle. Higher-risk systems should receive greater review, stronger controls, and more rigorous monitoring.

Human Oversight Must Preserve Accountability

“Human in the loop” has become common language in AI governance, but a human’s presence alone does not create an effective control. Meaningful oversight requires defined responsibilities, appropriate expertise, sufficient capacity to review relevant outputs, and authority to challenge or override the system.

If one employee is nominally responsible for reviewing thousands of AI-generated recommendations each day, human oversight may exist on paper but not function in practice. The same problem arises when employees routinely accept recommendations because they assume the technology is more reliable than their own judgment.

The control should therefore define the reviewer’s responsibilities, the circumstances requiring additional scrutiny, the authority to reject recommendations, and how to handle material overrides or recurring disagreements between the system and human decision-makers. Most importantly, technology should not create an accountability vacuum. If an AI system contributes to a compliance failure, the organization should still be able to identify the business process owner, who approved the use case, who monitored it, and who had authority to intervene.

This becomes increasingly important with agentic systems. Traditional corporate controls generally assume identifiable human actors approve payments, create vendors, review contracts, or authorize higher-risk third parties. When technology performs some of those activities, the organization has effectively delegated authority to a system. The control environment must reflect that delegation while retaining human and organizational accountability for the outcome.

Third-Party AI and Data Risk

Many companies will obtain significant AI capabilities from external vendors rather than develop them internally. Using a vendor does not transfer accountability for the resulting compliance risk. Traditional third-party risk management principles remain relevant. The company should understand the service provided, the information the vendor receives, how data are used and retained, which subcontractors are involved, how incidents are managed, and what contractual rights the company has to obtain information, require remediation, audit, or terminate the relationship.

AI adds a dynamic element because models, features, and business uses can change after initial approval. Monitoring should therefore identify material changes in functionality, data use, vendor practices, or business application that could alter the original risk assessment.

Data governance is equally important. Companies need clear rules regarding which AI systems may access confidential business information, personal data, investigation materials, privileged communications, customer information, trade secrets, source code, and other sensitive information. As enterprise AI systems increasingly operate on internal data, blanket prohibitions will often give way to more precise governance defining approved systems, permissible data, access controls, retention, deletion, and accountability.

These issues require coordination across Compliance, Legal, Privacy, Cybersecurity, IT, Records Management, and the business. Effective governance depends upon clear responsibilities rather than overlapping or fragmented ownership.

Test Before Deployment and Monitor Afterward

Leonardo’s flying machines provide another useful innovation lesson. Test a design before you trust it with a critical task. AI testing should match the risk. Before deployment, the company should understand whether the system performs as intended, where its limitations lie, how it responds to unusual circumstances, whether users can manipulate it, and whether inaccurate or inconsistent outputs could create material consequences. Testing at implementation is not enough. Business conditions change, vendors update models, employees develop new uses, and system capabilities expand. An application that operated within acceptable parameters when approved may later present a different risk profile.

Higher-risk systems therefore require post-deployment monitoring that can identify performance issues, material changes, incidents, and circumstances requiring reassessment. Management should also establish when a system should be modified, restricted, or suspended.

This lifecycle approach connects Innovate to the next Leonardo principle, Monitor. Responsible innovation is not a one-time approval. Governance should continue throughout the period the organization relies on the technology.

Using NIST and ISO as Governance Architecture

Compliance professionals do not need to invent an AI governance structure from scratch. The NIST AI Risk Management Framework provides a useful approach to governance, mapping, measuring, and managing AI risk, while ISO/IEC 42001 offers a management-system perspective built around responsibilities, processes, documentation, monitoring, and continuous improvement.

For the CCO, the value lies in providing governance architecture, not another checklist. The relevant measure is not whether a company can say it follows NIST or ISO. It is whether its governance system addresses the actual risks created by its AI applications and whether the resulting controls work in practice. Frameworks provide structure. Management remains responsible for operating the system.

