Donna Boehme
Michael Volkov
To paraphrase the famous observation from Iowa’s Republican Senator Chuck Grassley: “It doesn’t take a pig farmer from Iowa to smell the stench” of a chief compliance officer beholden to the general counsel. And now JP Morgan Chase seems to agree.
Last week’s announcement by JPMorgan Chase of sweeping changes in its compliance function, replacing its CCO and moving the reporting line away from legal, is big news for proponents of CCO independence and empowerment. The bank’s new CCO, Cynthia Armine, will no longer report to the Legal and Compliance Department of the General Counsel, but instead to the firm’s operational co-heads—a structural reorganization that seems to respond to calls from the C&E field for greater CCO independence, line of sight, and seat at the table to empower the CCO.
The announcement follows similar moves at U.K. banking giant HSBC, pursuant to an eye-popping $1.9 billion U.S. Department of Justice settlement agreement for major money-laundering violations that some have called a “roadmap to compliance.” HSBC not only separated its legal and compliance functions, but it also elevated its CCO to the ranks of its top 50 executives (“seat at the table”), with direct reporting to the board of directors; multiplied its compliance headcount by at least nine-fold, for a total budget of $244 million; and gave its CCO line of sight to all compliance activities in the firm.
Compliance officers have long been the “unsung heroes” of the corporate landscape, struggling mightily to carry out their near-Sisyphean mandate—often with scarce resources and in the face of institutional resistance and sometimes downright threats of retaliation. In the 1990s, the evolving CCO position was often placed within the Legal reporting line. It seemed like a good idea at the time. But it has become increasingly clear that the modern CCO requires independence and visible support from the very top of the organization to carry out its difficult and often perilous mission—and discharging its duties through a legal “filter” is no longer adequate.
CCO independence and direct unfiltered access to the governing body is not a new issue. Since Senator Grassley wrote his famous line in a letter to Tenet Healthcare in 2003, nearly every health care industry settlement agreement has stated unequivocally that the CCO “should not be, or be subordinate to, the general counsel or the chief financial officer.”
In this unprecedented era of government enforcement, CCOs are being tasked with even greater responsibilities—namely, keeping the company out of trouble and free from government scrutiny. Corporate leaders across all industries are starting to get the message: Free the CCO or the government will impose this and many other compliance requirements on your company.
Until recently, the financial services industry has been slow to adopt this sensible best practice for compliance departments, choosing to hold on to a compliance-reporting-to-legal construct, in one shape or another. But now, with the independence, empowerment, and resources of the CCO firmly in the spotlight of regulators and prosecutors, JP Morgan seems to have gotten the memo.
Forward-looking boards—now specifically tasked by the Federal Sentencing Guidelines to proactively oversee the adequacy and effectiveness of their firms’ compliance programs, as well as a culture of ethical leadership—should take note and act now to promote CCO independence, empower the CCO so that they can do their job, and make sure they have the resources to get the job done—before others do it for them.
Donna Boehme is an internationally recognized authority and practitioner in the field of organizational compliance and ethics, designing and managing compliance and ethics solutions within the U.S. and worldwide. As principal of Compliance Strategists LLC, Boehme is the former group compliance and ethics officer for two leading multinationals and currently advises a wide spectrum of private, public, governmental, academic, and nonprofit entities through her NJ-based consulting firm. Follow her on Twitter @DonnaCBoehme. Michael Volkov is head of LeClairRyan's compliance, investigations, and white-collar defense practice. He is a recognized leader in the field of compliance and maintains a popular blog: Corruption Crime & Compliance. He can be reached at michael.volkov@leclairryan.com.
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