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The New Pressures on Compliance Officers

Matt Kelly | February 2, 2009

Last week, I had the pleasure of moderating a roundtable forum in New York on supply chain compliance, and the debate turned to a theme I often hear at these discussions: How far should your compliance program go to please government regulators?

On one side were the realists, arguing that no compliance program can stop all misconduct, so you simply need to demonstrate that your program makes a competent and good-faith effort. Then there were the cynics, arguing that government regulators will use any incident of non-compliance they find to wring some sort of concession out of you, so you need to catch them all.

Spoilsport that I am, I decided to rain on the parade of both camps. Regardless of whether you believe in trying or catching, I asked, how does your budget for that look these days?

That was actually a rhetorical question. We all already know the answer, which seems to range somewhere from “ugh” to flagging the bartender for a double whiskey.

Now let me rain on the parade even more. Regardless of what camp you’re in, or how your budget looks, the regulators are coming for you.

Last month two powerful senators—Chuck Schumer of New York, and Richard Shelby of Alabama—filed the Supplemental Anti-Fraud Enforcement Markets Act, a $110 million dollop of spending for 500 more FBI agents, 100 enforcement lawyers at the Securities and Exchange Commission, and 50 more assistant U.S. attorneys at the Justice Department. Another senator, Claire McCaskill of Missouri, has filed legislation to cap executive compensation at $400,000 for any company taking federal bailout money. Sens. Carl Levin and Charles Grassley, from Michigan and Iowa, respectively, have filed legislation to regulate the hedge fund industry.

And we haven’t even started the reforms and new regulation from the Obama Administration, which is still tied up on the stimulus bill.

I suspect the new high-value skill for chief compliance officers in 2009 will be negotiation ability—because you’re going to do a lot more of that, as emboldened, empowered regulators stare across the table at you and your drum-tight budget. Maybe you’ll need to bargain with some enforcement attorney to demonstrate that your compliance program has worked as effectively as possible with the dollars you have; maybe you’ll need to tango with the CFO and the audit committee to get more money for compliance. Either way, you might want to visit the library (I’m assuming the bookstore budget has been cut, too) and pick up a copy of “Getting to Yes.”

You’ll certainly be hearing a lot of “no” from the boss and the regulators for the next few years, that’s for sure.