Brett Ingerman, DLA Piper

One of the more unusual compliance pressure tactics of 2018 is likely to affect companies increasingly in the New Year in what attorney Brett Ingerman calls a collective “consumer regulatory risk.”

“You won't see it in any survey, but I've had a number of conversations with chief compliance officers recently who are accounting for this new consumer regulatory risk,” said Ingerman, managing partner of the Baltimore office of DLA Piper.

“They explain that consumers have become yet another regulator that businesses have to deal with, ” he said.

As an example, Ingerman cited the group of New York consumers who joined on social media in the #deleteUber campaign, an effort to convince riders everywhere to drop their Uber accounts. The campaign was sparked by labor and political issues but quickly spread to include other factors.

And it's not just strictly consumers. A related example is the #MeToo movement that has forced companies and law firms to deal with gender wage disparity, discrimination and sexual harassment and abuse.

Another example from Ingerman was the group of Harvard Law School students who launched a boycott of Kirkland & Ellis during the summer associate recruiting cycle over the law firm's then-forced arbitration policy. Kirkland & Ellis eventually did away with the pacts for all associates and non-attorney employees.

Ingerman, who also serves as co-chair of DLA Piper's global governance and compliance practice, said the group compliance pressure tactic is a trend he expects to continue through 2019, especially by consumers, “creating a new risk in an attempt to drive corporate behavior.”

Another growing trend to watch, he said, is the return of the compliance function to the in-house legal department. For years, he explained, the “pendulum was swinging the other way,” with compliance moving out of legal.

The recently released 2018 DLA Piper Compliance & Risk Survey shows that more than 50 percent of the participating chief compliance officers were reporting to the company's general counsel or chief legal officer. In contrast, less than 35 percent reported to legal in 2017, the survey said. 

“The pendulum is swinging back, and I do think it will continue in 2019,” Ingerman said. “That may not be true in certain heavily regulated industries, such as health care or financial services, where there are requirements by the government that certain compliance functions be outside the legal department.”

Ingerman explained that regulators see a possible conflict because they believe the purpose of the legal function is to defend the company, while the compliance unit must be independent to assess and mitigate risks.

He disagrees with the government's view. Both the CCO and the general counsel are paid by the same company, he noted. “And there is a blurred line sometimes between what is a compliance risk and what is a legal risk,” he added. “Personally I think that the compliance function is better managed in legal, or closely linked to legal.”

Other notable 2018 compliance trends that Ingerman expects to continue into 2019:

• A growing number of chief compliance officers who worry about personal liability. He links the concern with the increased amount of international merger and acquisition activity in recent years, especially in high-risk countries like China. “In that context,” he explained, “the CCO is charged with major obligations of identifying significant risks upfront, and then integrating the two compliance programs to make sure there are no gaps. I think as long as the M&A activity continues next year, you will see their concern for personal liability continue as well.” In May 2017, for instance the federal government reached a settlement with Thomas Haider, the former chief compliance officer of MoneyGram International Inc., on civil charges that he failed to stop money laundering activities. He was fined $250,000 and barred from working in compliance at a money transmitter for three years. 

•  An increased use of technology in the compliance function. Ingerman was surprised that the survey found some 74 percent of companies still were not using compliance technology. But the number is growing, “and there's no doubt there will be a growing use of technology in 2019,” he said.

•  An increase in the frequency of compliance reports to the board of directors. Ingerman said three years ago or so, a CCO's report to the board was done annually at most companies, but “now we see that quarterly reporting to the board has become standard.”

• A growing number of boards that add a director with compliance expertise. He said this director “is charged with educating the board generally and drilling down with senior management on compliance issues, making directors more comfortable that compliance is being met.”

In this third annual survey, DLA Piper said it found that companies continue to value compliance and to up their investment in resources for CCOs and their teams.

 

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