Compliance Should Enable Responsible Innovation

The CCO should avoid two extremes: allowing enthusiasm for AI to outrun governance or creating an approval structure so burdensome that employees circumvent it. A better model is responsible innovation. Compliance can help create clear pathways for lower-risk experimentation while ensuring that higher-risk applications receive appropriate scrutiny. Employees should understand what uses are permitted, which require approval, what categories of information may be used, and when escalation is necessary.

This approach also creates opportunities for a corporate compliance program. AI may improve due diligence, transaction monitoring, investigations, risk assessment, training, and data analysis. The compliance function should be willing to explore those capabilities under the same risk-based governance it expects the business to follow.

A CCO’s contribution should not be measured by how much innovation Compliance prevents. It should be measured in part by whether Compliance helps the enterprise capture value while maintaining appropriate accountability and control.

Before Leaving the Ground

Leonardo’s flying-machine studies represent the willingness to imagine possibilities beyond current practice. The modern compliance lesson is to combine that willingness with disciplined governance. For the CCO, Innovate means helping the enterprise pursue new capabilities through a risk-based system that provides visibility, assigns ownership, preserves meaningful human accountability, tests higher-risk applications, and monitors them as technology and business use evolve. The objective is neither unrestricted adoption nor blanket prohibition. It is responsible innovation that can produce sustainable business value.

From Innovation to Monitoring

Responsible innovation does not end when technology is approved and deployed. The organization must determine whether systems continue to operate as intended as data, users, vendors, business conditions, and risks change. That brings us to the fourth Leonardo principle: Monitor.

In Blog Post Four, The Last Supper and the Danger of Deterioration, we will use Leonardo’s experimental masterpiece to examine the difference between implementing a control and demonstrating that it remains effective. The discussion will focus on control testing, continuous monitoring, compliance analytics, ownership, remediation, AI monitoring, and the board’s role in evaluating evidence of continuing program effectiveness.

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Da Vinci Week: Part 2 – Leonardo’s Anatomical Studies and Getting Beneath the Surface

In the first post in our Leonardo Compliance Framework, the Mona Lisa introduced Refine: the discipline of continuous improvement. An effective compliance program should learn from investigations, monitoring, risk assessments, employee feedback, control failures, and business changes. The program should evolve because the organization knows more today than it knew yesterday. That brings us to the second principle: investigate.

Leonardo was not satisfied with observing the human body from the outside. His anatomical studies examined muscles, bones, organs, movement, and the relationships among different parts of the body because he wanted to understand how the entire system worked. That provides a useful model for the modern Chief Compliance Officer because an effective corporate investigation should accomplish more than determine whether an employee violated a policy. It should help the organization understand why the conduct occurred, which controls failed, what incentives influenced behavior, whether management contributed to the problem, whether similar conditions exist elsewhere, and what should change as a result.

The compliance lesson from Leonardo is to look beneath the visible misconduct and understand the system that produced it.

An Investigation Is More Than a Search for Misconduct

Consider a familiar scenario. An investigation establishes that a sales employee used a consultant to make an improper payment to secure business. The company confirms the misconduct, terminates the employee and consultant, documents the findings, and closes the matter.

That process may answer the immediate legal and disciplinary questions, but it does not necessarily answer the larger compliance question. The company should also understand why it hired the consultant, how it approved the relationship, what due diligence it performed, whether it identified red flags, how it compensated the consultant, and how the resulting invoices and payments moved through the organization. Management should consider whether commercial incentives contributed to the conduct, whether supervisors encountered warning signs, and whether similar consultants are being used elsewhere.

If the company concludes only that one employee violated the anti-corruption policy, it may remove the individual while leaving intact the conditions that allowed the misconduct to occur. The investigation has then addressed the actor without addressing the vulnerability. That is why investigations should be viewed as a source of organizational intelligence.

