Where was management in latest high-profile regulatory lapses?
By Beth Haddock
There are the types of ethical and regulatory lapses that are so predictable that we aren’t surprised when we hear about them. We should react, though, because they are avoidable.
Recently, U.S. Securities and Exchange Commission investigations into Wells Fargo Advisors, FINRA investigations into Betterment Securities, and investigations into Nissan’s emissions practices show us that companies continue to have compliance breaches even though they have top management. Why is that?
When you read about each of these situations, you can’t help but ask yourself, “What was management thinking?”
In the Wells Fargo case, the SEC found that the firm generated large fees by improperly encouraging retail customers to actively trade financial products that were intended to be held until maturity. The strategy generated substantial fees for Wells Fargo while reducing customers’ investment returns.
Wells Fargo reached a settlement with the SEC, agreeing to pay back the customers with interest and paying a penalty.
These are the types of issues that management and its compliance officers are supposed to address. But too often, compliance officers find themselves addressing problems after they arise. Instead, they should be given a more active role in the overall organization, anticipating and heading off serious problems before they reach the crisis stage and helping managers who use “fudge factor” thinking avoid poor management decisions.
The time is ripe for management to task compliance officers to take such a sustainable-governance approach. I see three compelling reasons for doing that:
Defense mechanism
Compliance can add more value as proactive risk management instead of passively reacting to laws and rules. The stakes for risk management, particularly in a global economy, are rising.
Rise of technology
Increasingly, technologies such as artificial intelligence, robotics, and data analytics are being used. Organizations must employ level of sophistication; compliance can’t keep up if it is too busy fighting fires.
Increase profitability
Sustainable governance minimizes wasted time and bureaucracy. It also helps bolster a company’s brand. Trusted credibility of a respected management team leads to business growth and success. We see the success of these concepts in ESG and impact investing.
A compliance officer focused on governance adds value as a business leader. Instead of just thinking about technical requirements, answering the questions asked, or putting out the latest fire, the successful compliance officer is improving productivity, processes, and performance. That way, many of those “fires” won’t happen to begin with.
Beth Haddock, CEO and founder of Warburton Advisers, is the author of “Triple Bottom-Line Compliance: How to Deliver Protection, Productivity and Impact.” She has more than 20 years of experience as a compliance and business executive. Her consulting firm provides sustainable governance and compliance solutions to leading international corporations, technology companies, and nonprofits.
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