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The Value Of ROI Assessments For Compliance

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The quantifiable value of Sustainable Governance continues to manifest in all organizations where it is implemented.

Increasingly, businesses, investors and individual clients assess businesses based on corporate compliance and governance that promote reliable and sound business judgment and results.

Recently, the Global Impact Investing Network estimated $502 billion assets under management for impact investment. Through ROI assessments, compliance officers can proudly display their efforts to protect their company and address the growing market demand to work with, and invest in, companies with strong sustainable governance and work practices.

Simply put, an ROI assessment is the converse to a risk assessment mandated for AML/BSA, investment advisory, broker-dealer or any other annual regulatory internal control mandate. It quantifies the residual value that otherwise remains untracked outside of the Triple-Bottom Line Compliance paradigm.

Compliance officers can use their ROI assessments to calculate the value of early remediation of gaps that later lead to business wins because of successful prospective client reviews of privacy, data protection, information security or other governance protocols. ROI assessments give credit where credit is due, and strengthen the case for compliance as a competitive advantage.

Compliances does not only exist within companies to protect the markets. It also has quietly added value for years. Through ROI assessments, compliance officers can step out of the background and claim their value.

Beth Haddock is author of Triple Bottom-Line Compliance – How to Deliver Protection, Productivity and Impact, and advocates delivering sustainable compliance that increases brand protection, risk mitigation, productivity, and employee engagement.

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Ask Beth: Competently Courageous Leadership

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Q: How can I develop leadership skills when so much of my work is dependent on others?

A: Think of yourself as a change agent, first and foremost. Motivating people towards Sustainable Governance takes persuasion, empathy and a keen ability to unite people towards a common purpose. For particular members in your organization, this version of compliance represents a significant paradigm shift, one which they may struggle with. In my book Triple Bottom-Line Compliance, I define exceptional compliance officers as “business leaders, strategists and project managers; they are influencers that can get things done.” For introverted personalities whose core competencies rest on data and systems comprehension, this mandate may seem daunting at first. Harvard Business Review; November-December 2018, Cultivating Everyday Courage, James A. Detert, pp 128-135

Luckily, leaders are born and made all the time. In my newest podcast, I discussed this topic with Chuck Garcia, Associate Professor of Organizational Leadership at Columbia University. Chuck routinely speaks to many people who rise to their position from their technical skillset, and need to develop their own leadership abilities. In particular, he emphasizes the importance of good storytelling, over a rote recital of the statistics. “Look at what we do with our personal time. We watch Netflix and Amazon and we go to the movies… yet somehow we think in the executive world that we’re exempt from it.” And above all, he insists, don’t be afraid to fail. “Many of the introverts are able to confront that fear and do so much better than they even thought they were capable of,” Garcia reports

Take the opportunity now with the release of your annual report to put these tactics to use. Don’t be afraid to seek out consultation to improve your communications and business skills – as Garcia told me, all of us have unique lessons to learn in this regard. We compliance officers must embrace the same sort of risk our c-level executives must assume in order to grow their businesses. By doing so, you can begin to grow as a leader and deliver a better ROI on compliance efforts.

Three takeaways from this podcast

  • Facts alone are not persuasive. Add context to add value.
  • Learn the value of storytelling. Show you understand your audience and your content.
  • Don’t be afraid to fail. Seek out help as you need it and take measured risks.

Beth Haddock is author of Triple Bottom-Line Compliance – How to Deliver Protection, Productivity and Impact, and advocates delivering sustainable compliance that increases brand protection, risk mitigation, productivity, and employee engagement.

To receive a concise snapshot of how your current compliance program is serving you, take Beth’s complimentary assessment.

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3-to-1: The Golden Ratio of Sustainable Governance

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To protect your information or your money, you don’t just rely on one source. Instead, most of us use multiple tiers of security for the job, such as personal/private computers and software, keys, passwords, banks and law enforcement if needed. Likewise, as both corporate officers seek to protect their businesses’ reputation and compliance officers seek to effect lasting change, they must prioritize and engage multiple lines of defense.

