In the Wake of #MeToo, Should Corporate Boards Hire Compliance Officers?

 
 
Is corporate governance broken? How else to explain the many charges of sexual harassment that surfaced in 2017. James Heskett poses a potential fix.
 
 
by James Heskett

One of the most important global management stories in 2017 was the #MeToo movement, a transparent, global hotline that brought specific charges of sexual harassment, especially in the workplace, to our attention.

High-profile accusations of gender bias and sexual harassment in Silicon Valley, in the worlds of entertainment, athletics, media, and government drew our attention to the issue. They also raised questions about why some of these practices had been covered up for so long. In some cases, the charges occasioned firings, resignations, and political losses.

Of course, the misbehavior was not confined to sexual harassment. It included activities occasioned, in some cases, by pressure to meet profit goals or suffer severe consequences. The behavior occurred in spite of efforts, such as the creation of reporting hotlines and ombudsmen, to expose and respond to it. It raised questions about how much was known in leadership ranks about what was going on. Inevitably, as it always does, it raised questions about why directors with ultimate responsibility didn’t know more and act sooner. As someone with experience on more than a dozen for-profit boards, I understand why directors find it so difficult to acquire enough knowledge and information to carry out their duties to various stakeholders.

There was a time, of course, when it was generally believed that directors had just two primary responsibilities: ensuring the organization was led by an effective CEO and generally representing shareholders’ interests. The CEO was a filter between the organization and the board. In many organizations, the CEO chaired the board and played a key role in selecting new board members. There was an implicit presumption of trust among the CEO and board members. At least a limited kind of camaraderie was thought to be essential among the leadership and the directors of a company.

Those fearing dysfunctional behaviors resulting from that kind of camaraderie have advocated the creation of the independent board chair, whether or not the CEO is a board member. But the dysfunctional behaviors apparently have continued without the knowledge of independent chairs, even with the existence of such things as confidential hotlines. (For example, Wells Fargo, the poster child for dysfunctional behaviors in recent months, has an independent board chair.)

Employees in need of their jobs have been afraid to report dysfunctional behaviors, even when they themselves are directly affected. Others who have reported issues have been disciplined or even fired after their complaints have been lodged “confidentially.” Trust has suffered among employees, customers, and suppliers alike.

This prompts the question of whether boards should hire compliance officers with independent status reporting directly to them. [The idea is not new. It has been employed among some financial organizations. The US government has an Office of Compliance, an “independent, non-partisan” agency.] The purpose would be to facilitate knowledge of what is going on in the organization.

It might be argued that this could damage the bond of trust among leaders, a situation where management might shield the compliance officer from information, or even a case where the CEO and compliance officer might develop a cozy relationship. On the other hand, an added window into the workings of the organization, similar to that often provided by the chief legal officer reporting the status of legal cases, would be available to the board. The existence of the compliance officer could provide assurance to potential whistleblowers and plaintiffs that their information would not be held against them, thus encouraging more reporting, for better or worse.

Should corporate boards hire compliance officers? What do you think?

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