Compliance officers should have executive authority. That means the power to block hiring decisions, reject subcontracts and purchase orders, disapprove proposed partners and other intermediaries, and stop projects from happening or continuing. I am not kidding.
Sure, it’s crazy to think any for-profit corporation would cede such power to compliance officers. Except . . . it’s not so crazy.
It’s the culmination of what the top names at the DOJ and SEC have been advocating for nearly ten years — compliance officers as gatekeepers. Every gatekeeper needs the veto, or something close to it. Why do companies need these new gatekeepers? The list of reasons is familiar: a growing web of complex regulation, aggressive enforcement, expanded director and officer liabilities, shareholder derivative suits, the constant threat of bet-the-company civil litigation. A reasonable response to all that risk is to endow compliance officers — the experts at identifying and managing risks — with executive power.
Doesn’t that create another risk? That over-juiced compliance officers will inflict commercial damage on the organization? That they’ll throw their weight around, scuttling business deals when they shouldn’t, just for fun?
I don’t think so. Endowing compliance officers with executive authority elevates their responsibility tremendously. Rather than being mere advisors who can dish advice with abandon, executive compliance officers would make decisions that are fundamental to the purpose of the organization. Anyone with a role that weighty needs to be a team player with a mature approach and steady hand, or they won’t last long.
That doesn’t mean all compliance officers should have the veto. Maybe only senior-grade officers, or the chief compliance officer alone. As in most other corporate departments, those people closer to entry level need time to learn their jobs, and oversight and review are part of the teaching and learning process.
But hold on. Here in the real world, isn’t the idea of a compliance veto absurd? Too extreme and impractical? Apparently not.
A few weeks ago, evidence emerged that Goldman Sachs’ compliance department had vetoed a business decision.
The broad outline is this: The SEC charged a former Goldman Sachs executive in London with bribing officials in Ghana to secure a power plant deal that Goldman was backing. The banker’s actions allegedly violated the FCPA and caused Goldman to violate it. But in the words of SEC enforcement chief Charles Cain, Goldman’s “compliance personnel took appropriate steps to prevent the firm from participating in the transaction and [Goldman Sachs] is not being charged.”
The SEC said Goldman Sachs was supposed to earn a $10 million fee for the Ghana power plant project, until the compliance department stepped in.
For the record, the SEC’s Cain never used Goldman Sachs’ name. But from the public documents it was easy to identify Goldman. And when the Wall Street Journal called the bank, a spokesperson confirmed Goldman’s connection and echoed the shout-out to the compliance department: “Goldman Sachs fully cooperated with the SEC’s investigation and as stated by the SEC in its press release, the firm’s compliance personnel took appropriate steps to prevent the firm from participating in the transaction.”
Conclusion: Goldman Sachs — a for-profit outfit rated by Vault as the most prestigious banking firm in the world — is OK with compliance officers having veto power or something close to it. Does it mean similar arrangements can already be found at other financial services firms and diverse Fortune 500 companies?
Looking from the outside, I can’t say exactly how the compliance veto works at Goldman Sachs. The recent enforcement action isn’t much to go on. Nor is Goldman’s extensive (and excellent) compliance department website.
But the SEC’s complaint said this: “By August 2016, compliance personnel effectively terminated” Goldman’s involvement in the Ghana power plant project. Those words (with my italics) leave no doubt. According to the SEC, it was Goldman’s compliance department that “effectively” did the terminating. Amazing, isn’t it?
So, endowing compliance personnel with the power to make fundamental decisions isn’t crazy after all. Today, if I were a candidate for a compliance position at any of the world’s global corporations, I’d be sure to ask: Do the compliance officers have the veto? The answer could be a career game-changer.