Many businesses take a short-sighted approach to preventing ethics violations and external investigations by designating compliance and risk officers as the primarily accountable first line of defense. This perspective effectively silos compliance away from other areas and reduces its role to inadequate, reactive firefighting. Rather, a business using Sustainable Governance as a means to increase social and financial capital assigns three lines of defense towards maintaining an ethically efficient workplace. This 3:1 ratio of three defense layers to your company’s unified anti-fraud/ethics obligations will deliver an ROI on compliance resources that minimizes fire-fighting and maximizes business efficiency.

First Line/The Business Itself: All departments in your organization should participate in compliance. Compliance officers may not be the first to witness errors, unethical behavior or faulty product designs (consider the recent SEC enforcement actions on Wealthfront and Hedgable’s non-compliant “robo-advisors”), so everyone across a company should be empowered to act.  This first line of defense should be prepared to engage with compliance; effective training and information is key to that preparation. Training materials should emphasize the personal edge earned when business leaders adopt ethically responsible business practices. Because of this, the primary motivation for employees to perform this defensive mandate will rest mainly on their own self-interest, should the training prove successful. Compliance officers should measure the value and ROI of their efforts and share them with the business leaders they serve. Particularly at this time of year, they should also share annual compliance reports throughout the organization.

Second Line/The Management Tier: Management personnel is the second line of defense. From facilitating cooperation with compliance to self-reporting regulatory gaps and setting behavioral expectations for their departments, they set the tone of enforcement. They should also be trained to perform as deputized compliance officers. My recent podcast with Tom Hardin details how fudge-factor thinking that nomalizes disregard for ethics and compliance can corrupt departments. Managers can counter that with strong incentives when the 3:1 ratio empowers them to do so.

Third Line/The Compliance Tier: This tier includes compliance officers and the internal audit team. With a Sustainable Governance framework, they utilize technical tools and resources to perform their duties, regularly report on the ROI of the compliance program and interface symbiotically with their colleagues in the first and second lines. Once a compliance issue reaches their attention, they can take appropriate action. Compliance take the lead on readjusting the workflow, systems and policies of the first and second lines within this framework. Finally, they can implement engaged training which instructs on defensive procedures that also foster smart innovation and growth.

Beth Haddock is author of Triple Bottom-Line Compliance – How to Deliver Protection, Productivity and Impact, and advocates delivering sustainable compliance that increases brand protection, risk mitigation, productivity, and employee engagement.

To receive a concise snapshot of how your current compliance program is serving you, take Beth’s complimentary assessment.

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Why Due Diligence Delivers a ROI

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An effective, systemically efficient compliance program can offer a competitive advantage for a company by helping it deliver better financial results.

This principle lies at the core of the evolving megatrends of ESG investing and sustainability programs at multinational corporations. Recently, by way of example, Blackrock and State Street Global Advisors’ annual letters to portfolio companies highlighted the value they both place on a company’s good governance practices due to their ability to generate positive returns. This presents an opportunity for Compliance officers to build and develop Sustainable Governance as opposed to technical compliance programs that are outdated in light of this strategy.

As you complete annual reports, regulatory filings and/or testing this month, consider whether you are delivering Sustainable Governance, and if not, seek appropriate guidance so you can lead on delivering better results in the coming year.

Due diligence for new investments or products and services offers an ideal opportunity for compliance officers to provide an ROI for the company and its customers.  In particular, compliance officers can apply Sustainable Governance to great effect on the following aspects of due diligence:

  • Prospective service provider assessments
  • Sales and marketing material reviews
  • Software algorithm audits

In each case, compliance officers that ask the right questions help the company manage foreseeable risks and achieve greater efficiency with its capital. Different regulatory and ethical issues apply to each one of these categories, so exploring both recent enforcement actions and investment trends can guide compliance officers towards crucial insights your fellow employees may overlook.

Investment Due Diligence: In a Fordham Environmental Law Review
article, I and my co-authors Tucker Pribor and Kate Starr stressed the importance of implementing ESG principles into the decision-making processes, and how it newly empowers compliance personnel as key consultants in an organization’s business decisions. Those compliance professionals can perform valuable leadership on due diligence assessments where ethical and operational efficiency concerns overlap, such as the basis for impact claims and the transparency of cost structure. My interview with Professor Cynthia Williams, who recently filed a rule-making petition with the SEC advocating for ESG disclosure standards, gives valuable advice on determining which questions should be asked.

