The Role of the CEO in Regulatory Compliance

There is much debate among experts as to how involved a chief executive officer (CEO) should be when it comes to the regulatory compliance of a company. While some may think it’s a matter of time or conflict of interest, that’s actually not the case. Instead, the level of CEO involvement depends primarily on the following two details:

  • The size of the company
  • The complexity of the regulatory environment

Each of the above factors plays a significant role in determining what and how much a CEO can or should control when it comes to compliance.

First and foremost, it is the responsibility of a chief executive officer to set the strategy regardless of whether or not they will be in charge of executing it. Once the strategy is in place, it is also the responsibility of the CEO to assess that strategy in relation to each of the above factors before deciding whether to take on the role him/herself, assign it to another member of senior leadership, or hire a chief compliance officer (CCO).

Assessing Company Size

Size, in this particular case, refers more to revenue and capital rather than square footage and employees. Fines related to non-compliance can be hefty, sometimes costing companies millions of dollars. The CEO must assess whether or not they are capable of devoting enough time and resources to the strategy to prevent a costly oversight. Let’s take a look at an example.

A $50 million company may not have the funds to provide a salary for a chief compliance officer. Their options, then, would be limited to execution of the strategy by the CEO himself or by another member of senior leadership.  A $1 billion company, on the other hand, might be able to afford the salary with ease. At this size, it may also be beneficial for the company to consider hiring or designating additional lobbying or PR staff whose sole purpose is to help drive regulatory changes in the right direction.

Evaluating the Complexity of the Regulatory Environment

It goes without saying that certain industries are more regulated than others. Companies operating in heavily regulated industries can expect a rather involved compliance strategy. Likewise for companies operating in industries with frequent regulatory updates. In each of these environments, it may beneficial for someone to take on the designated compliance officer role.  In less regulated or more stable industries, it is potentially more feasible for senior leadership or the CEO to incorporate the associated tasks and management into their own list of responsibilities.

Making the Decision

A CEO cannot make an informed decision regarding the management of their regulatory compliance duties unless they’ve considered their industry, their size, and the regulatory environment in which they work. It is imperative that these areas are assessed both individually and as a whole. The chief executive officer must determine the best course of action that includes long-term viability and proper handling of the compliance strategy they’ve set.