Root Cause Should Drive Remediation

Root-cause analysis is where Leonardo’s anatomical method becomes particularly relevant. The objective is to move from the visible event to the systems underneath it. The Evaluation of Corporate Compliance Program (ECCP) states, “Finally, a hallmark of a compliance program that is working effectively in practice is the extent to which a company can conduct a thoughtful root.” It asks: What is the company’s root cause analysis of the misconduct at issue? Were any systemic issues identified? Who in the company was involved in making the analysis?

Root-cause analysis helps the company distinguish symptoms from causes, and that distinction should determine remediation. A response directed only at the visible misconduct may create the appearance of action without materially reducing the underlying risk.

This is also why significant investigations should test assumptions about the compliance program. If an intermediary engages in misconduct despite passing third-party due diligence, the company should examine whether the process missed information it reasonably could have identified. If an employee disguises improper payments, Compliance and Finance should understand how the relevant financial controls were circumvented. If retaliation occurs after an employee raises a concern, the organization should determine whether its anti-retaliation controls function in practice.

A well-designed compliance program can still experience misconduct. No reasonable system eliminates all risk. Effectiveness is measured by how the organization detects misconduct, responds, learns from failures, and strengthens the program when it identifies weaknesses.

Follow the Decision Trail

Investigators naturally follow evidence by reviewing documents, interviewing witnesses, analyzing transactions, and reconstructing events. Compliance investigations should also follow the decision trail because misconduct frequently passes through business processes designed to create accountability.

The investigation should identify who selected and approved a problematic third party, who authorized exceptions or unusual compensation, who approved payments, who received warnings, and who decided whether concerns warranted escalation. This becomes especially important when misconduct involves senior personnel, high performers, or commercially significant relationships.

The purpose is not to assign blame indiscriminately across every function connected to an incident. It is to understand where accountability actually resided and whether the people responsible for operating or supervising controls fulfilled those responsibilities.

A decision trail can reveal that misconduct was not simply the act of one individual. Other employees may have facilitated the conduct, ignored warning signs, approved questionable transactions, or failed to escalate information. Conversely, the evidence may demonstrate that established controls operated appropriately and that the individual deliberately circumvented them.

Organizational Justice Requires Consistency

Investigations also play a central role in corporate culture. Employees watch how organizations respond to allegations, particularly when cases involve senior executives or high-performing employees. They notice whether powerful people receive different treatment and whether employees who raise concerns suffer professional consequences. This makes consistency an important component of organizational justice, which the ECCP identifies as a part of every compliance program.

Consistency does not require identical outcomes. Facts, intent, responsibilities, prior conduct, cooperation, supervisory duties, and other legitimate considerations can justify different consequences. What matters is that the organization uses a credible process and applies its standards without creating privileged classes of employees.

Investigation governance is therefore important. The company should establish clear decision rights concerning whether allegations require investigation, who determines scope, who approves closure, how disciplinary decisions are made, when conflicts of interest require independent handling, and when matters involving senior executives should be escalated to the Audit Committee or board. These governance arrangements should be in place before a sensitive case arises.

Accountability should also extend beyond the individual who directly engaged in misconduct. Management behavior matters. A supervisor who ignored repeated warning signs, encouraged excessive risk-taking, approved unjustified exceptions, or created incentives that contributed to misconduct may raise separate accountability issues.

If employees see junior personnel disciplined while supervisors face no consequences for meaningful oversight failures, the company may signal that accountability flows only downward. Credible organizational justice requires a more consistent approach.

Investigation Data Is Enterprise Risk Intelligence

Individual investigations explain specific events. Aggregated investigation data can reveal enterprise-wide patterns, making it an important compliance asset. A CCO must understand which allegations recur, whether particular business units or managers appear repeatedly, where investigations are delayed, what root causes occur most often, whether similar control failures appear across jurisdictions, and whether employees who raise concerns subsequently experience unusual turnover or other adverse outcomes.

Those patterns can identify emerging risks that individual case files may not reveal. The data must be interpreted carefully. A business unit with a high number of hotline reports may have significant cultural problems, or it may have a healthy speak-up environment in which employees trust the reporting system. A location with few reports may have an excellent culture, or employees may fear retaliation.

