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Risk Management

How To Work With The Board & Management: 6 Tips From A Top Compliance Officer

May 26, 2020 | Posted by Michael Berman
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3 Minute Read

Grant Jex once worked in a bank where having sufficient compliance resources was a constant battle. Some in management were familiar with multi-billion-dollar banks that operated with just two or three compliance officers in a pre-Dodd-Frank environment. They saw no reason why a smaller institution would require more compliance staff than a large one.

Jex tried to explain how Dodd-Frank had changed the compliance landscape, but change was slow in coming. When compliance examiners came to the bank, sufficient compliance resources were cited as one of several issues needing immediate attention. Although the board made appropriate changes and was supportive of improving the overall compliance culture, it was an uphill battle to correct past compliance problems.

Today Jex is the vice president of risk management at $500 million-asset Prime Alliance Bank in Woods Cross, Utah, where management and the board are not only receptive to compliance, they are willing participants in establishing a proper culture of compliance. He has the resources he needs.

Here are 6 of his top tips for working with the board and management:

1. Request a seat at the table

Access to the board and management is so integral to compliance that it’s a requirement for any job Jex takes.

“One of the things I insist on when joining an organization, and I guess this comes with 37 years in the industry, is that I have a seat at the table in terms of executive and board meetings,” says Jex, who answers to the CEO. “I need to understand what the board is trying to accomplish so I can make sure my activities and CMS are totally in support of what they are trying to do.”

2. Show the benefits of self-policing

Jex has found success with the argument that it’s better for a bank to self-police. “When a bank has a good compliance management system (CMS), training, an engaged board, and monthly testing, the regulators have a higher degree of confidence in the bank which results in exams being a more pleasant experience.”

“It’s much more efficient to put guardrails at the top of the hill than an ambulance at the bottom of the hill,” he tells bank leadership. “If you have a good CMS, that’s your guardrail. The regulatory agency is the ambulance at the bottom of the hill and will do what it has to do to save the bank.”

3. Keep it simple

Jex knows winning over the board means speaking their language—and not using jargon or unknown acronyms. He also doesn’t get bogged down in the details, sticking to the high-level information the board needs to do its job.

“With board training, you need to keep it at a high enough level so that they understand their responsibilities,” Jex says.

Don’t go through specific processes step by step. Instead, explain key controls, including monitoring and reporting results.

4. Highlight the cost of doing it right vs. the cost of noncompliance

Enforcement actions, fines, and settlements that impacted institutions similar to yours can help earn the board’s support. Relatable examples will help defuse the argument that “We’re not as big as XYZ Bank, that will never happen here.”

“It’s a lot cheaper to do it right up front than deal with the ramifications of not doing it right,” Jex argues. “Even though the overhead my seem prohibitive, it’s still far cheaper than potential civil money penalties and regulatory fines. Those can put you in a failing position.”

5. Demonstrate the value of early compliance involvement

Jex once worked at a bank where management spent six months developing a mortgage lending program only to find out that the compliance overhead would make it cost prohibitive. If compliance had been consulted early on, management could have focused on a more realistic initiative.

The experience is now a cautionary tale.

6. Encourage education

The best way to earn board and management buy-in is through education and training followed by directly asking for their support. Jex recommends steering board members towards the FDIC Directors’ College Program.

“They always come back with a renewed appreciation for their responsibilities specific to compliance,” says Jex.

 

Michael Berman

Michael Berman

Michael Berman is the founder and CEO of Ncontracts, a leading provider of risk management solutions. His extensive background in legal and regulatory matters has afforded him unique insights into solving operational risk management challenges and drives Ncontracts’ mission to efficiently and effectively manage operational risk.