Not that there’s anything wildly new in it but I think this is a nice overview at CFO.com of WorldCom Whistle-Blower Cynthia Cooper’s ‘lessons learned’. Though perhaps not the heart of the interview, the paragraph that, for me, casts the widest net is where she says,
“The reporting structure for the internal-audit function often presents a conflict of interest that, so far, Corporate America has been content to live with. Many chief audit executives still report to the CFO, who determines their compensation. If we want the most independent internal-audit function possible, internal audit should report both functionally and administratively to the audit committee. The next best option would be for it to report functionally to the audit committee and administratively to the CEO.”
Though Cooper’s comments stand well on their own, there is a parallel issue I have found in the way that many companies set up their Ethics Officer with a similar bind. Contrary to the ways in which such positions are often structured and positioned, the ethics officer needs to be free to report directly to the board at the discretion of either the board or the officer. Even if this is not the exclusive routine, then it at least needs to be possible at any point desired by the ethics officer or board with no opportunity for senior managers to interfere with the request. Similarly, compensation needs to be set up in such a way that it cannot be dependent on feedback that all is well on the ethics front when perhaps that is not actually the case. (Mind you, it is the officer’s duty to walk if they think that their position is compromised to the point where they cannot reasonably do their job. However, it seems crazy for that to even need to be a concern…)
This seems like common sense to me but I continue to hear stories of companies where this is not the way in which things are structured.
If you have an example of where inappropriate structuring of an ethics officer’s position has caused problems, I’d like to know about it for (presumably anonymous) use in an upcoming article. Please be in touch to let me know. Thanks!