CEB Survey Provides Benchmarks for Compliance and Ethics Programs

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By Susan Bokermann

Nov. 5 — “The state of the compliance and ethics function is strong,” said Ronnie Kann, managing director of legal risk and compliance for CEB during a Nov. 4 webinar providing highlights from CEB’s survey, “The State of the Ethics and Compliance Function.”

Speakers at the webinar discussed the portion of company budgets allocated to compliance programs based on industry and staff size, the wide range of activities in which compliance programs are participating and the shift in compliance priorities during the last two years. In addition, the webinar touched on the benefits of strong compliance programs for shareholders and the ways in which a compliance program can prove its effectiveness.

The Corporate Executive Board survey is the largest and most comprehensive compliance and ethics program benchmarking survey for Global 2000 companies, according to the company. Participants included more than 300 companies across multiple industries. Twenty-one percent of companies surveyed have annual revenues of $30 billion or more, while one-third have less than $3 billion. About 25 percent of the companies surveyed have more than 50,000 employees, while about half have more than 20,000 employees. More than one-third of the companies surveyed are headquartered outside the U.S.

Top Priority Shift

Compliance and ethics programs are being asked to do more and are involved in a wider range of activities, Kann noted. The survey distinguished 16 different activities in which compliance and ethics programs participate, including code of conduct development, investigations and review of new business strategies, among others.

According to the survey, in 2014, monitoring third-party controls and ethics risk monitoring are the top priorities. This is a move away from enforcing policies and procedures, which was the top priority in 2012.

The Size of Compliance

In other findings, Kann said the average compliance budget “is growing, although our allocations have remained relatively constant over the last two years.” He said that regulatory intensity and the number of countries in which a company does business drive both budget and staff size for compliance programs.

During 2013-14, ethics and compliance program budgets ranged from $8.35 million in the banking and financial services industry to under $1 million in the utilities and retail industries. The all-industry median for compliance budgets was $1.86 million.

The median number of full-time compliance employees in 2013 in the banking and financial services industry was 42 employees. The insurance industry median was 136 employees, while the manufacturing and automotive industries median was 4.5 employees.

As compliance budgets continue to grow, Kann urged companies to ask themselves, “is this really how we want to spend our time?”

He emphasized that “although there aren’t many of us, we are mighty, and we are in fact driving the organization forward.”

Program Effectiveness

“If you’re doing well now, why do you need to do more?” asked Jimmy Lin, vice president of product management and corporate development at the Network. He emphasized that strong compliance programs have “greater impact outside of purely just a risk and compliance mindset, but really increase the shareholder value.” He said that “being able to show the board [and] other C-level executives that this is the type of workload that is being taken on by the compliance department” is important for program effectiveness.

To determine optimal workload, Lin said compliance programs need to evaluate as many data points as possible. He urged companies to include all ethics and compliance activities, activities that may lie outside ethics and compliance, and to work with other areas of the organization to identify existing metrics. Areas of cooperation are indicators of an effective compliance program as well.

Lin said people are thinking about compliance issues more than they have before. He noted that call centers, hotlines and exit interviews are good places to gauge “soft metrics” about compliance and ethics programs.

Kann explained that the “value [of the survey] will come with what you do with this information” and encouraged companies to try to “see themselves in some way in the data.” The purpose of the survey is to create an “apples-to-apples comparison,” he said, suggesting that companies use the information to benchmark their own programs.

To contact the reporter on this story: Susan Bokermann in Washington at sbokermann@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

A preview of the survey is available at http://www.executiveboard.com/exbd/form-pages/legal-risk-compliance/SCCE+Campaigns/FY14-Q3-09-LRC-CELC-SCCE-StateOfTheFunction.page.