A Chief Governance Officer Could Give You an Advantage


Archived Published: 05 August 2003 ID: G00116667

Analyst(s): | |

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Summary

Follow Kodak in appointing a chief governance officer (CGO) who is a permanent, full-time executive with the power to inculcate best practices in the organization. This approach will avoid several potential problems.

News Analysis

Event

On 30 July 2003, Eastman Kodak announced the appointment of Laurence Hickey as the company's first CGO. Hickey will oversee compliance with the U.S. Sarbanes-Oxley Act and other mandates from government and regulators.

Analysis

Companies appoint CGOs because regulatory burdens continue to increase as do the risks for noncompliance. The regulations come from several directions, including:

  • The Sarbanes-Oxley Act and other reforms caused by corporate scandals

  • Global markets and the need to operate in many different countries and jurisdictions

  • Internet business, which generates new requirements, such as how to treat customers' personal information

A CGO relieves a worry for the CEO, CFO and other officers who are now liable to criminal prosecution if certain regulations are not met. A CGO deals with issues that cross the IT, finance and legal areas. Ideally, a CGO should have expertise in two — Kodak's Hickey has a finance and legal background. In any case, the CGO must be able to communicate the importance of compliance issues to stakeholders in all three areas. Companies should aim high when they create the position of CGO. A CGO's purview should include corporate performance management as well as risk management. By assuming broad responsibilities, a CGO can more easily spot deficiencies and guide continuous improvement.

By contrast, many companies will take the easiest path by creating a CGO position — perhaps a temporary one — strictly to monitor compliance. This approach invites problems:

  • Because the CGO has a multidisciplinary job, his appointment may spark turf battles with the CIO, chief risk officer and corporate legal counsel.

  • With less power, the CGO will have a harder time bringing the company into compliance.

  • Employees may view the CGO as a behavior cop.

  • With a narrower mandate, the CGO will lose opportunities to improve the organization — his company will therefore be at a competitive disadvantage to companies with broader CGOs.

Recommendations:

  • Appoint a CGO.

  • Inventory the company's regulatory obligations — for example, which government agencies have oversight? — and think about the infrastructure and processes needed for compliance. Select a CGO with expertise in the most appropriate areas (IT, finance or law).

  • Staff the CGO's office with people who have knowledge in all three areas.

  • To avoid turf battles, the CGO should report to the board of directors. It should be a permanent, full-time position, with enough authority, budget and staff to do the job.

  • The CGO should have a broad mandate to improve overall corporate performance.

Analytical Sources: Lane Leskela, Mark Gilbert and James Lundy, Gartner Research

Recommended Reading and Related Research

  • "Compliance Is Not a Document, It's a Process" — Enterprises in which compliance is burdensome or where the frequency and complexity of compliance requests are increasing should act now to identify a compliance officer and design a process that manages all compliance from an enterprisewide perspective. By Kathy Harris and Debra Logan

  • "The Sarbanes-Oxley Act Will Impact Your Enterprise" — Here's how the Act will affect business intelligence, corporate performance management and records management. By Debra Logan and Frank Buytendijk

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