The Red Flag Group®
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2020: The compliance officers’ challenges

2020: The compliance officers’ challenges

The role of compliance officers is to act as the company’s early warning system to detect compliance issues. In this challenging 2020, several elements could contribute towards the failure of compliance officers which usually stems from the company’s ideology of work.

Internal structure

Opposition from the general counsel

Compliance officers are responsible for conducting audits and investigations to unearth compliance issues within a company, and these audits and investigations often target the sales department, as fraud and corruption are more likely to arise in these functions than others. Effective general counsels aim to be acknowledged as being fully supportive to their sales teams so they can build a solid reputation within the company, and are usually willing to go the extra mile to achieve the goals set by the sales team. As a result, general counsels may attempt to block compliance officers from conducting audits and investigations. As general counsels are regarded as more senior than compliance officers, this can affect the work of compliance officers.

Corporate hierarchy

Likewise, compliance officers typically face issues when reporting directly to the general counsel, because if a compliance officer uncovers any compliance issues or risks it can negatively impact the general counsel’s reputation. A much better approach is for the compliance officer to report to the audit committee (monitored by the company’s chief executive officer).

Furthermore, the role of a chief compliance officer should be regarded as senior, due to the importance of the position. There is likely to be more cooperation between the compliance officer and the general counsel if they have the same level of authority.

Unfortunately, some companies hire a compliance officer just to meet an operational criterion. However, in order for the compliance officers to implement the necessary compliance procedures and strategies, they need to be given decision-making authority.

Corporate culture and ethos

The culture of a company tends to match the chief executive officer’s culture, and therefore the compliance officer is more likely to prosper if the chief executive officer is of high integrity. If the chief executive officer only focuses on sales and does not take compliance and integrity issues seriously, the compliance officer’s job will be much more difficult. Having an effective and diversified chief executive officer results in a well-rounded and fair atmosphere for the compliance officer to thrive in, while also meeting the sales objectives. Thus, the role of compliance officers is affected significantly by chief executive officers.

Resources

Because compliance is usually under-budgeted and under-resourced, the chief compliance officer is often an individual contributor or managing a small team. Being a sole contributor complicates the process of auditing and conducting investigations as those processes require extensive efforts and are time consuming.

Unfortunately, compliance officers often get hired as a result of an investigation or a review that has been done on the company or if the company’s business partner recommended hiring a compliance officer. Compliance should, however, be acknowledged as a vital function to the company, and a fair budget should be allocated. Like any other department, compliance needs resources for monitoring software and the other tools it needs to operate efficiently as it engages with third parties.

A compliance department should include a well-rounded team whose members are aware of subjects such as law, finance, accounting and compliance. Moreover, compliance officers tend to come from the legal or financial department and may not have been involved in managing a team at a sales or procurement level. It is essential for a compliance officer to have a business background so they can align the company’s operational objectives with its financial, legal and compliance objectives. The compliance department objectives must also fit with the company’s strategic objectives in order to operate in harmony.

Workplace politics

A company’s internal political situation plays a vital role in determining the success or failure of certain employees. As compliance officers typically report to those who hold decision-making positions, it can be challenging if the internal political and cultural views do not promote ethical behaviour. To be able to achieve positive changes and truly benefit the company, the compliance officer must be aware of the importance of interacting with those who hold power and authority. Maintaining a genuine and positive relationship with these people will significantly benefit the compliance function, which in turn will benefit the entire company.

A company’s ideology of work is the main success factor for compliance officers. Providing a fair budget to the compliance function, enabling compliance officers to conduct audits and investigations without internal implications and giving them decision making authority would contribute to the success of compliance officers.