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Compliance Management And Board Of Directors’ Role In Compliance And Ethics

Compliance Management and Board of Directors’ Role in Compliance and Ethics

Hypervigilance rules the day when it comes to a board of directors’ role in compliance and ethics matters. If your board members are not familiar with the terms duty of care, duty of loyalty and duty of obedience, they are probably not fulfilling all of their fiduciary responsibilities.

Board members need education on the principles of their duties to alleviate potential exposure to liabilities that could harm the organization’s finances or reputation. A good compliance management system goes a long way toward compliance management and ethical responsibility. Today, more boards are opting to let compliance management software do much of the work for them because it is faster, more accurate and mobile friendly.

Board Members Have Fiduciary Duties

Board officers and board members have fiduciary responsibilities under state and common laws. Fiduciaries must adhere to three hallmarks of good governance: duty of care, duty of loyalty and duty of obedience.

The fiduciary responsibilities of board members transcend administration, investment, monitoring and property distribution, which pertain to the charitable and public assets of the company. Board members are also responsible for intangible assets such as the reputation of the company and its role in the community.

In covering your bases regarding ethics and compliance matters, two good references are compliance case law and best practices for good governance. In choosing to overlook either of these references, board members place their company or organization at serious risk. The Organizational Sentencing Guidelines (OSG) set the rules and sentencing guidelines that form the basis for punishing organizations for crimes. Boards may face any number of legal issues, including civil monetary penalties, litigation, formal enforcement actions or even criminal charges.

What Does Case Law Say About Compliance Management?

Case law for good governance began in Delaware, which is the home of many large corporations. Judges ruled that board members must put forth a good faith effort to have compliance measures and that they must have a process in place for bringing new or emerging compliance matters to the board in a timely manner.

What Do Good Governance Best Practices Say About Compliance Management?

Best practices for good governance hold that all board members should understand the legal meaning and obligations of their fiduciary roles. Board members should spend time during board meetings discussing practical examples of issues that similar entities are facing. A good way to do this is to watch the news and to bring timely and relevant topics to the board to practice “what if…” scenarios.

Which Areas of Compliance Does the Board Need to Take Special Notice Of?

If there were a few simple things that you could do right now to protect the interests of your organization and the rest of the board, would they be worth your time and effort? You don’t want to wait until after the fact to decide whether you have done all that you could to prevent a serious risk at an unknown future point in time. Each board member should keep compliance measures at the forefront of their goals, as well as at the forefront of the organization. Doing everything possible to prevent risk is the benchmark of whether their efforts are successful, according to potential legal standards.

If you don’t know where to start, take a detailed look at these four areas to strengthen your board and limit your potential risk:

  1. Compliance and Ethics. Evaluate and assess the scope of your compliance and ethics policies. Ask if your board members, managers and employees are compliant with laws and policies in all areas.
  2. Key Policies and Procedures. The board approves key policies and procedures. Evaluate your policy statements to see if they are clearly written, consistent, serve the board well in a key member’s absence and can hold up to legal scrutiny.
  3. Aligns Incentives. The board should align its incentives with organizational goals – and not just award incentives based upon financial metrics.
  4. The board should insist on receiving regular reports that reflect key organization compliance and ethics metrics.

How Can Compliance Management Software Help?

Every board needs to have an active compliance management system in place. Many organizations have a manual system whereby their board calendar flags board members to complete such tasks as taking the annual ethics training course, holding the annual audit, conducting board orientation and performing other pertinent cyclical tasks.

There are risks to using a manual compliance management system. It’s hard to read handwritten notes. The board member assigned leaves for vacation and forgets about an important duty. Other important tasks may be overlooked when a board member who is responsible for certain required tasks is ill or takes a leave of absence. Unless multiple board members actively monitor the board calendar, essential matters may fall through the cracks.

Boards are increasingly using software programs to ensure that their board continually complies with ethics and compliance matters. How does that work?

Compliance Management Software Maintains Ethics and Compliance Through All Cycles

If you’ve served on a board of directors long enough, you know that many of the board’s duties are cyclical in nature. It’s easiest to manage ethics and compliance issues when you break them down into three cycles:

  1. The meeting cycle
  2. The annual board cycle
  3. The board development cycle

These are the three areas that BoardEffect uses to help boards make sure that they are adhering to ethics and compliance measures.

Software systems use a dashboard platform that stores important information such as board handbooks, policies, procedures, training programs and the compliance structure. A software system alerts you to the appropriate time to conduct compliance duties such as ethics training, recording board training and monitoring finances. It can also document communications between board members and record responses to consumer complaints.

Compliance management software typically has built-in risk management platforms and compliance safeguards. The dashboard serves as a one-stop portal that gives all members access to policies and documents. The electronic nature of the software makes doing board business extremely mobile friendly. Board members can manage board business on any electronic device from anywhere in the country. Electronic alerts go out to all members, so there is less risk of an important task falling through the cracks during any one of the cycles.

Compliance Management: The Tool Boards Can’t Be Without

Board members have a formidable task ahead of them to stay on top of issues that threaten their personal liability and that of the board. Board members need consistent, high-quality training to strategically fulfill their fiduciary duties. All boards need to have a manual or an electronic system that holds them accountable for addressing ethics and compliance issues. It’s not out of the norm for boards to hire outside consultants to evaluate their compliance measures and to ask for feedback for adjustments.

In these changing times, the tool that boards use for managing compliance is less important than actually doing it. It’s worth considering that compliance management software has the capability to do much more than address compliance matters, which gives it a slight efficiency edge over manual compliance management systems.

Jeremy Barlow

Jeremy is the Director of Digital Marketing at BoardEffect.

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