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By Yin Wilczek
June 17 — In a surprise finding, a new study suggests that those who act both as general counsel and chief ethics and compliance officers head more effective compliance programs than dedicated CECOs.
This runs counter to the current thinking—held by leading ethics and compliance organizations and some regulators—that the positions should be independent to prevent conflicts of interest.
According to LRN's 2015 Ethics & Compliance Effectiveness Report, issued June 17, while dedicated CECOs and dual GC/CECOs have roughly similar compliance-related outcomes, dedicated CECOs are far more likely to run into negative results.
The survey also found that employees in GC/CECO-led programs are more likely to use the company's code of conduct. In addition, programs led by GC/CECOs are doing substantially more training and in more effective ways, it found.
This is the eighth year that LRN has released its findings and the third in which it has used its Program Effectiveness Index—a system that identifies the factors most commonly associated with effective ethics and compliance programs, and assigns scores to companies based on the factors. The 2015 report polled more than 250 companies in a variety of industries.
The effectiveness of GC/CECO-run programs is not due to better funding or staffing, the study continued. It noted that while GC/CECO total program budgets average $103 per employee, dedicated CECOs are spending more than $188 per employee on average. GC/CECO programs also have just 1.6 full-time employee (FTE) per thousand employees on average, compared to dedicated CECOs’ staffing level of 2.8 FTEs.
The study suggested two possible reasons for the effectiveness gap. The first is that GC/CECOs are far more likely to focus on building ethical culture compared to dedicated CECOs, who are more likely to view their primary mandate as ensuring employees comply with rules and regulations. The second is that GC/CECOs appear to have more management support and operational access than do dedicated CECOs.
In the meantime, “all signs point to further separation of the GC and CECO roles, a trend as sensible as it is inevitable,” the study added.
The study suggested that to increase their effectiveness, CECOs should adopt the GC culture, which should serve to close the gap over time. “In this light, building stature and cultivating key relationships may be seen as one of the dedicated CECO’s most important tasks, and the key to higher impact programs.”
In other findings, the study confirmed that more organizations are structuring their compliance programs to report directly to the chief executive officer. While reporting to the GC remains the most common framework, “it is no longer true of a majority of programs,” the study found.
The study also found that programs where CECOs report directly to the CEO or to the board are “noticeably more effective” than those reporting to the GC. This makes sense given that “leaders reporting to the CEO, one level higher on the org chart, will have more of the support, resources, and clout vital to driving actual program effectiveness.”
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The study is available at http://pages.lrn.com/the-2015-ethics-and-compliance-program-effectiveness-report.
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