CRO POV: The Compliance Pendulum Swings Back

Though some companies are cutting back on corporate responsibility efforts, many can still cash in on their earlier CR investments.

By Jay Whitehead

When Citigroup Vice Chair and Chief Administrative Officer Lewis Kaden addressed the 250 attendees of last November’s CRO conference, he talked of Citigroup’s significant buildup in compliance staff and the resulting boost in stakeholder confidence. Job one for Kaden when he joined the financial service in the wake of several compliance and governance challenges was strengthening the company’s lines of defense. As one of the world’s top corporate legal minds, Kaden was well-suited to the task. As proof of his effectiveness, all you have to do is chart the hikes in Citi’s governance ratings and stock price since 2005. Truly impressive.

This week, however, we heard Citigroup’s CEO Charles Prince announce a cutback in the company’s bulging ranks of compliance officers. Investors have called for overhead cuts. So Prince is cutting 26,000 jobs, or 8 percent of the workforce. The company’s legal and compliance ranks are being looked at very closely, both for cost cuts and because the large compliance burden has slowed the company’s ability to innovate and respond to market conditions.

Citigroup’s swing of the compliance pendulum from intense compliance growth to cutting compliance headcount represents a Russell 1000-wide trend. After the huge run-up in the ranks of compliance pros following Sarbanes-Oxley’s introduction in 2002, there was bound to be a return to equilibrium.

Companies with whom I speak—from small-cap to mid-cap to large-cap—are moving from “defensive” compliance efforts to using responsibility investments for “offensive” purposes. “Defense” was all about keeping executives out of jail and off the front pages. “Offense” means capitalizing on the company’s reputation improvements to sell product, raise capital and recruit talent.

You compliance professionals who are concerned about career options are well-advised to make this trend your friend. In a classic jiu-jitsu maneuver, you can capture the energy of the switch from defense to offense and use it to your advantage. Many compliance leaders I know are tracking and measuring the results of their good work since 2002-03. They are documenting it, and turning it into a marketing message to be used by their sales team, their investor and corporate communications teams and their HR leaders. As a result, they are finding that integrating the positive results of the compliance-heavy period into the company’s brand story is a great use of the company’s compliance investment.

Perhaps we can call this jiu-jitsu tactic “the Citigroup maneuver.” Or maybe not. Whatever you call this trend in compliance, there’s only one conclusion. It’s time to switch from building your defensive strengths to going on the offense. You’ve built a compliant organization. Now get out there and sell it to customers, investors and talent.