A Board Resolution for Your Compliance Program – An Example

In Edition 49 of Ideas and Answers, Rebecca Walker explained in very compelling language why companies should have a board resolution recognizing and empowering the compliance and ethics program. In this piece I offer an example of a board resolution to achieve this objective. 

This resolution is designed to achieve several objectives.  It empowers the chief ethics and compliance officer (“CECO”) and establishes that the board, not management, determines what happens to the CECO.  Certain reporting to the board is mandatory, including allegations against the executives and any allegations of retaliation. It is designed to prevent anyone trying to get around this responsibility;  thus, for example, there is no “materiality” threshold. But notifying the board can be as simple as an email to the chair of the Audit Committee.

I welcome any questions from our readers. Here are just a few notes about the resolution.   

The paragraph giving the Audit Committee the right to retain outside experts is taken from the Sarbanes-Oxley Act. The same is true for item 6 in the section addressing the role of the CECO. 

The provision addressing the Board’s Compensation Committee is an excellent idea I read some time ago in a draft ALI Principles document. It helps ensure your compliance program includes important coverage of incentives – one of the minimum requirements under the Sentencing Guidelines standards. 

In the section addressing the role of the CECO, item 5 provides full access to data.  This is key to meeting DOJ’s expectation that the CECO will use data analytics as part of the program. 

The resolution provides that the SCCE code of professional ethics applies to all the compliance professionals in the company. This gives power to those standards, which in turn help protect compliance professionals when they stand up for what is right. They are not legally binding on anyone, but a company can simply adopt them as a standard for its compliance professionals.  I recommend reading it to see how empowering it can be for you. (Rebecca and I were both co-authors). 

The last paragraph is a reminder to all that while the CECO is responsible for the Compliance and Ethics Program, all employees and managers of the company are personally responsible for the program being successful.

Example Board Resolution

RESOLUTION ADOPTING COMPLIANCE AND ETHICS PROGRAM

WHEREAS, this Corporation has, from its beginning, been committed to integrity and responsible conduct, and to service to its community; and

WHEREAS, this Corporation is committed to conduct itself with the highest integrity  and in compliance with all laws, and to help its members to understand the requirements of those laws which apply to the Corporation; and

WHEREAS, the Corporation has been assessing and enhancing its efforts to ensure adherence to these principles, and wishes to consolidate these efforts into one program;

NOW, THEREFORE, BE IT RESOLVED, that this Board hereby endorses those efforts and adopts as the highest policy of this Corporation, in the United States and abroad, a diligent compliance and ethics program (the Compliance and Ethics Program), under the direction of a Chief Ethics and Compliance Officer to be elected by this Board;  and

BE IT FURTHER RESOLVED, that it is the policy of the Corporation to be a good citizen corporation, to cooperate in government investigations of wrongdoing, to make appropriate voluntary self-disclosures of violations of law, as determined by the Chief Ethics and Compliance Officer with the advice of the General Counsel, and to remedy any harm caused by such wrongdoing; and

BE IT FURTHER RESOLVED, that the Board hereby delegates to the Audit Committee of this Board responsibility for oversight of the Compliance and Ethics Program including participation in the annual evaluation of, and setting of compensation and incentives for, the Chief Ethics and Compliance Officer, and the Audit Committee shall give a detailed, annual report to the Board on the progress of the Program and plans for its future activities; and

BE IT FURTHER RESOLVED, that the Audit Committee may retain such legal counsel, accountants and other experts as it deems appropriate to assist in its oversight of the Compliance and Ethics Program; and

BE IT FURTHER RESOLVED, that the Compensation Committee of the Board in determining compensation and other incentives for any executive or officer of this Corporation shall take into consideration that person’s commitment to and support of the Compliance and Ethics program;  and

BE IT FURTHER RESOLVED, that ______________________________ is hereby elected as the Chief Ethics and Compliance Officer for this Corporation, to serve in that position until a successor is elected by this Board.  The Chief Ethics and Compliance Officer, as an executive officer of this Corporation, shall have operational responsibility for the Compliance and Ethics Program and shall have the authority and responsibility to take all appropriate steps deemed reasonably necessary for the establishment and operation of the Compliance and Ethics Program, including:

1. Working with all members of the Corporation to establish a program that is diligent, meets or exceeds industry practice, fosters the highest ethical standards, is effective in preventing and detecting violations of law, and meets or exceeds government standards including those set forth in the United States Sentencing Commission’s Organizational Sentencing Guidelines;
2. Delegating to others in the Corporation responsibility for assisting in implementing the Compliance and Ethics Program;
3. Providing a detailed report on the Compliance and Ethics Program at each meeting of the Audit Committee, including training, discipline, incentives, development of standards and procedures, compliance auditing and monitoring, changes in Compliance and Ethics program personnel, reports of misconduct received through the reporting system, the handling of conflicts of interest, and any government investigations that may involve the Corporation;
4. Communicating personally to the Audit Committee and, as appropriate, to the Board (A) promptly on any matter involving criminal conduct or potential criminal conduct, and (B) no less than annually on the implementation and effectiveness of the Compliance and Ethics Program;
5. Having full and prompt access to all data and information as that officer shall consider to be appropriate for the functioning of the Compliance and Ethics Program;
6. Establishing procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls, or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and
7. Informing the Chairman of the Audit Committee of any allegations of misconduct involving any senior official of the Corporation, prior to the disposition of any such allegation, any instance of retaliation or threats of retaliation against anyone reporting misconduct, and any instance when a recommendation of the Chief Ethics and Compliance Officer has been rejected or not followed; and

BE IT FURTHER RESOLVED that the Chief Ethics and Compliance Officer and all other compliance professionals working with that officer shall be bound by the terms of the Society of Corporate Compliance and Ethics’ Code of Professional Ethics for Compliance and Ethics Professionals; and

BE IT FURTHER RESOLVED that all actions previously taken by any officer or director of the Corporation prior to the date of these resolutions in connection with the actions contemplated by these resolutions are hereby ratified, confirmed and approved in all respects; and

BE IT FURTHER RESOLVED, that the ongoing success of the Compliance and Ethics Program, and the Corporation’s commitment to ethical conduct, is the personal responsibility of each manager and employee of the Corporation, and no other objective shall have a higher priority.

Download this example as a Word document