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Fifty years ago in Washington D.C., Martin Luther King, Jr. departed from his prepared remarks and delivered a speech that left an indelible mark on the American conscience. No PowerPoint. No technologyjust imagery and cadence. He watched his audience, not a screen. In an age where so many of us rely on technology and PowerPoint presentations, the most effective communicators understand that to persuasively present ideas, you have to understand your audience and react to signals sent to the presenter in real time.
One of the challenges compliance officers will face this year is communicationproviding the board of directors with the information they need about the companys compliance programand they will need to know how to pay attention to people instead of a slide.
Boards of directors rely on the general counsel or a compliance lawyer to describe the existing and developing risks for the organization, as well as historical and future efforts to mitigate compliance risk. In addition to the federal sentencing guidelines and New York Stock Exchange listing requirements, directors have corporate law duties to understand risks faced by the company and ensure the organization is effectively mitigating those risks. The failure to do so has economic costs for the company, shareholders, and directors, as highlighted in the statistics published by NERA Economic Consulting, which tracks securities litigation related to compliance failures (among other things).
To ensure directors understand compliance risk, GCs and compliance lawyers must know both what to report to the board and how to deliver the message.
The first challenge is deciding what to tell the board about the compliance program. Compliance lawyers properly advise their board on the compliance program when they give them three key pieces of information:
- Emerging compliance risks.
- Historical compliance failures..
- Mitigation efforts undertaken by the organization.
To advise the board on emerging compliance risks, the compliance lawyer must track new legal developments that pose compliance risks, new markets the company will enter, and benchmarking to show risks that peer organizations are considering. This may be accomplished by sharing compliance risk information with peer compliance officers or by conducting benchmarking exercises (for instance, following which risks companies are elevating into their codes of conduct for a certain industry).
This presentation of emerging risks should be contrasted with compliance failures, including substantiated historical allegations by subject matter and market. Mitigation measures may include advising the board on terminated employees, historical training numbers, resource allocation, planned compliance assessments, and how adjustments will be made to the program based on historical and emerging risks. Maybe training, different controls, or a new audit process will be added to a particular market or business line. But the board has to understand how the compliance program will improve based on new risks and historical failures.
The second challenge for the compliance lawyers is to ensure the message is understood. An effective presentation to help directors meet their obligation must be clear, organized, and designed to ensure the directors understand how the organization is managing compliance risk.
In 2010, now retired U.S. Army General Stanley McChrystal was shown a PowerPoint that purported to indicate the complexity of the United States' military strategy in Afghanistan, that, according to The New York Times, looked like a bowl of spaghetti. McChrystal remarked, "When we understand that slide, we'll have won the war." Charts and statistics are both invaluable for developing a risk-based compliance program. But at the end of the day, the presenter has to understand how to present complex data in simple terms that the board can understandwithout the benefit of the presenters day-to-day involvement in the compliance program.
Technology is critical to a risk-based compliance program. It can help compliance lawyers identify emerging risk and make real-time adjustments to the compliance program. As effective as high-tech tools may be in managing a program, they are no substitute for the old-fashioned communication tools of organization, critical thinking, and reacting to your audience. In response to the military chart ridiculed by McChrystal, General H.R. McMaster, who banned the use of PowerPoint during his time in Afghanistan, noted that PowerPoint is dangerous because "it can create the illusion of understanding and the illusion of control." So this year, compliance lawyers should save the technology for managing their program and use their people skills to communicate with the board. Talking plainly to board members will help them understand what they should worry about and what the company is doing to alleviate their concerns.
Ryan McConnell is a partner at Morgan Lewis and former assistant United States Attorney who has been known to use Simpsons characters in his PowerPoint presentations. Send your favorite Simpsons character or compliance topics you would like him to discuss in this column to email@example.com.