Culture of compliance starts with informed, accountable directors in the boardroom

Since 2008 and the global financial crisis that accompanied it, corporate board membership in the financial services industry has had an even greater significance than before. Beyond the fiscal, social and corporate responsibility that goes with sitting on a board, it has become very clear that it’s not about being a “yes man” or “yes woman.”
An enhanced level of scrutiny is being applied to corporate boards and their activities in today’s regulatory environment – whether or not the directors realize it. Before making appointments to the board, company presidents and other leaders must recognize the risks they are asking potential board members to assume and make sure that candidates are fully informed that they may be held accountable for the bank’s decisions.

As the CEO of SightSpan, we advise and educate corporate directors on risk management, financial crime, money laundering, terrorist financing, the Bank Secrecy Act, the USA PATRIOT Act and other related subjects. I’ve learned over the years that accountability can be a scary concept for board members. I’ve also learned that great companies have high cultures of accountability.

Responsible, accountable corporate governance is key to an organization’s success. If you’re a member of a corporate management team, a director on a corporate board, candidate for a board membership, or even a corporate compliance officer, there are important things you must know about corporate governance and its impact.

What is corporate governance?

Corporate governance is the framework that supports the efforts of an organization’s executive management and board of directors in doing the right thing regardless of the challenges they must address or decisions they must make. Good corporate governance reduces opportunities for capricious decisions, provides a system of checks and balances between management and the board, and increases transparency in an organization, all of which help prevent the consolidation of authority in the hands of an individual.

The corporate governance movement is a global phenomenon and is resulting in the emergence of a new global business environment. More than ever before stringent and defined corporate governance surrounds boards and their responsibilities. It applies to all companies not just those in the financial services sector.

How to achieve responsible corporate governance

Among other things, a quality corporate governance framework includes educating board members on such key issues as money laundering, terrorist financing and compliance. It also involves assuring active committees at the board level that include audit, compliance and ethics and establishing an agreed-upon level of risk appetite.

If I am the board chairman, I will want to be active in selecting and approving board members who I believe will be active participants, make meaningful and appropriate contributions, and be willing to assume the risk and accountability of a position as a director.

What a potential director should do to prepare to join a board

Before joining a board, a candidate should read and evaluate the quality of the company’s data security and anti-money laundering (AML) policies and practices. He or she should read the company’s last three years of audits and any remediation plans and progress reports, if appropriate. This should give a potential director a good understanding of whether the company has a robust corporate governance infrastructure and a culture of accountability.

A potential director may not initially understand everything put in front of him or her in those documents and should be provided adequate training to be fully prepared to assume the full responsibilities of the new position of high responsibility.

Good board members and boards demand training. If formal training is not provided, directors should obtain the necessary information themselves. If they cannot or are unwilling to do that, they must or should decline the invitation to join the board or leave the board if they are already members. With accountability and corporate governance comes personal responsibility.

How corporate governance intersects with compliance

Excellent compliance is an essential element of responsible corporate governance, and board members have the responsibility to oversee compliance. In large measure, government is now requiring businesses to share the responsibility of assuring compliance as a part of strong corporate governance.

Bank presidents and board members should know there are circumstances in which directors may be held personally responsible or liable for business decisions that are effectively unlawful. For example, financial crime, money laundering, terrorist financing, tax evasion and a host of matters that relate to security of staff and client data and information. The board must ensure that the company complies with all laws and regulations that are relevant to its business.

Moreover, money laundering and threat finance are significant risk factors for any business, but even more so for financial services companies. Financial crime is a growing concern of all economies and nations. Boards of directors and management must review the related issues regularly. They must assure that risk management techniques and universal best practices are incorporated into every area of the business and client management, including transaction monitoring and internal client oversight.

John F. Walsh is a highly regarded industry leader on the subjects of risk management, financial crime risk management, security, anti-money laundering and combating terrorist financing. He is the CEO of SightSpan Inc. and a member of the ACFCS Advisory Board. Read his full bio here.

This post was adapted from an article in PayBefore titled “The Intersection of Corporate Governance and Compliance: Helping Your Directors Fulfill Their Responsibilities,” which may be accessed here (subscription required).