For instance, if an ESG investment includes a guaranteed impact, what is their basis and are there exclusions? Has a trusted third party assessed the claims to ensure their veracity? What KPIs will they use to measure their adherence to their goals?

Sales/Marketing Material: Sustainable Governance-minded compliance officers will continue to scrutinize not only traditional marketing materials but also company-wide social media accounts. Does the promotional material (including RFPs and white papers) accurately depict the products or services made available to customers, particularly retail investors? SEC OCIE enforcement guidelines issued for this year continue emphasis on protecting seniors and retirement savers, so how are campaigns directed to these markets presented? As for social media, who is posting to the company account and what functionality should they have?

AI: Both FINRA and the SEC have acknowledged the ability of robo-advisers to provide low-cost financial advice. However, concerns persist about the ability of these new innovations to perform adequate risk assessment for new investors. Do they recommend investments that are too risky? Are they analyzing the income and debt load of the investor adequately enough to suggest appropriate investments? Some questions regarding robo-advisors also focus on the sorts of questions asked of the investor during the onboarding process. Can the algorithm determine inconsistencies in the client’s responses to the questions, and adjust accordingly? Can customers change their own risk ratings? Does detail on portfolio reports provide transparency, or are they too cursory? The recent SEC enforcement actions on Wealthfront as well as Hedgable rested in part on poorly designed algorithmic procedures – as well as inadequate compliance programs that could have otherwise prevented this enforcement.

Properly empowered to examine business processes, compliance officers using Sustainable Governance will add value and avoid costly errors, particularly for a company’s new products and initiatives. As new innovations are implemented and new demands are made of companies, new questions will have to be asked and answered. Using Sustainable Governance, you as the compliance officer can ensure the results of the inquiry will lead to business decisions that will help your organization grow.

Beth Haddock is author of Triple Bottom-Line Compliance – How to Deliver Protection, Productivity and Impact, and advocates delivering sustainable compliance that increases brand protection, risk mitigation, productivity, and employee engagement.

To receive a concise snapshot of how your current compliance program is serving you, take Beth’s complimentary assessment.

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Leading the Way: How a Fresh Audit of Your Anti-Fraud/Corruption Program Can Pay Unexpected Dividends

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With the rise of AI and robo-advisory firms, not to mention revelatory exposés such as the Panama and Paradise Papers, the surface area of financial fraud and corruption has expanded greatly. These developments necessitate a routine audit of your anti-fraud and corruption program. This audit should not only address the focus of such programs, but their methodologies and tactics. Programs which emphasize punitive measures can prove ineffective, whereas the Sustainable Governance model I have implemented can incentivize good behaviors over bad. In my recent podcast interview with UN Environment Senior Program Officer Niklas Hagelberg, he stressed the opportunities awaiting CCOs and executives to lead on these issues within their organizations.

No one has to wait for regulators to force one’s hand; this work can start right now.

In my recent travels to Kenya, I have seen where the principles of Sustainable Governance are truly universal in their effectiveness. In his bid to reform Kenya’s judiciary system, former Chief Justice Willy Mutunga spoke of his model of “collective collaboration,” one which integrated all stakeholders in the process. These stakeholders possessed diverse and often conflicting motivations, and Mutunga shared how one can work with these motivations to create buy-in to a transparent judicial system. The senior people, in particular, think legacy: what do they want to leave behind? In addition, he also leveraged the country’s legal bar towards his mission.

As I detail in my book Triple Bottom Line Compliance, compliance officers and reform-minded will need to do likewise with their own in-house counsel. Their support is crucial in developing sturdier allegiance to one’s own anti-fraud and corruption initiatives.

Of course, fraud doesn’t always possess a human face. A recent discussion I held with Jasmin Sethi of Sethi Clarity Advisors stressed the need to explore the algorithms automating trading decisions as well, since they are all documented.

The robo-advisory firm Wealthfront was recently fined $250,000 by the SEC for allowing for wash sales within their tax-loss harvesting strategy, in opposition to its public statements. Good compliance audits can spot these discrepancies and rectify them before firms run afoul of the authorities. Make sure you develop a good team, both within and without your team when necessary, with the appropriate technical skill and regulatory experience to determine how your software may trigger an SEC investigation.

