I did not expect to return to this issue. This was an “old” issue that was resolved many moons ago.
The issue was a professional debate over the reporting relationship between the chief compliance officer (CCO) and the chief legal officer (CLO)/general counsel. After 20 years of debate, CCOs managed to sway the professional community: CCOs have to operate independently, without improper interference by the CLO. CCO independence depended on the CCO not reporting directly to the general counsel, but rather to the board committee chair, usually the audit committee.
In truth, I have never applied this rule unquestioningly. In my experience, some CCOs have a strong working relationship with the CLO, and their reporting relationship never interferes with the CCO’s independence. These CCOs may “report” to the general counsel for budget purposes, but maintain independence in other responsibilities, and report directly to the audit chair on compliance and ethics issues.
And yet. It is one thing to ensure CCO independence; but it is critical that CCOs have the resources — personnel and technology — to execute all of her responsibilities.
Independence protects CCOs from general counsel resistance or interference. When the general counsel dictates to that CCO on compliance issues, the organization inevitably suffers. In these cases, a CCO faces a difficult decision. Should she go around the general counsel and report the matter to the audit chair?
This happens more often than we like to admit.
A CCO who circumvents the general counsel runs the risk of being fired or disciplined. This is grossly unfair and inappropriate. However, in most cases a CCO will back off from challenging the general counsel.
No CCO should not have to face this dilemma.
Some general counsel understand the importance of preserving CCO independence. They know how to create positive CCO-GC working relationships as a true partner with mutual respect for their respective functions.
When a general counsel aggressively guards her “territory,” this ends up, inevitably, in disaster, one in which compliance is relegated to a backbench role. This can have a serious impact on internal investigations conducted by CCOs and their staff. And this is to say nothing of general counsel who hinder certain investigations for fear of the consequences to their standing in the company.
A real general counsel embraces the compliance team as legitimate and equal partners. Working together, they accomplish more than when they operate independently. It is, in the end, a natural partnership.
So let’s move past the issue of reporting relationships and focus on ensuring that general counsels and CCOs work together to advance both functions. A strong CCO can make a general counsel stronger and vice versa. Putting aside “political struggles” and concerns about internal appearance don’t help anyone — not the CCO, not the general counsel, and certainly not their corporate clients.