Investigation data works best when combined with other information, including hotline trends, employee surveys, HR data, audit findings, transaction monitoring, exit interviews, and business knowledge. The objective is not simply to count cases but to use investigative information to understand the organization more effectively. This is the Leonardo approach in practice: observation combined with inquiry.

AI Changes the Investigation Function

Artificial intelligence is also changing corporate investigations. AI tools may assist with document review, chronology development, translation, pattern identification, data analysis, and summarization. Used appropriately, these capabilities may allow investigation teams to analyze larger volumes of information and identify relationships more efficiently.

They also create significant governance issues because investigations frequently involve some of the company’s most sensitive information. Before using AI, the organization should understand what data it will provide to the system, whether the material includes privileged, confidential, personal, or commercially sensitive information, where the data will be processed and retained, and what contractual and technical protections apply. Once again, the ECCP puts this onus on your compliance function.

Reliability is equally important. Investigators need a process to validate AI-assisted analysis and identify inaccurate or unsupported outputs. AI use should not obscure how a significant investigative conclusion was reached or prevent the company from explaining the evidence supporting its decision.

Human accountability should remain clear. AI can assist investigators, but it should not replace professional judgment concerning scope, credibility, findings, discipline, or remediation. The broader governance principles reflected in the NIST AI Risk Management Framework and ISO/IEC 42001 can help organizations think about risk management, human oversight, documentation, and monitoring. Still, the fundamental investigation requirements remain confidentiality, accuracy, fairness, privilege, and defensibility.

Connect Investigations to Remediation and Lessons Learned

Companies sometimes separate investigations and remediation too sharply. Legitimate reasons exist to maintain appropriate independence between fact-finding and certain management decisions, but the compliance program still needs a clear mechanism to convert investigative findings into corrective action.

For significant matters, management should understand what failed, why it failed, whether the weakness could exist elsewhere, what corrective action is required, who owns that action, and how the company will determine whether remediation worked. This turns an investigation from a historical examination into a forward-looking compliance tool. Without that connection, an organization can become highly proficient at investigating the same problem repeatedly without becoming better at preventing it.

Lessons learned should also travel beyond the specific business unit or jurisdiction involved. If an investigation in one market identifies improper distributor discounts caused partly by weak approval controls, the company should consider whether comparable controls exist elsewhere. If employees use personal messaging applications to circumvent company systems, management should assess whether the practice extends beyond the employees involved in the investigation. If an AI incident reveals that employees can deploy unapproved tools without effective technical restrictions, the organization should consider the broader governance implications.

This does not require distributing confidential investigative details throughout the company. It means converting case-specific findings into enterprise risk intelligence. Depending on the issue, the lesson may lead to changes in controls, risk assessments, monitoring, training, policies, management communications, or incentive structures. That is how Investigate feeds Refine.

What the Board Should Understand About Investigations

Boards and Audit Committees should resist evaluating the investigation function primarily through case counts. Knowing how many matters were opened and closed provides useful operational information, but it offers limited insight into program effectiveness.

Directors should understand what the company is learning from investigations. Significant themes, recurring root causes, internal control weaknesses, unusual patterns across business units, retaliation concerns, and the status and effectiveness of remediation all provide more meaningful information about compliance risk.

The board should also understand whether investigative resources match the company’s risk profile. Significant cases should not remain unresolved because the organization lacks appropriate staffing, cross-border expertise, data capabilities, employment-law support, or access to information. Matters involving senior personnel should be handled through processes designed to preserve independence and avoid conflicts.

The board does not need to manage individual investigations. Its role is to understand whether the investigation system provides reliable information about significant compliance risks and whether management responds appropriately to what that system reveals.

Getting Beneath the Surface

Leonardo’s anatomical studies give compliance professionals a useful model for investigations because the visible event may be only the first indication of a larger systemic issue. An improper payment may reveal a third-party weakness that exposes deficiencies in due diligence, technology, ownership, incentives, or management oversight.

