My good friend, Judge Stanley Sporkin, has served for several years as the BP Ombudsman, focusing on potential safety issues. Judge Sporkin was retained by BP in the aftermath of BP’s suffering of a number of safety incidents.
Judge Sporkin is a persuasive advocate for the positive benefits of a corporate ombudsman. He frequently cites the importance of a corporation establishing an independent office in a company which is able to treat all complaints and investigations in a confidential manner.
Employees are more likely to come forward to an independent ombudsman, especially if the information they disclose is treated confidentially and without attribution.
In the FCPA Guidance, the Justice Department and the SEC identified an ombudsman as a possible mechanism to facilitate reporting of compliance violations. It is an important alternative that every company should consider.
The downside of a corporate ombudsman is the cost. It can be fairly expensive to maintain a separate office dedicated to collect internal information, investigate credible allegations of misconduct and report to the company.
If a company employs an ombudsman, there are a number of challenges which can develop. The exact role of the ombudsman has to be carefully defined. An ombudsman can report to the CEO and/or the Compliance or Audit Committee at the board level. If the ombudsman reports directly to the board committee, the ombudsman may run the risk of tripping over the Chief Compliance Officer’s line of authority.
It is important that the ombudsman coordinate with the Chief Compliance Officer. There are important coordination issues to work out. If there is an immediate safety threat or risk of harm to an individual, the ombudsman may have to notify a CCO of an ongoing matter if the CCO needs to initiate its own actions or remedial measures.
The ombudsman has to maintain independence and preserve that reputation. If the office is seen as an extension of a compliance office, employees may be less likely to come forward and report potential misconduct.
An ombudsman has to protect its sources of information. Employees are reluctant to notify their supervisors of a potential problem, fearing retaliation. The more avenues for reporting that circumvents this relationship, the better for a compliance program. Vertical sharing of information is critical to a compliance program and corporate health. The more information passed up or around the chain of responsibility, the better for an organization’s health.
An ombudsman, even if structured with a limited staff, can be an effective supplement to a compliance program. It can be used to encourage vertical information sharing and dissemination in an organization.
The expense of an ombudsman may be well worth it for a company which is dedicated to encouraging information sharing, identifying potential risks and problems, and remediating potential violations of company policy and law.