Ethics Czars in Demand
Self-Policing Requirements Result in New Positions for Experienced Lawyers
Posted Nov 4, 2004 4:59 AM CST
By Terry Carter
Colleagues started looking differently at James A. Nortz last year when he changed jobs and titles at Crompton Corp., a Middlebury, Conn.-based chemicals and plastics maker. He’d been doing environmental law and was a natural choice when the company created the new position of vice president for business ethics and compliance.
Still, Nortz had to explain his new role to co-workers. “I let them know I wasn’t there to run some sort of religious order or save the world, or make it safe for democracy or anything,” Nortz says. “I tried to make it clear that my mission was identical to that of everybody in the company--improve the long-term profitability.”
Nortz didn’t intend to do that by making a product, but rather by reducing legal risks and earning increased trust from customers and shareholders.
Many large companies created such jobs immediately after the U.S. Sentencing Commission adopted guidelines in 1991 that reduced penalties for misbehaving corporations if they had compliance programs.
But the numbers are growing much faster with the greater self-policing demands on companies set out in the Sarbanes-Oxley Act of 2002 and subsequent strictures adopted by the Securities and Exchange Commission and the New York Stock Exchange. So much so that people like Nortz are hot. Just a year after being promoted to his new position at the 5,500-employee Crompton, Nortz was recruited to take a newly created job with the same title at the 28,000-employee Adecco Group, where he started work at its Woodcliff Lake, N.J., office Sept. 1.
The numbers of compliance officers, sometimes called ethics officers, likely will continue to grow steadily as the government keeps increasing the size of both its carrots and its sticks.
The U.S. Sentencing Commission has proposed some sweeping amendments to guidelines concerning corporate ethics and compliance that are expected to take effect Nov. 1 unless Congress says otherwise. The suggested amendments call for directors and executives to take leadership roles in ensuring compliance with laws and regulations, and make it clear that effective compliance programs will be beneficial as mitigating factors for those who still run into trouble.
The job is more strategic than tactical, Nortz says. He used to get lawsuits in his inbox and advise the company on how to handle them. Now, he looks at the compliance management system to make sure it helps the company follow the law and creates an ethical culture.
The joke among those helping companies structure compliance programs is that Sarbanes-Oxley has defined the role in such detail that it might create a working retirement plan for old hands at firms who have been working in this area a long time. “Chief compliance officer is a pasture for experienced lawyers,” says Thomas Wardell, an Atlanta lawyer who probably has more than one offer to come inside himself and do the job.
The architecture for compliance programs comes in two basic forms. In one, the compliance officer is independent and reports to the CEO, the board of directors or both. In the other, the job is inside the general counsel’s office. In that arrangement, Wardell says, it is important that the GC’s office act pretty much as an independent law firm within the company.
“I have no brief for one or the other,” Wardell continues, “but the mood now seems to be to have the compliance officer sitting separately.”
There has been plenty of confusion and false starts in the post-Sarbanes-Oxley flurry of activity. In working with a number of companies, consultant Jonathan P. Bellis of Hildebrandt International has found that many with compliance officers in the general counsel’s office were moving them outside of it and making them independent, and others with the opposite arrangement were going the other way.
“It was simply because they had a problem, and it was not working, and they thought the change might be the answer,” Bellis says.