Compliance Careers Might Get Interesting, Part II

There we were, me and a small group of compliance professionals, talking shop about where good compliance officers come from these days. One person, a recruiter for asset management firms, told the tale of how she recently placed a chief compliance officer at a hedge fund in the Midwest. This CCO was “a dream candidate,” the recruiter said: accomplished scholar, top-ranked law school, work at two major law firms, a stint in investment banking, some time on the regulatory side, “and just a friendly person people would want to talk to.”

What this dream candidate did not have, however, was any direct experience in asset management—and the hedge fund board didn’t much care.

Well, I asked, why not?

This board “had confidence that they knew how to do the right thing,” my recruiter friend said, and that opened their collective mind to non-traditional candidates. “They knew she could pick up the investment adviser rules. What they really wanted was someone with the intellectual horsepower to understand the job, and be a compliance officer people would actually like.”

That sounds like one sharp board. The rest of the discussion—hosted by Russell Reynolds, the consulting firm that has published some quite thoughtful research about compliance officers recently—was more of a mixed picture. We talked quite a bit about the motives behind hirings like the one made by our hedge fund mentioned above. An excellent example is Point 72, the new fund run by Steven A. Cohen, who previously ran SAC Capital and was implicated in an insider trading scandal before civil charges against him fizzled with no admission of guilt or financial penalties.

Cohen hired Kevin O’Connor, former global compliance boss at United Technologies Corp., to be Point72’s general counsel. O’Connor is as heavy-hitter as they come: former U.S. attorney, former associate attorney general, former head of white collar defense practice at Bracewell & Giuliani. Does his hiring send a message to regulators that Cohen now takes compliance seriously? Yes.

The more important question, however, is whether Point72 (or any other fund) can structure a compliance program so it sends a message to employees that compliance is taken seriously. Tapping a strong compliance officer is an important part of that message, but it is still only one part. You also need clear policies, an engaged board, and a culture that focuses on ethics—because, really, if you hire a superstar compliance officer and then that person spends his or her time monitoring employee phone logs or tracking liquidity ratios, your firm needs its head examined.

That last point came up several times in our discussion: that superstar compliance officers do exist, and they will come to your firm; but only if the firm can clearly demonstrate that the CCO position is one with real power and influence to get big things done—the “Compliance 2.0” concept we often hear from industry thinkers such as Donna Boehme or Tom Fox. The trick, of course, is that every firm has to develop its own approach to a strong compliance program; there is no by-the-book set of instructions all firms can follow and presto, you have an empowered CCO leading a vibrant culture.

The board of our forward-thinking hedge fund mentioned above grasps that point. I just wonder whether that board is the exception rather than the rule.

I also couldn’t help but think that all this talk of empowered executives, who know the nuances of regulatory compliance and grasp the mechanics of your business and who are personable enough that employees will like working with them—that all sounds familiar. It’s the exact same debate that the internal audit industry has all the time, as chief audit executives try to help their businesses become better at assessing and mitigating risk. It’s probably the same debate all professions have: how to find candidates who know their professional material, know how the business operates, and know how to engage with people. Anyone possessing those three skills is in high demand.

Which then led me to the obvious question—how much money can these folks make, anyway?

“Quite a lot,” my recruiter friend said. She described the hedge fund placement as “the most intense compensation discussions I’ve ever seen.” (Three cheers to that CCO.)

The good news is that as more firms do seek high-performing compliance officers, salary for outside hires is soaring: 30 percent or more even for a lateral move from one CCO position to another, according to my recruiter friend, if you have the correct skill set. The bad news for firms, on the other hand, is that your internal compliance staff know this—which makes toiling away for those 3 percent annual COLA raises pretty unappealing.

Contemplate what that means for your corporate culture, too.