The investigator’s task is to understand those connections without allowing every matter to become an unlimited enterprise-wide inquiry. Scope should remain proportionate to the seriousness, complexity, and potential reach of the issue. The objective is disciplined curiosity: understanding whether the evidence points to an isolated act or a broader weakness in the compliance system.

For the CCO, the practical lesson is that investigations should do more than establish whether a rule was violated. Significant matters should help the organization understand the controls, incentives, management decisions, and business conditions that contributed to the conduct. Root-cause analysis should drive remediation, investigation findings should test assumptions about program effectiveness, aggregated case data should inform enterprise risk assessment, and lessons learned should improve controls beyond the immediate matter.

That is Investigate, the second principle of the Leonardo Compliance Framework. Finding misconduct matters, but the greater compliance value comes from understanding the system that produced it and using that knowledge to reduce the likelihood of recurrence.

From Investigation to Innovation

Investigation helps the compliance professional understand how existing systems work and why they sometimes fail. Leonardo, however, was equally interested in systems that did not yet exist, which takes us to the third principle in the Leonardo Compliance Framework: Innovate.

In Blog Post Three, Leonardo’s Flying Machines and AI Governance, we will use Leonardo’s studies of flight to examine responsible innovation in 2026. Artificial intelligence and increasingly agentic technologies are moving from generating information to taking action within business processes, raising new questions about risk classification, human accountability, third-party AI, data governance, testing, monitoring, NIST AI RMF, and ISO/IEC 42001.

Leonardo’s willingness to imagine flight provides the innovation lesson. For the modern CCO, the corresponding governance task is ensuring the enterprise understands the risks, controls, and accountability needed before giving new technology meaningful authority inside the business.

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Da Vinci Week: Part 1 – The Mona Lisa and Continuous Improvement

I recently wrote a five-part blog series on compliance through Michelangelo’s lens. In our Michelangelo Compliance Framework, we used five extraordinary projects to explore five disciplines of the modern compliance function: Challenge, Execute, Defend, Build, and Govern. Michelangelo gave us a model of the compliance professional as a builder. His work showed the importance of structure, execution, resilience, accountability, and the ability to turn an ambitious vision into something enduring.

This week, I want to do the same through the lens of Leonardo da Vinci, who gives us a different model. Leonardo was an observer, investigator, experimenter, engineer, anatomist, artist, and relentless student of how things worked. Where Michelangelo offers lessons about building, Leonardo offers lessons about learning. That distinction underpins our five-part Leonardo Compliance Framework: Refine, Investigate, Innovate, Monitor, and Document. In this blog post 1, we begin with Refine and Leonardo’s most famous painting, the Mona Lisa.

The compliance lesson is continuous improvement. An effective compliance program is never truly finished because the business it supports is never truly static. Markets change. Employees change. Third parties change. Regulations change. Technology changes. Criminal methodologies change. Artificial intelligence is accelerating many of those changes simultaneously. For the Chief Compliance Officer (CCO) or compliance professional in 2026, the question is therefore not simply whether the company has a compliance program. The better question is whether the program is materially better today because of what the organization learned yesterday.

The Compliance Program Is Never Finished

One fascinating aspect of the Mona Lisa is Leonardo’s extended relationship with the work. He kept refining it as he developed his understanding of light, anatomy, optics, and human perception. That provides a useful metaphor for compliance because companies often approach compliance initiatives through the language of completion. Policies are issued, training is delivered, third-party systems are implemented, investigations are closed, remediation projects are completed, and risk assessments are presented to the board.

A policy issued three years ago may no longer address how the business operates. A successful third-party implementation may not account for changes in the company’s distribution model. A 100 percent training completion rate does not demonstrate that employees can apply the training when confronting an ethical problem. Closing a remediation item does not establish that the revised control reduced the underlying risk.

Leonardo offers a different approach. Completion should create an opportunity for observation and learning. Management should understand what worked, what did not work as expected, what changed in the business, and whether those lessons justify refinement of the program. That is continuous improvement.

