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Published: February 18, 2009
Guest Column By Andrea Bonime-Blanc
Governance, Risk, Ethics and Compliance:
Time for a Seat at the Executive Table
The meltdown of the global financial markets over the past weeks and months and the
implosion of the largely unregulated risk-taking of the past few years, point to the urgent
need for a fundamentally new way of doing business: one that places an effective
internal governor on business in a way that simultaneously helps profitability and lessens
liability. Governance, risk management, ethics and compliance need to get a permanent
seat at the executive table, and senior business leaders must finally put real support behind the fashionable mantra of doing business responsibly.
With the rush of doomsday financial news enveloping us, lost in this vortex of information is that part of the multi-trillion dollar mess we are in has everything to do with insufficient heed paid to the indispensable role of governance, risk management,ethics and compliance in business. For too long considered the “soft” side of the corporate equation, “nice” but not necessary, a “cost center” and “overhead” rather than a liability reducer and revenue enhancer, recent events underscore the absolute need to integrate these disciplines into business leadership, strategy and culture.
In the past, companies that adopted one or more governance related function did so
either out of desperation (as a result of scandal), necessity (because of regulatory
requirements) or strategy (enlightened leadership acknowledging its usefulness). In
most cases, compliance programs emerged directly from a wave of scandal and resulting
regulatory reform such as the international bribery scandals leading to the U.S. Foreign
Corrupt Practices Act of 1977 and Enron et al leading to the Sarbanes Oxley Act of 2002.
We are now confronting an ominous breakdown of the global financial framework due to combined unbridled risk-taking and regulatory laxness. The real estate bubble and proliferation of super-complicated products (collateralized debt obligations, derivatives, credit default swaps, etc.) have led to the demise or damaging of heretofore iconic organizations such as Bear Stearns, Lehman, Fannie and Freddie and the serious decline of many other household names. As a consequence, we are probably about to witness the most far-reaching, global regulatory reform ever undertaken.
In many businesses, the governance, risk management, ethics and compliance functions
either do not exist or, if they do, often do not form part of the company’s executive
management team. They reside instead somewhere within the bureaucratic structure of the organization without a voice equal to that of business leaders in the strategic
management of the company. In view of the recent breakdowns in the global financial community (and, over the past decade, in a wide variety of companies like Enron, WorldCom and Parmalat), the time has come for all companies to take an active approach to these issues by providing a permanent seat at the executive table to one or more leaders in these functional areas.
The reality is that most governance, risk, ethics and compliance professionals live in fear of losing their standing, budget, resources, and, in some cases, job. For these individuals to become truly useful strategic business partners, they and executive management should move quickly to create a mutually beneficial relationship. Executives should reach out to these functional leaders and make one or more of them bona fide members of the executive team of their company. Governance and risk management issues must be integrated into the company’s strategic plan. Compliance and ethical principles should become one with company culture and performance management. Finally, these functions must be given proper budgets and resources and have a reporting line not only to top management but also to the board.
Conversely, governance and compliance professionals need to step up to the plate as well
to gain the long term trust, support and respect of business leaders. They can do so by
acting as strategic partners, showing deep and relevant business expertise and having
relevant and useful leadership skills. They should actively benchmark, network and
establish best practices with peers through leading professional associations such as the
Ethics & Compliance Officer Association and other learning organizations such as the
Conference Board. They must be truly independent, unwilling to compromise legal and ethical standards and ultimately willing to walk away from their jobs if necessary.
As a number of enlightened companies have learned in recent years, good governance is
good for business. The more companies voluntarily adopt measures to improve their cultures and police their risks, the less interest regulators and prosecutors will have in going after them. The more business adopts internal governors to prevent excess and malfeasance, the fewer investigations and prosecutions and the less liability they
will incur. The more business adopts effective governance practices, the more attractive
they will be to key third parties, employees and the non-governmental community.
Companies with poor governance and loose ethics often learn the hard way the many and
painful downsides to conducting shoddy business. Such potential downsides will only
deepen and multiply in the coming age of global re-regulation.
The new bottom line is that governance, risk, ethics and compliance -- the “soft side” of
business -- is no longer that soft. What is still foolishly called by some a “cost center” is
no longer as costly as the alternative: scandal, liability and, ultimately, implosion. The
current financial upheaval proves that governance, risk management, ethics and compliance are and must be an inextricable part of any business. Without effective integration of these functions into the very fabric of the corporate suite, we are bound to relive the dark side of business and suffer the serious consequences of financial loss, lost jobs, lost savings and dissolution.
But businesses can do something positive now to help prevent future losses by integrating these key functions into the corporate suite and giving them a permanent and meaningful seat and voice at the executive table.
Andrea Bonime-Blanc is General Counsel, Chief Compliance Officer & Corporate
Secretary of Daylight Forensic & Advisory LLC, an international compliance advisory
In This Issue
- The Policy Report By Paula J. Desio, ERC Chair on Ethics Policy
- New Rules for Federal Contractors: You Must Disclose Wrongdoing
- Federal Whistleblower Rights Increase Under the Stimulus Law
- Criminal Liability: What’s on the Horizon?
- Guest Column By Andrea Bonime-Blanc
Governance, Risk, Ethics and Compliance: Time for a Seat at the Executive Table
- Column By Patricia J. Harned, Ph.D. President, ERC
- One Vision of Ethics by Phillip B. Goldberg, ERC Vice President/Development
- January 2009 Fellows Meeting