If money is power, shops’ growing compliance budgets suggest CCOs are gaining sway across the industry, particularly at a time when other departments are seeing spending cut. Yet compliance chiefs say they feel stuck in the backseat when it comes to driving firm strategy, a new report indicates.
In fact, half of compliance chiefs surveyed by Ignites Research say that their budgets have gotten bigger in the past year, but fewer than one third say they play a role in setting strategy at their firms. (Story continues below table.)
The June 2017 survey yielded responses from 32 companies representing $900 billion in mutual fund and ETF assets. CCOs accounted for three quarters of respondents, while the rest serve as deputy CCOs or general counsel.
Despite budgetary support from the top, most CCOs remain on the fringe when the C-suite meets to discuss new initiatives. Executives view compliance “as something to spend money on, rather than invest in,” according to the report.
Collectively, 90% of compliance leaders who saw their budgets boosted say that their firms did so in response to heightened regulatory burdens and compliance responsibilities created by new tech or business projects. Only 6% say their firms see the function as “strategically more critical,” according to the report, “Boosting the Status of Compliance.” (Story continues below table.)
Bringing CCO and compliance teams into the conversation when planning new business ventures can reap big benefits, in part because shops operate in such a highly regulated environment, says Loren Fox, the report’s author.
“Companies could save time and money by pulling the compliance department into strategy discussions when the strategy is being developed, so that the compliance perspective can help shape a strategy or product from the start,” he says.
But often, compliance ends up providing input either late in the process, or after a new policy gets introduced, earning compliance staff a somewhat unfair reputation for impeding progress.
“Many processes inside an asset manager — from product development to sales strategy to marketing campaigns and more — would benefit from getting the compliance department’s input up front,” Fox adds.
Long-term, it may also help keep budgets in check.
And most CCOs want to help shape the company’s strategic direction. In fact, 63% of compliance leaders say they want to make their department “more proactive and anticipatory,” a response that was tied with increasing their use of data as their top long-term concern, according to Ignites Research.
Right now, however, 47% say they are tasked with implementing strategies after decisions have been made, compared with 13% who contribute to decision-making before a proposed idea becomes formal strategy or policy.
CCOs can elevate their positions within an organization, however, consultants say. And it starts with articulating a clear vision for the role of compliance, and its impact on every other business unit, when a CCO starts in the role, says Dimitri Mastrocola, partner and head of the financial search practice at New York–based Major, Lindsey & Africa.
“The first six months are critical,” he says.
CCOs also need to learn how to “speak the language of the business,” so they can communicate how that plan will benefit other departments and engender trust from staffers in those units, Mastrocola says.
CCOs gain influence when they show they are willing to “push down into the weeds” of the business by communicating with mid- and low-level staffers across the organization to understand what they do and how compliance can help them meet their objectives, says Brian Porter, founding partner at Charles Sterling Group.
“If somebody sits back and isn’t proactive in forming relationships, it will hinder their capability to be involved in the business and be viewed as a business partner,” Porter says. In fact, routinely checking in with each business unit will prevent managers in those units from becoming resentful if they spend a long time developing a new strategy or product, “only to realize they can’t do it once they check with compliance.”
Compliance officers should also learn to speak up when they sit at a table with other executives, says Tom Smith, a senior advisor at BarkerGilmore and former global chief compliance officer for Oaktree Capital Management. Prior to that, he served as CCO of JPMorgan Chase’s Institutional Asset Management and Private Banking businesses.
“Many CCOs are not often voicing their opinion unless it pertains to the regulatory standpoint of how a proposed initiative is going to impact the firm,” he says. Asking questions and pitching ideas on every aspect of the business “goes a long way to showing those at the table that you’re interested, and encourages them to call upon you for further thoughts and guidance.”
CCOs should also leave the home office and check in with any satellite offices or branches to learn specific business concerns or goals of those units. Such discussions can provide staff in such outposts with “opportunities they haven’t voiced before, such as what competitors may be going after that we’re not, and why not,” Smith says.
“With each department, you show you have a great deal of interest and a lot more to add than regulatory knowledge,” Smith adds.
CCOs should also consider whether their tone indicates a willingness to collaborate, says Guy Talarico, founder and CEO of Alaric Compliance Services. “There may be a caution they’re taking beyond what’s really warranted, and they may develop a reputation as being unreasonable or overly cautious,” he says. Instead, CCOs should try to balance their concerns with a realization that “the firm has to make money,” Talarico adds.
Such empathy can help change the perception of compliance from that of a roadblock to that of a partner, Mastrocola says.
“What an effective CCO should want to do is instill a compliance culture across all levels of the organization so after proper training and cultural attunement, everyone will begin acting in ways that are compliant without compliance officers constantly reminding them what to do and how to do it,” Mastrocola says.
“It’s on CCOs to do a better job of not acting like a cop, but as a guide and mentor, and police the business in a way that people will welcome their advice and influence,” adds Justin Mandel, managing director and head of compliance at JW Michaels & Co, an executive recruiting firm that specializes in financial services.
Delegating certain responsibilities to staffers in different business units, while maintaining oversight of those tasks, can help create time for compliance officers to focus on strategy as well, Talarico adds.
“Just because it’s a compliance filing or a compliance requirement doesn’t mean compliance has to be the one operationally or administratively doing the task,” he says.
CCOs should not be shy about communicating their value to the C-suite either, Mandel says.
“In any situation in any company, you have to justify and support why having a seat at the table is good for business, whether that’s helping the business save money, make more money or operate better,” he says. “If you can demonstrate that, there’s no reason you would not have a seat at the table.”