The CCO need not be despised or feared. He or she has a job to do, and the firm, as a regulated entity, must foster an environment that allows that job to be accomplished in a timely and effective manner. In my experience, some CCOs do lack the necessary interpersonal skills to be effective—commanding respect rather than earning it, demanding rather than asking. Sometimes a little honey is more effective than the sword. Regardless of the CCO’s style, the role is critical to the firm’s success, especially when measured by regulatory exam readiness and how well the firm avoids, addresses or resolves potential client complaints and regulatory issues.
So, how can management foster a good working relationship with the CCO, and between the CCO and the firm’s employees? Two recommended actions:
Convene regular staff meetings at which compliance-related issues are addressed. Senior management should attend these meetings to establish and reflect the compliance tone at the top. The CCO should lead the compliance portion of the meeting, and management should support the CCO’s discussion and recommendations, making clear that it intends to follow them. It is prudent for the CCO to share his or her agenda with senior management prior to the meeting so as to remove the element of surprise.
Establish a compliance calendar or checklist. I prepare these very important documents for firms when I conduct on-site compliance reviews. Sounds like a pretty mundane document, but nothing could be further from the truth. It should reflect the firm’s compliance protocol and day-to-day operations. If done correctly, it serves three very important purposes. It provides the roadmap to address critical issues relevant to the firm’s operations per the current SEC examination. If acted upon, it demonstrates an internal controls process for the regulators during the examination process. And for senior management, it acts as a proffer for discussion with the CCO to confirm that necessary compliance-related tasks are being completed. By so doing, senior management can better discharge its duty to verify that the CCO is timely discharging his or her obligations.
By undertaking the simple but important steps listed above, senior management can foster a much better working relationship with its CCO and between its CCO and employees.