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The Rise of Compliance ManIgnore him at your peril.

By Len Costa
Posted Wednesday, May 26, 2004, at 7:08 AM ET
Illustration by Mark Alan Stamaty

In the golden age, back Before Enron (B.E.), Compliance Man was a figure of fun. Compliance Man wore bad suits. He never went for a beer after work. He toiled in obscurity, in a location known derisively as the "back office." Compliance Man was a lawyer or controller by training and a rule-follower by temperament. He made an earnest living enforcing corporate ethics codes—or trying to—and keeping up with all those federal and state regulations his bosses didn't care about, from equal-opportunity employment to health care to corporate securities laws.

In those B.E. days, successful companies employed Compliance Man grudgingly and listened to him rarely. The prestige (and paper wealth) flowed to the casual-dress strategy guys moving on "Internet time." Compliance Man enjoyed a stable career—rules never disappeared completely, after all, and the paperwork!—but he had no chance of reaching the top. He ate lunch at his desk, a sandwich from home.

But suddenly, Compliance Man is the alpha male. In response to the business scandals, the government has flooded corporate America with regulations and laws. And companies are actually obeying them. As public scrutiny has intensified, Compliance Man has been thrust into the limelight. Today he must track, interpret, and enforce an expanding number of complex rules—including those once forgotten—with the goal of shielding his company and his fellow employees from regulators, class-action lawyers, and minimum-security prisons.

Today Compliance Man routinely lectures C-level executives. In fact, Compliance Man can now aspire to a variety of fancy C-level titles all his own, including chief compliance officer, chief legal officer, chief regulatory officer, chief ethics officer, and chief risk officer.

Awake, Compliance Man! You have earned the respect of your colleagues, or at least their obedience.

Many of Compliance Man's colleagues are alarmed and befuddled by this brave new world of paperwork. No one is more scared than the CEO, who now must personally certify his company's financial statements. But Compliance Man is always there to reassure him.

Compliance Man's newfound importance is not without its perils, however. In legal parlance, government rules and regulations are "incomplete contracts." That means interpreting them is like interpreting modern art: The meaning is ambiguous, there are plenty of competing theories, and none are wholly satisfying. So what's Compliance Man to do?

Compliance Man must translate rules into English, must fill the gaps left by the incompleteness of law. He must imagine all the ways it could be implemented—and all the ways it can be broken. Compliance Man must write new policies and procedures to bring life to his interpretations. Most difficult of all is the final step, when Compliance Man must communicate yet another new policy to fatigued non-lawyers who are already wrapped up in red tape.

In this technological age, Compliance Man is no mere commentator. He can also be spy and enforcer. His "corporate compliance management" software can help prevent book-cooking. His spyware can scan employee e-mail and track Web browsing, helping guard against "information boundary breaches," "document-sharing violations," and "inappropriate disclosures."

Customers don't know Compliance Man, but they see his handiwork. He has given us such noteworthy phrases as "results not typical" and "past performance is no guarantee of future results." From drug ads to mutual-fund prospectuses, his ever-expanding disclaimers, which read like legal briefs, are crammed into the ever-shrinking white space in our visual landscape.

For better or worse, Compliance Man's future burns bright. The law protects Compliance Man. Companies can reduce their criminal fines if they can show they have an effective compliance regime. And Compliance Man has protected himself. Only he truly understands the rationale for the policies and procedures he creates. This makes him indispensable. Compliance Man interprets the rules. He writes the rules. He is the rules. You ignore him at your peril.

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Len Costa writes about business and finance from New York.
Illustration by Mark Alan Stamaty.
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