Turn Compliance Failures Into Organizational Knowledge

The DOJ has made clear in the most recent iteration of the Evaluation of Corporate Compliance Programs (ECCP) that continuous improvement sits at the heart of modern expectations for compliance program effectiveness. A risk-based program should evolve as the company’s risks evolve, using risk assessments, investigations, audits, monitoring, employee feedback, transaction data, and lessons learned to inform changes. A company that identifies the same weakness year after year without changing its response has not created an effective learning system.

Leonardo’s approach to understanding the natural world was to look beneath the visible surface. Compliance professionals should apply the same discipline. Misconduct often signals a deeper weakness in the system, and root-cause analysis helps identify it and use the lesson to improve the program.

Risk Assessment Should Produce Management Action

The compliance risk assessment provides another important opportunity for refinement. Companies frequently devote substantial resources to identifying and ranking risks, producing a heat map, presenting the findings to management and the board, and repeating the process the following year.

Here the ECCP asks, “Is the risk assessment current and subject to periodic review?” Is the periodic review limited to a “snapshot” in time or based upon continuous access to operational data and information across functions? Has the periodic review led to updates in policies, procedures, and controls? Do these updates account for risks discovered through misconduct or other compliance program issues?

The principle applies to artificial intelligence. If AI adoption changes the company’s risk profile, the risk assessment should lead to governance action through measures such as an AI inventory, risk classification, approval processes, human oversight, monitoring, or technical controls.

A mature compliance program should be able to draw a line from an identified risk to a management decision. If the risk profile changes while resources, controls, monitoring, and governance remain unchanged, the risk assessment has generated information without generating action.

Use Data to Refine the Program

Leonardo was a relentless observer who recorded what he saw and used those observations to develop new ideas. Modern compliance functions possess an advantage he could scarcely have imagined: enormous quantities of organizational data.

Hotline information can reveal cultural patterns. Investigation data can identify recurring allegations and root causes. HR data may indicate retaliation. Transaction information can identify unusual payments. Third-party data can reveal concentrations of risk, while audit findings can identify recurring control weaknesses.

But these insights are not enough. Are these insights put into practice? The ECCP inquires: Does the company have a process for tracking and incorporating into its periodic risk assessment lessons learned either from the company’s own prior issues or from those of other companies operating in the same industry and/or geographical region?

Compliance analytics should not become a competition to create the most sophisticated dashboard. The objective is better decision-making. A business unit with very few hotline reports, for example, could have an excellent culture or an environment in which employees are reluctant to speak. The number alone does not tell the whole story.

Compliance should therefore combine quantitative information with qualitative evidence, including employee surveys, focus groups, exit interviews, investigations, management discussions, and audit findings. The objective is to understand what the data mean in the business context.

AI Accelerates the Need for Refinement

Artificial intelligence makes continuous improvement increasingly important because AI systems and their uses can change faster than traditional corporate governance cycles.

The ECCP asks companies to consider how emerging technologies such as AI affect their ability to comply with criminal laws, how related risks are incorporated into enterprise risk management, and how organizations mitigate unintended consequences and potential misuse. The ECCP asks some pointed questions: How does the company assess the potential impact of new technologies, such as artificial intelligence (AI), on its ability to comply with criminal laws? Is management of risks related to the use of AI and other new technologies integrated into broader enterprise risk management (ERM) strategies? What is the company’s governance approach to using new technologies such as AI in its commercial business and compliance program? The implication for the CCO is significant: AI risk cannot be treated as a once-a-year compliance exercise.

NIST’s AI Risk Management Framework and ISO/IEC 42001 provide useful approaches to this challenge because both emphasize governance and ongoing risk management. For the CCO, the broader lesson is that AI governance should operate as a management system rather than a policy-writing project. The organization needs to learn from incidents, testing, employee behavior, technological changes, and evolving business use, then adjust governance accordingly. The principle is the same as the Mona Lisa: refinement should follow learning.

