Should Your Board Include a Chief Ethics & Compliance Officer? The Case for Adding a CECO to the Board

Does your company’s board of directors include a chief ethics and compliance officer (CECO) from another organization? Odds are that it doesn’t, but perhaps it should.

Even in industries where compliance programs are mandated, there’s no requirement for corporations or other organizations to have board members whose “day job” is being a CECO or other high-ranking compliance official elsewhere. (Note that this discussion includes retired CECOs, as well as currently employed ones.)

There is, however, a good basis for believing that such a step would be met with approval when it comes to dealing with regulators and enforcement officials. The US Justice Department’s standards for evaluating compliance programs do include assessing whether a company’s board of directors has “sufficient compliance expertise.” Appointing an experienced outside CECO would clearly meet this standard and, in turn, would likely strengthen the standing of the company’s own CECO.   

In addition to contributing to the compliance expertise of the Board, a CECO on the Board would also likely enhance the clout, independence and resources of a company’s compliance program. Each of these essential attributes would be well served by having a CECO among the company’s directors.  For example, having a CECO at this level would likely help in encouraging the reporting of suspected violations and in ensuring that the most serious allegations are appropriately escalated. A CECO could also assist in ensuring that  the board exercises oversight of the company’s mission critical compliance risks, in accordance with their fiduciary obligations, as recognized under Delaware corporate law. 

Concerns Regarding Expert Directors

We do note that some have expressed concerns about expert directors. A recent post in the Harvard corporate governance blog (about expert directors generally – not just CECOs) asked:

“does the board need deep, technical expertise. Since boards have a finite number of seats, the question of whether a seat should be filled with someone who has only deep, technical skills but not broader business acumen is one that is determined by each board based on the company’s industry, strategy and risk profile. The board must strike the right balance of the skills it needs based on the various topics it oversees.

“Adding a director with deep but narrow skills poses two key risks:

• The director may struggle to contribute to other board agenda topics. In this case, the candidate should have both specialist knowledge and broad business and leadership experience to contribute meaningfully to other areas of board oversight.
• With an expert on the board, other directors may be less willing to voice their opinions on the subject. Ultimately, board decisions are the responsibility of the entire board, so all directors need to consider how they are upskilling themselves to gain understanding and actively engage in decision-making.” (Board Composition: Building Your Dream Team  by Paul DeNicola, Barbara Berlin, and Carin Robinson)

While this concern might apply to an expert on topics like designing advanced microchips, it does not fit the nature of CECOs and their work. A first point of understanding is that the CECO role is not the practice of law; it is the practice of management.  A CECO works to reach every person in the business and every one of its operations and activities, anywhere it does business.  C&E issues occur in every part of a business and affect every employee, manager and officer.  Moreover, a CECO must have the ability to learn quickly about new topics because the C&E scope covers everything the business does. 

Regarding deference to expertise, we do not see a risk that board members or officers will be reluctant to challenge issues of compliance and ethics.  We have not yet found a board unwilling to challenge anyone’s assertion of expertise in what it perceives as issues of right and wrong.  With respect to legal issues, the company’s general counsel will be seen as the expert in that area. So while a CECO needs expertise in the elements of an effective compliance program, we do not see any credible threat that other senior people will feel out of their depth in challenging issues in this space. While this may happen for board members with narrow expertise in technical areas, we have not seen this phenomenon in C&E.  It is also worth noting that the company will already have a high-level expert in this field – its own CECO.  So, it will have an inside expert if an issue arises. 

A Strategic Decision for Stronger Governance

Many companies already have internal compliance expertise in their own CECOs. Adding an external CECO to the board would provide a complementary perspective—bringing independent insight, reinforcing accountability, and strengthening compliance culture at the highest level.

Ideally, CECOs are highly motivated, quick learners, experts in how to manage people, deeply knowledgeable about business risks and controls, and willing to speak up when necessary – all important characteristics for members of a corporate board.