The compliance profession has for years been beset by a debate with the outside world over the position of Chief Compliance and Ethics Officer (CECO). Should the CECO be part of the law department reporting to the general counsel? Or should the CECO be an independent, equal member of the C-Suite, reporting to the CEO with direct, regular access to the board? In my opinion and many others, this is the most consequential debate in the compliance field today.
To most compliance officers the answer has been obvious: without an independent CECO the compliance field is finished. Why? Because the compliance function is so often in conflict with the business function, with compliance officers telling business they cannot do this or that. Eventually, if we don’t roll over, we are retaliated against. Case in point: Maritza Munich, the compliance officer at Walmart allegedly forced out for doing her job.
Without a strong CECO connected directly to the board, compliance officers could not confront senior executives without fear of committing career suicide. Because an independent CECO function has meant that other areas (like legal, human resources, and marketing) would have to give up some power, and because an independent CECO is a new addition to a growing list of C-Suite functions, the resistance encountered by proponents like Donna Boehme, Joe Murphy and the compliance officer-member organization SCCE has been fierce.
But Walmart’s recent decisions regarding the compliance function within their company signals the debate is over; the CECO should report directly to the CEO and the board.
As discussed in recent posts, compliance is a system of checks and balances. The old way, where compliance and compliance officers were part of the law department, had serious flaws. Scandal followed scandal because there was a gap in the system exactly where coverage was critical: in the C-Suite. For complex reasons probed in the Rand Report, the C-Suite is all-too-often a primary source of headline-grabbing misconduct, a “Cauldron of Corruption.” To address this weakness, compliance had to become an equal in the C-Suite, where the CECO could have a powerful voice, fully informed about the company’s plans and fully empowered by the board to speak freely to the CEO and to the board.
Without this critical change, compliance cannot function in the big cases where it is needed most. While compliance officers might speak up about low-level, excessive gift giving (for example), they would not challenge the really bad conduct coming from powerful executives who could end their careers.
This shift of power within the company is perhaps among the biggest recent changes in the history of corporate organization. It is a shift business schools will want to study — once they understand what compliance is and what has happened.
One of the remarkable things about the new Walmart compliance structure is the company’s outspoken endorsement of this shift. Jay Jorgensen, the CECO of Walmart in an interview settled the debate. Asked about it he said:
The chief compliance officer can’t be buried in the organization. She can’t be wearing half a hat. (Compliance officers) need to be independent, senior executives, who all report back into Bentonville.
Compliance officers can now skip many arguments and cut to the chase: ‘Walmart is investing in compliance and so should you.’ Follow its lead or be left behind. Compliance officers have an icon of business success to make its arguments about the CECO position, including the basic decision to invest in compliance.
The compliance system of checks and balances changed Walmart and now Walmart can be a positive part of the system by showing other businesses why and how to go forward.
Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He is affiliated with ethiXbase, the owner of the FCPA Blog. He can be contacted here.