Culture of compliance begins at the top

”This must be instilled from the highest levels of the firm and followed at every level,” said McCullough. He stressed there is no room for any exceptions. “Enforce the rules equally for all. It’s every important that everyone knows that everyone is on the same level of scrutiny.”

McCullough’s mantra is simple: hire people who work well with the team and don’t take clients who don’t fit in with the culture of the firm.

He used the following quote from Upton Sinclair, an American author, to illustrate the physiology of those who have a vested interest in not grasping the gravity of compliance. “It is difficult to get a man to understand something when his salary depends on him not understanding it.”

Lack of understanding of rules, risks and objectives (of compliance) were some of the issues attributed to the reason why the senior management don’t cultivate a culture of compliance in their organization.

McCullough said it is not that they are not willing to be compliant, but it is the willingness to play a role to set the tone from the top that is lacking. This unwillingness is rooted in the lack of education. “Some education of the senior management would help.”

The role of senior management, he said, is comprised of three vital steps: creating a strong compliance culture, communicating it clearly and living it consistently. “My view is that senior management is effectively a partner with the regulators in ensuring an effective compliance and control structure in the industry.”

Compliance regimes are principle-based and senior management must be actively engaged in formulating compliance policies so that the concepts are appropriately applied. “Compliance is too important to be left to the technicians. Compliance is about the whole firm, not about one department in the firm.”

The greatest weakness a firm can have is a poor compliance culture. “Management obviously can’t supervise every staff member all the time, so the decisions and actions that staff take are largely guided by the culture the management instills,” said McCullough.

The firms, he urged, should strive for the highest level of compliance culture so that “if and when regulators come calling to do a spot check” they walk away with the feeling that “that’s the best firm (they) ever audited.”

He favours practical approach to creating a culture of compliance. “I think it is absolutely important that the firm articulates a culture pertaining to compliance, make sure the CEO owns it, and it gets tested with real case and refined accordingly,” said McCullough pointing out the need for culture creation.

Once a culture is created, it is time to establish it by communicating it clearly. The communication should place the compliance message somewhere between the “whatever” to “be very afraid” extremes of interpretation. When communicated in public, it sends out a clear message that the firm means business.

“The power of publicly stated opinions is a way to help senior management communicate the message clearly. It’s a very helpful construct.”

Communicating it publicly leads to the intended consequence of everyone in the firm living the culture. Rules enforced equally, and communicated clearly, are adhered to loyally.

It is vital that everyone in the organization understands the role of compliance, how it fits in with the firm’s business model, and how compliance contributes to the firm’s bottoms line, he said.

“Hire people who work well with the team, rather than star players,” said McCullough. It is a great way to ensure everyone fits the culture and is heading in the same direction.

(06/14/10)