The Board’s Role in Compliance: Oversight, Accountability, and Evolving Expectations - Arden Phillips
In February, I had the opportunity to participate in a panel discussion hosted by the Society for Corporate Governance, entitled “The Board’s Role in Compliance.” Our discussion explored the evolving responsibilities of corporate boards in ensuring effective compliance programs, particularly in an environment of increasing regulatory scrutiny and shifting stakeholder expectations. This article shares several key takeaways for directors, general counsels and governance professionals to keep top of mind.
Why Boards Must Prioritize Compliance
A strong compliance program helps mitigate legal, financial, and reputational risks while fostering a culture of accountability. Also, under Delaware law, in certain cases, directors can be held personally liable for failing to oversee compliance risks. Several other reasons why compliance must remain a board priority include:
· Regulatory Compliance: Public companies must adhere to various regulations, including the Sarbanes-Oxley Act, SEC disclosure rules, and industry-specific requirements.
· Risk Management: Effective compliance programs help identify and prevent misconduct, fraud, and financial misstatements.
· Shareholder Protection: Investors expect companies to maintain strong compliance practices to ensure transparency, ethical leadership, and responsible governance.
· Reputation Management: A compliance failure can lead to legal penalties, loss of consumer trust, and damage to a company’s brand.
The Board’s Oversight Responsibility
The board of directors plays a fundamental role in overseeing a company’s compliance program, ensuring it aligns with regulatory requirements, industry best practices, and corporate values. A well-functioning compliance program should not only mitigate risk, but also reinforce the company’s commitment to integrity and transparency.
Key elements of board oversight include:
· Program Design & Regulatory Alignment: Boards must ensure that the company’s compliance framework is tailored to its risk profile and adheres to applicable laws, regulations, and industry standards.
· Monitoring & Assessment: Regular assessments — through internal audits, third-party reviews, and management reports — are essential to evaluate program effectiveness. Boards should establish key performance indicators (KPIs) and compliance metrics to track progress.
· Ethical Culture & Leadership Tone: A strong compliance program is ineffective without an organizational culture that prioritizes ethical behavior. Boards must work with management to reinforce a culture where compliance is valued and misconduct is addressed promptly.
Keeping Up with an Evolving Regulatory Landscape
Given the rapid pace of regulatory change, board members must stay informed about emerging compliance risks. This requires ongoing education, engagement with legal and compliance teams, and leveraging external experts when necessary. Board committees, particularly the audit and risk committees, play a crucial role in overseeing regulatory developments and ensuring that compliance programs remain proactive rather than reactive.
One of the most pressing challenges discussed during the panel was the increasing complexity of compliance obligations in a global business environment. Companies must navigate not only U.S. regulations, but also evolving international standards, data privacy laws, and ESG-related compliance requirements. Additionally, compliance programs must remain agile in addressing emerging risks, such as artificial intelligence (AI) governance and cybersecurity threats.
Effective Compliance Reporting to the Board
Clear, concise, and actionable reporting is critical for board oversight. Management must provide timely updates on compliance risks, regulatory changes, internal investigations, and enforcement actions. Best practices include:
· Structured Reporting Cadence: Regular compliance updates should be integrated into board and committee meetings.
· Risk-Based Approach: Boards should focus on high-risk areas rather than being overwhelmed with excessive detail.
· Whistleblower & Incident Reporting: Transparent reporting on compliance violations, whistleblower complaints, and corrective actions ensures accountability.
Final Thoughts
The board’s role in compliance extends beyond oversight — it requires active engagement, strategic risk management, and a commitment to fostering a corporate culture of integrity. As regulatory expectations continue to evolve, boards must remain proactive, well-informed, and adaptable. Companies that effectively integrate compliance into governance structures will be better positioned to navigate risks and enhance long-term shareholder value.
Arden Phillips
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