Oyster Stew - A Broth of Financial Services Commentary and Insights

CCO - Behind the Scenes, Episode 5

October 14, 2020 Jeffrey Hiller
Oyster Stew - A Broth of Financial Services Commentary and Insights
CCO - Behind the Scenes, Episode 5
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Oyster Stew - A Broth of Financial Services Commentary and Insights
CCO - Behind the Scenes, Episode 5
Oct 14, 2020
Jeffrey Hiller

In this episode of CCO - Behind the Scenes, Jeffrey Hiller discusses what makes a good CCO, the importance of being a "straight shooter," giving bad news. Listen as Jeffrey shares his real experiences and lessons learned during his vast experience as both a CCO for several global investment firms and Senior Counsel for the SEC's Division of Enforcement. Being CCO is more than just checking boxes.    

Show Notes Transcript

In this episode of CCO - Behind the Scenes, Jeffrey Hiller discusses what makes a good CCO, the importance of being a "straight shooter," giving bad news. Listen as Jeffrey shares his real experiences and lessons learned during his vast experience as both a CCO for several global investment firms and Senior Counsel for the SEC's Division of Enforcement. Being CCO is more than just checking boxes.    

Jeffrey Hiller:

Welcome to the October 14th episode of my Oyster Stew podcast mini series, CCO - Behind the Scenes. I'm J effrey Hiller, and in this episode I'd like to talk about the importance of being a straight shooter, giving bad news and what makes a good CCO. A good manager doesn't only want to hear the good news. Those in charge need the whole, honest picture, and they often reward those to provide it. My biggest career break came several years before my tenure at CitiGroup. The company I worked for at the time had been fin ed ov er a billion dollars in sales practice violations. Shortly before I was hired, the CEO called a meeting with his top 20 compliance people, and he asked them to rate the effectiveness of the Compliance department and th eir respective businesses. On a scale of 1 to 10, everyone said seven or eight. I said four. He asked me to explain. The huge fines we recently paid were evidence that we're not where we need to be. My experience was that people want to comply, but the structure was not effective. I give the employees a seven or eight, but my department is a four, but going in the right direction. Three weeks later, the company reorganized i ts many businesses into four companies. The CEO called my boss and said, "I want the person to lead Asset Management Compliance - that is the guy that gave us a four." I got a major promotion. If you're a Compliance Officer, there's no escaping the fact that there will be compliance exceptions, some big and some small. You could see trade errors, personal trading violations, violation of various custody rules, or other matters, and you have to be prepared for that. A good Compliance Officer wi ll s cope the issue as quickly as possible and at the same time, look for the causes of the error and ways to fix it. If there's a large trade error, you should notify the business as soon as you know that it's a true issue. You should also be prepared to explain the best way to fix or address the issue. And, remember not everyone will agree with you. I once encountered a large, six-figure trade error that occurred overseas. In some countries, such trade errors are considered the cost of doing business. At the particular firm I was with, the firm would deduct the cost of the trade error from the bonus pool of the unit causing the error. This in and of itself created a conflict. The best way to address this is to inform the CEO and let everyone have their say. Then present critical facts, explaining the regulatory and reputational risk of not addressing it in the appropriate way. This will be effective if the tone at the top of the firm is open to listening to the facts and understanding the consequences. The lesson here is rely on the facts, let others have their say, and use the facts to lead the CEO or business head to the right direction. We paid for the overseas error, and shortly thereafter a regulatory exam proved that the firm took the proper course. I'm asked from time to time what I think the critical skills are needed for a compliance officer. When I hire compliance people, I look for the following: first, curiosity. Did they pursue any unexplained issues? Even if minor inconsistent dates, numbers that s eem slightly off - this may sound obvious, but it's not. They can look for alternative solutions if the first idea doesn't work. So you do want to have the curiosity, even if you find the answer. Next, I look for courage. Are they willing to deliver bad news directly and quickly? Will they take a position opposite of a group of others, such as traders. Third, I look for what I call "touch." As an example, portfolio managers, traders are very busy and can be abrupt. Can you look past that to listen and find out what they need and then communicate what they need to know? Finally, I look at technical expertise and compliance. If the first three qualities are present, then I'm certain people can learn the substance rules and regulations. I'm not sure you can teach the first three qualities, but I'm certain that most can learn the regulatory rules. I hope you found these insights valuable, and thanks for listening. Don't forget to follow the Oyster Stew podcast on whatever platform you use. If you have any questions or would like to request a consultation, call us at (804) 965-5400 or visit us on the web at www.oysterllc.com.

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