Ultimately, a good anti-fraud/corruption program does not overburden one’s team members. Rather, it works hand-in-hand with business objectives by fortifying trust, leveraging smart training and outside expertise as needed. The sooner you put them to work for your own operation, the further ahead you can pull in the global marketplace as well.

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Ask Beth: Why is sustainability and environmental social governance (ESG) important to compliance officers?

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Encourages Gapless Governance

ESG is important in identifying and correcting governance gaps within a given investment since it allows gatekeepers to analyze factors of an investment through a different set of criteria. Gatekeepers shouldn’t rely solely on ESG to judge the health of an investment, they should use it as a tool in identifying any inaccuracies and to confirm that all investment standards have been followed.

Prevents Fraud

It is already an essential responsibility for compliance officers to be proactive with fraud prevention, so why utilize ESG? Principals of ESG are similar in nature and allow compliance officers to assess the credibility of claims through testing the investment’s supporting materials and recorded data.

Sustainability and ESG Improves business decision-making and aids in the overall internal health of a company.

A duty to protect information reinforces an importance to avoid unpredictable risks. ESG teaches compliance officers to adopt a more goal-oriented, systematic approach when maintaining a business’ compliance. With ESG, managing risks become more in line with managing a project: solution oriented, adhering to deadlines, and continually familiarizing themselves with all claims and materials to ensure accuracy and deter fraud.

For more information on sustainability and ESG, review my recent Fordham Law Review Article

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How to Be a Voice of Experience

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You got to where you are today due to your experience. You were hired because of your experience.  How then, will you make that experience count as you provide guidance to key contributors and decision-makers in your organization?

As I’ve addressed in previous posts, developing a network of “Friends of Compliance” who engage in mutually beneficial exchanges of information will help you stay relevant, needed, diligent and more effective overall.

Draw on What You Know and Seek to Know More

Your experience and skill set will be an invaluable asset to your organization; however, like many professional service careers, you will need to keep up with regulatory expectations and norms, industry best-practices and more. Your experience will only be valued if it continues to grow and be added upon.

To protect your “brand” and add value to your organization, you will build on this experience through fostering relationships and connections both internally and an externally. A compliance officer needs to understand industry trends and use that intelligence to develop smart, strategic ways to address challenges.

You can successfully accomplish this by:

  • Being actively involved with your industry – participating in conferences, discussions, groups, etc to keep abreast of developments, expectations and best-practices.
  • Establishing value-add relationship with Legal and risk peers, to seek support and collaboration.
  • Making your involvement with fellow business leaders a priority as you build a network of “Friends of Compliance” (FOCs) throughout the organization help encourage interest, identify red flags and provide candid feedback about your ideas and work.

Make it your mission to help those around you understand the importance of compliance at the executive level and throughout the organization.  Go beyond your compliance experience to understand the drivers of business interests, behavioral incentives, and the importance of relationships. As a compliance officer, you need to know the rules, but that knowledge and its value will increase when you apply this technical knowledge to the inner-workings, motivations, and priorities of the organization you work for. To keep increasing your knowledge, visit Bethhaddock.com

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Prevent The Danger of Silos with Mock Audits

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It’s an easy trap to fall into – becoming immersed in your department’s priorities can be like being engulfed by wheat, corn, etc. in an actual silo.  The result is an inability to see and recognize the other resources harvested at the same “farm.”  When resources collaborate though – they mitigate systemic risks. This is the time of year compliance officers should consider inventorying systemic risks and planning for the year ahead. One approach is to conduct a mock audit to test controls, help breakdown unhelpful silos and adopt best practices, particularly on the higher risk topics.

The Opportunities

Management often does not realize how compliance can contribute to sustainable business growth.  Consider what can happen when compliance isn’t integrated effectively.  If a compliance officer works in an organization where Compliance is not included in strategic initiatives until the last minute when there is not enough time to study the impact of the issues, inefficiencies grow as compliance or independent consultants audit and find control gaps after a new product is designed or new system is launched.  For example, time and money may be wasted marketing new products if a compliance officer is brought in too late to address issues. The product is already baked, so Compliance fixes are more likely to be bolted on instead of baked in. Product developers may not focus on avoiding conflicts of interest, self-dealing, and unfair expense allocations.  Recently, Deutsche Bank offices were searched as part of a money-laundering investigation, in the latest example of an allegedly siloed compliance culture because suspicious activity reports were not allegedly not handled as required.

