Should Compliance Report To The General Counsel?

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Should ComplianceReport to theGeneral Counsel?A survey by the Society of Corporate Compliance and Ethicsand the Health Care Compliance Associationwww.corporatecompliance.org www.hcca-info.org

Should Compliance Report to the General Counsel?BackgroundThere has been much discussion over the last few years aboutthe reporting lines of the compliance officer. Driving the conversation have been several settlements in which enforcementauthorities have specifically required that compliance report tocorporate leadership rather than the general counsel’s office. Inaddition, many perceive there to be a potential conflict of interestwith the duty of the general counsel to defend the corporationand that the two functions have very different mandates.Yet, some continue to argue that the roles are best combined.They argue that since compliance is about following the law,compliance should be a part of the legal department.Previous research by the Society of Corporate Compliance andEthics (SCCE) and Health Care Compliance Association (HCCA)has revealed that compliance officers feel their relationship withlegal is a very strong one. The survey, which was released inJanuary 2012, found that fully 80% of respondents gave the relationship a 4 or a 5 on a 1 to 5 scale. HR, the next most successfulrelationship, received 4 or 5 scores from just 66% of respondents.The question is whether a strong relationship between legal andcompliance also means that compliance is comfortable reporting to legal.www.corporatecompliance.org www.hcca-info.org 2

Should Compliance Report to the General Counsel?Executive SummaryDespite past research indicating high levels of satisfaction withworking with legal, compliance professionals were overwhelmingly opposed to having compliance report to legal. Of the morethan 800 responses, 88% are opposed to the corporate counselserving as the compliance officer, and 80% oppose having compliance report to the corporate counsel’s office.Detailed FindingsoSurvey respondents were strongly opposed to the idea ofcorporate counsel also serving as the compliance officer.An overwhelming majority (88.5%) rejected the idea. Thisresponse was particularly high among respondents fromhealthcare and the not for profit sector. Even among publiclytraded companies, 86% of respondents opposed the idea.www.corporatecompliance.org www.hcca-info.org 3

Should Compliance Report to the General Counsel?oRespondents cited a variety of related reasons why the tworoles need to be separate but particularly focused on a conflict of interest.–– “Always possible conflict present between encouragingreports of compliance matters and role of defendingthe company.”–– “ the ‘vigorous defense’ mission of corporate counselis, at times, at odds with the ‘detect, disclose, remedy’mission of a compliance officer.”–– “Counsel is representing the organization from a legalperspective—doing what is in the best legal interest ofthe organization. Compliance Officer is actually representing the integrity of the organization—what may belegal may not be ethical!”–– “ it creates the potential for increased conflicts of interest. Compliance often should audit/monitor practice/policies that Legal itself advised on or drafted.”–– “CCO is a full time job and when a GC takes on thatrole the demands on his/her time dilute effectiveness orrequire a strong lieutenant [sic]. There are also key skillsfor a CCO that a GC may not necessarily have (projectmanagement, presentation) and the advisory role ofCounsel doesn’t always mesh well with the CCO role.’–– “Legal’s role is to protect and defend. Compliance’s roleis to uncover weaknesses, develop controls and mitigaterisks. Uncovering weaknesses often poses a conflictwithin legal’s role to protect.”www.corporatecompliance.org www.hcca-info.org 4

Should Compliance Report to the General Counsel?oRespondents were also strongly opposed to having compliance report to the corporate counsel, with 80% opposed tothe idea. As noted above, while previous research indicatedcompliance officers were very happy working with corporatecounsel, they most definitely do not want to report to legal.oReasons for opposition to having compliance report tothe corporate counsel were largely similar to the reasonsfor having corporate counsel serve as the compliance officer, focusing chiefly on the potential conflict of interests.Other reasons cited included the need for unfiltered access tothe CEO and Board, the need for speed—legal was perceivedas taking too much time considering issues—and that theroles are simply too different.–– “Compliance officer should have direct line to head ofentity to ensure that issues are fully communicated.”–– “CEO and board should be able to receive separate advice.Compliance may consult with Counsel.”–– “This could create a conflict of interest and could limitthe independence of the Compliance Officer. The Compliance Officer should have unrestricted access to theboard of directors, CEO, etc. without having to receivethe permission of anyone.”–– “Legal approach is about controlling information anddisclosures, while Compliance approach is more openand less political. Legal tends to move more slowly thanCompliance. Legal is about controlling the fallout, whileCompliance is about fixing the problem. Complianceshould be independent of Legal to ensure that information flow is not interrupted or ‘spun.’”www.corporatecompliance.org www.hcca-info.org 5

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Should Compliance Report to the General Counsel?oNotably, ownership structure did affect opinions. While88% of those working for non-profits opposed havingcompliance report to legal, just 74% were opposed to thepractice at publicly traded companies. That’s still a largemajority of course, but it was notably smaller.oHaving the general counsel also serve as the compliance officer is already the exception, not the rule. Just15% reported that one individual wears both hats in theirorganization.www.corporatecompliance.org www.hcca-info.org 6

Should Compliance Report to the General Counsel?Conclusions/ImplicationsoCollaboration, not cohabitation, seems the most effectiverelationship between compliance and in-house counsel.The two disciplines play related and complementary roles,as do many other disciplines in the company. And whenthey work together there can be tremendous benefits to theorganization. Yet, those who do the compliance work seesufficient existing and potential differences between compliance and legal to strongly believe it is better to keep the rolesseparate and with an equal footing.oKeeping (or making) compliance separate from legal alsocan benefit management. The difference between the needto ensure compliance and the need to defend the companyis a significant one. By ensuring that the roles are separate,management can hear differing viewpoints and make betterdecisions, without the risk of having the compliance voiceautomatically “vetoed” by Legal.oThe combination of compliance and legal likely comeswith significant costs. Compliance professionals see significant and compelling reasons why the roles of complianceand legal should be kept separate. Forcing a combination (orkeeping the roles combined) has the potential to significantlydiminish the effectiveness and independence of complianceprograms and management’s ability to make well-adviseddecisions.www.corporatecompliance.org www.hcca-info.org 7

Should Compliance Report to the General Counsel?MethodologySurvey responses were solicited during January and February2013 from compliance and ethics professionals in the database ofthe Health Care Compliance Association and Society of Corporate Compliance and Ethics. Responses were collected andanalyzed using SurveyMonkey, a web-based third party solution.More than 800 responses from private and public companies aswell as non-profits were received.www.corporatecompliance.org www.hcca-info.org 8

than 800 responses, 88% are opposed to the corporate counsel serving as the compliance officer, and 80% oppose having com-pliance report to the corporate counsel's office. Detailed Findings o Survey respondents were strongly opposed to the idea of corporate counsel also serving as the compliance officer.

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