Compliance professionals play many roles—adviser, educator, and auditor, to name a few. Now, recent, well-publicized potential lapses in compliance have highlighted another role: prognosticator.

DETAILS

Long

Brady Long was named chief compliance officer of Pride International, a worldwide drilling contractor with revenues of $2.5 billion, in June 2006. In January 2007, he was also named one of Pride’s deputy general counsels. Pride has approximately 14,000 employees in more than 25 countries and is based in Houston.

Long previously practiced corporate and securities law for BJ Services Co., and for the law firm of Bracewell & Patterson (the predecessor to Bracewell & Giuliani).

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Certainly, Hewlett-Packard’s management must wish that certain of their compliance professionals had known how the enforcement community would react to the data privacy issues that arose in their internal investigation of boardroom spying and pretexting last year. Similarly, executives at companies embroiled in options backdating scandals surely wish someone on their compliance teams had envisioned the fallout from their equity compensation practices before they had been adopted.

Seeing Around Corners

At the same time, some question the fairness of expecting compliance professionals “to see around corners.” After all, none of us has a crystal ball. Also, public companies have never before faced the compliance challenges they face today. The enforcement community has higher expectations and larger budgets than in years past; the same can be said for independent auditors. Further, the public and the media have a voracious appetite for corporate scandals. Despite all this, compliance teams are expected to have enough foresight to guide their clients through this environment unscathed. Is this fair?

It may not be, but the idea that attorneys—and, by extension, all compliance professionals—should be able to prognosticate is not new. The principle was featured in a seminal speech by Justice Oliver Wendell Holmes, published in 1897 in the Harvard Law Review and titled, “The Path of the Law.” Justice Holmes noted that the object of the study of law is “prediction.” He observed that advice about legal duties is nothing more than a prediction that certain consequences will befall someone for doing or failing to do something.

Predictions are the basis for controls, whether they pertain to fraud, the Foreign Corrupt Practices Act, or equity compensation practices. In other words, all the work that goes into designing, implementing, and communicating a policy or procedure is based on a prediction that, if not for the policy or procedure and the adherence to it, a risk will go unmitigated. The relevance and effectiveness of our controls, then, depend on the quality of our foresight.

Adding A Measure Of Foresight

We at Pride International don’t possess a crystal ball, but here are some ways our compliance team strives to add a measure of foresight to our overall compliance program:

Compliance Risk Assessment

No one can afford to ignore a risk area, although some risk areas are more deserving of attention than others. Identifying the critical risk areas (and, consequently, areas of interest in detecting trends) is our priority at the outset. Our compliance risk assessment is designed to accomplish this. The CRA incorporates the views of our compliance professionals and management regarding the universe of potential compliance issues at our company. Each issue is ranked by probability and severity, improving our grasp not only on which issues are most likely to arise, but also on the perceived effect of such issues.

We also incorporate research from the field into our CRA. Pride operates in more than 25 countries, and the vast majority of our operations are outside the United States. In many places, the scope and duration of the operations does not justify the employment of a dedicated compliance professional on site. As a result, we spend considerable time visiting our operations around the world. One of our objectives is to ensure that we are attuned to the compliance risks they face.

Our advisers understand that they are expected to monitor [compliance] developments and communicate them to us ... if our advisers cannot help us mitigate risk as well as a competing firm can, we are obligated to consider the other firm.

Armed with this information, we have a better idea not only of the substantive areas on which to focus, but also the legislative, judicial, and enforcement trends we should be trying to detect in various jurisdictions.

Education

We review the key risk areas identified in the CRA and assess our strengths and weaknesses in terms of technical competence. We address areas of improvement for our team and shore up our knowledge base each year. We select seminars based on the company’s needs, not on our personal interests. We also “divide and conquer,” rarely sending more than one professional to the same seminar each year. Further, we consider carefully the quality of the seminars and the likelihood that meaningful forward-looking guidance will be presented. After all, part of the objective is to return from the seminar with a better idea of the direction the law is heading so we can situate the company accordingly.

We also rely heavily on compliance-related periodicals. I’ve passed many hours on flights to Angola, France, and Venezuela, among other places, reading Compliance Week and other compliance-related publications. Members of our team read every article in these publications (or at least peruse each piece if the article is on its face not evidently relevant to our company). This way, we increase our coverage and decrease the likelihood that we will miss a trend or a risk area altogether.

Input From Outside Advisers

We have selected outside advisers on the basis of, among other things, their track record in helping their clients prevent compliance lapses. Hourly rates, proximity, credentials, and relationships are all important factors to consider, but if our advisers cannot help us mitigate risk as well as a competing firm can, we are obligated to consider the other firm. Our advisers understand that they are expected to monitor developments and communicate them to us. Often their communications are for the benefit of their general clientele, so we make it a point to follow up for detailed guidance when applicable.

Benchmarking

Our compliance professionals are encouraged to “compare notes,” to the extent permitted by law and our professional obligations, with other compliance professionals on anticipated legal developments. This happens with professionals inside and outside our industry, to maximize our coverage. Also, compliance organizations, industry organizations, and in-house counsel organizations are fertile ground for forward-looking guidance.

These facets of our compliance program improve our understanding of our company’s needs, strengthen our controls, and, perhaps, improve our ability to see around corners.

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