Move the Board Conversation From Activity to Learning

Boards and Audit Committees can reinforce this discipline by shifting the compliance conversation. Compliance presentations frequently focus on activity metrics: employees trained, investigations closed, third parties reviewed, policies updated, and remediation items completed. These measures provide useful information about program operations, but they do not necessarily demonstrate effectiveness.

Directors should also understand what the organization learned during the reporting period, what investigations revealed about controls, what monitoring identified that management did not previously know, how the risk profile changed, and what the compliance function changed as a result.

The board should also understand whether those changes worked. This moves oversight from compliance activity to compliance effectiveness. It allows the CCO to present Compliance not simply as a collection of programs and controls but as a management system that identifies risk, learns from experience, and improves organizational decision-making.

The Mona Lisa Principle: Disciplined Refinement

Leonardo’s Mona Lisa gives the modern compliance professional a straightforward lesson about continuous improvement. An effective compliance program should develop through observation, evidence, learning, and a willingness to reconsider earlier decisions when circumstances justify change. The objective is not perpetual revision. It is disciplined refinement.

That distinction matters because continuous improvement can become counterproductive if it produces continuous disruption. Employees need stability, controls need sufficient time to operate, and management needs enough information to distinguish a meaningful trend from temporary noise. A compliance function that repeatedly changes policies, procedures, training, and controls without a clear risk-based rationale can create confusion rather than effectiveness.

Program refinement should therefore follow evidence. An investigation may reveal a systemic control weakness. Employee feedback may demonstrate that a policy is difficult to understand or apply. Monitoring may show that a control generates excessive false positives or is routinely circumvented. A regulatory development may require a different process, while an acquisition, new market, or technological change may materially alter the company’s risk profile. Artificial intelligence may introduce capabilities and risks that did not exist when the original governance structure was designed.

The CCO should have a disciplined process for converting those developments into program changes. Management should understand what triggered the proposed change, what risk it addresses, who owns implementation, and how the organization will determine whether the change produced the intended result. In this sense, continuous improvement should itself be governed.

A mature CCO should also be able to explain why today’s compliance program differs from the one the company operated two or three years ago. The answer should not simply be that policies were updated or new technology was purchased. The program should have changed because the organization learned something about its risks, controls, employees, third parties, culture, or business model and acted on that knowledge.

That is the central lesson of Refine, the first principle of the Leonardo Compliance Framework. Completion should not be confused with effectiveness. Root-cause analysis should produce program improvement, risk assessments should lead to management action, and data should help the organization understand what is happening rather than simply populate dashboards. When the evidence demonstrates that change is necessary, the organization should refine the program and then determine whether the refinement worked.

Leonardo models the compliance professional as a student of the organization. The CCO observes how the business operates, learns from failures and successes, and uses that knowledge to improve the compliance system. The measure of continuous improvement, therefore, is not how often the program changes. It is whether the program becomes more effective because the organization has learned.

From Refinement to Investigation

Continuous improvement depends upon understanding why problems occur. A company cannot meaningfully refine its compliance program if it treats each incident as an isolated act of employee misconduct. It must examine the systems, incentives, controls, management decisions, and behaviors that produced the outcome. That takes us to the second Leonardo principle: Investigate.

In Blog Post Two, we will consider Leonardo’s Anatomical Studies and will use Leonardo’s study of the human body as a framework for corporate investigations. Just as Leonardo looked beneath the surface to understand how interconnected systems functioned, modern compliance investigations should move beyond identifying misconduct to understanding its causes. We will examine how root-cause analysis connects investigations to remediation, why organizational justice matters, how investigation data can reveal systemic weaknesses, and what boards should understand when management reports that an investigation has been closed.

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The NBA/Clippers Investigation: Part 5 – Lessons for CCOs and Boards

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 it has materially reduced the opportunity for recurrence. 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, conflict 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? Make that question 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 an authorized person signed it.

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 be in place. 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 tests 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. Enforce compliance 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 both functions have the information and resources they need. Board oversight is not passive dashboard receipt. It is an 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.