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Compliance expertise on the board of directors

Tom Fox | April 17, 2017

Compliance expertise on a board of directors is becoming a topic of much greater public debate. The recent corporate scandal involving Wells Fargo speaks to the direct need to have both compliance and ethics expertise on a public company board of directors. The failures of the Wells Fargo Board were laid bare in the recent Independent Directors of the Board of Wells Fargo & Company Sales Practices Investigation Report by the law firm of Shearman & Sterling.

The Wells Fargo Board failures were both on the strategic and tactical levels. On the strategic level, there was a failure by the board to comprehend how the impossible sales goal of eight Wells Fargo banking products per customer created the toxic culture the bank engendered with its employees and customers. On the tactical level, the board accepted clear misrepresentations by bank senior management when tough questions were asked after the scandal was made public in both newspaper reports and in a civil lawsuit by the City of Los Angeles.

Hui Chen, the Justice Department compliance counsel, has continually talked about the need for companies to operationalize their compliance programs. Having a board member with specific compliance expertise, heading a board-level compliance committee can provide a level of oversight and commitment to achieving this goal. It will not be long before the Justice Department and SEC begin to require this step in any FCPA enforcement action resolution. This means that when your company is evaluated by Chen, under the factors set out in Prong Three of the FCPA Pilot Program, to retrospectively determine if your company had a best practices compliance program in place at the time of any violation, you should have specific subject matter expertise on the board and on a board committee dealing with compliance and ethics.

If Wells Fargo had created such a board committee perhaps, someone would have provided the oversight, which was clearly documented as missing in the Shearman & Sterling report.