The dangers of siloed compliance can be avoided with collaborative risk assessments and independent audits of the business including high-risk products and new technology. This approach will arm compliance officers, so they can help grow and sustain the business at the start of 2019. It will also serve as protection against any regulatory investigations into the adequacy of the compliance program.

Changing the Perception and Building Influence

To avoid the inefficiencies and disruptions of silos, the key is for compliance to become an influential participant in the business and develop metrics to illustrate its value-add.  Read my previous post on how to increase influence and play a more integrated role across the company.  Also, learn more about developing your skills and building Sustainable Governance within your organization by visiting www.bethhaddock.com

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Networking: How and Why You Should Engage “Friends” (FOC)

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Trying to do anything of significance unaided is difficult, let alone provide protection, productivity, and impact to an organization. It’s why the most successful compliance officers and departments rely on their relationships in and out of the companies they work for.

Networking is a critical skill – one that will be as crucial to your success as a compliance officer as it potentially was to navigate your career thus far. As compliance professionals, it’s our job to be the “eyes and ears” of the company, prepared to offer preventative guidance and effective solutions when necessary. To do this successfully requires having a comprehensive view and understanding of the industry, business, and relevant stakeholders. That can’t be done alone.

Seek to establish a network of “Friends of Compliance” (FOCs) within your company that will provide diverse perspectives, identify issues – helping you build smart controls, and create effective alliances. Remember, a solo compliance officer will have a tough time making an organizational impact.

Building Your Network

Research shows there is a common behavioral pattern, called a social exchange, that compliance officers can leverage to help build their FOC network. Social exchange theory essentially states that through a series of interactions, employees build a state of reciprocal interdependence, which leads to mutually beneficial trust relationships.

Building this network will not only increase engagement in your compliance program – which will help achieve sustainable governance – these FOC will be able to highlight blind spots, operational challenges, and obstacles that lead to ineffective policies and controls. As you create programs and processes to provide protection, productivity and impact, your FOC will often become a source of information about business perspectives, strategy, and priorities. The result?  This network becomes a secret weapon, boosting diplomacy skills before important presentations or requests for resources. Time spent building an FOC network helps not only the organization, but your reputation as well.

Look at your compliance team as individuals strategically sprinkled throughout your organization, as well as key individuals outside of it. Leverage their different perspectives, skills, priorities, etc., to shape your approach to sustainable governance. Read more in my book: Triple Bottom-Line Compliance

Attorney Compliance

Year-end Planning and Examining the Attorney-Compliance Relationship

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As I discussed in a previous post, the relationship a compliance officer has with the company will be different than the one an attorney has with the same company. Attorney communications are private and protected and focused on protecting the company as the client. A compliance officer’s communications and self-critical analysis of the company and its controls do not receive that same protection or single focus. This is a distinction that is important to understand as enterprise risks are managed and year-end testing is completed.

If collaboration is leveraged, enterprise risks can be efficiently managed. On the other hand, if the business treats attorneys and compliance officers as they treat doctors shopping for a second opinion, business development could be delayed as answers are reconciled.  For example, if an attorney is asked about how to expand into a new jurisdiction or whether one can loan money to a client to enable the client to participate in a new opportunity, an attorney may analyze the legal permissions and agreements needed to help the business proceed. A compliance officer may attempt to also help the business proceed but, for expansion into a new jurisdiction, the compliance officer may also consider the timing because the company will need the infrastructure to monitor adherence with local laws and anti-bribery, anti-money laundering (“AML”) and sanctions requirements. When helping the business consider the appropriateness of a loan to a client, the compliance officer will consider whether proceeding with the loan is fair to other clients who may also want the opportunity but weren’t offered a loan or whether the loan raises other conflicts or regulatory issues such as affiliated transactions and disclosures.

As you complete year-end planning, consider how to leverage the collaboration between these teams when completing risks assessments and budgeting for compliance, legal and risks costs in the coming year.

There are several ways compliance and legal can work together for the benefit of the organization to make a long-term impact including treating attorneys as “Friends of Compliance” (FOCs) and understanding that they cannot represent compliance officers if interests diverge.  Learn about these specific situations and solutions for compliance officers by reading Chapter Six of my book, Triple Bottom-Line Compliance here.

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