Compliance is a growth field in both legal education and practice. Overall, whether compliance teaching is geared towards students or individuals within a company, greater care and nuance must be taken in undertaking compliance teaching and training to reflect the inter-disciplinary and proactive elements of the creation of robust and effective compliance programs. Increasingly, this means that lawyers and law professors need to incorporate insights from other disciplines in their teaching to use more case studies.
Compliance is a growing field of practice across multiple areas of law. Increasingly companies put compliance risk among the most important corporate governance issues facing them. Moreover, as “JD plus” jobs proliferate, the demand for hiring both at the entry level and for former students currently in practice who are experienced in the compliance field will continue to grow. The growth in compliance jobs comes at a time in shifting demand for legal jobs for law school graduates. Traditional law firm entry level jobs at large law firms, which were the staple of on campus recruiting before 2007, have not returned to pre-2007 levels even with the end of the recession. Technological changes, greater in-house hiring, and better creation of efficiencies have reduced demand for large law firms, which were the traditional training ground for in-depth legal skills and soft skills. Because of global supply chains and the expansion of US businesses to new markets, compliance has become a global phenomenon.
Law schools have responded to the demand shift in entry level hiring with a supply side response – classes in compliance. In some cases, law schools have set up compliance certificates or degrees in areas such as health care and business law. There is now even a casebook devoted to compliance. Yet, with all of these efforts at creating opportunities for careers in compliance, many programs and classes in compliance are nothing other than dressed up versions of classes in white collar crime or regulation or lectures on latest case developments that one might find in a continuing legal education program. These courses do not focus on the substantive areas with the highest demand for compliance (in-house legal and JD plus jobs) and do not teach the analytical skills necessary to succeed in such jobs. Nor do they focus on the special context within which compliance operates – ideally independent of the “business” but always a part of it. Essentially, law schools have misdiagnosed the demand side – it is not merely the particular type of class (compliance) but also the substance of such classes with the type of quality offering necessary to maximize student short term (entry level hiring) and long term (preparation for ever-shifting analytically complex practice challenges).
My recent essay suggests an alternative approach to teaching compliance – one that focuses on the design and implementation of compliance programs. The essay explores the determinants of why teaching compliance is important, the pitfalls of current approaches and the types of teaching innovations that sophisticated compliance practice requires. First, it explains what compliance is. Then, it explains the basis for the current economic drivers of the increased focus on compliance by firms. Next, it identifies the drivers of illegality before explaining how law school and in-house compliance training might be better structured in both analytical approach and substance. Finally, the essay concludes with some thoughts about issues in compliance in which courses might place greater emphasis.
I note that reducing compliance risk is a significant driver of corporate behavior. This is a function of a number of factors including: responses to compliance related scandals, increased government enforcement, and increased awareness of how compliance impacts business performance in both day to day operations, and as a consequence of M&A in what is an increasingly complex global regulatory system.
Compliance, however, means different things to different people within a company based on factors such as the industry sector and the particular level of actors within a firm (members of the board of directors, senior management, employees, etc.). For some, compliance relates to board level issues. For others, it relates to directors, senior managers, mid-level managers or employees. Compliance risk may be a function of issues that any company faces (e.g., Sarbanes Oxley, Dodd-Frank, antitrust, FCPA, data privacy, and tax) or sector specific issues (e.g., financial services, health care). Because of the different meanings of compliance, it is important to identify the high risk areas for a company in order to best understand how to teach compliance and develop a compliance class (or training program) that may cover different issues depending on the emphasis of the level of person within the organization or the particular industry. Teaching compliance therefore means deciding on the type of issues to be emphasized.
I identify a number of reasons that may cause companies to spend more resources on compliance programs and discuss how to address these in a classroom setting. I explain that well-functioning compliance programs need to emphasize both the positive and negative incentives for compliance. As the penalties for non-compliance have increased due to an increased severity of punishment, these changes in penalties create increased pressure for firms to comply. At the firm level issues include negative stock returns, financial penalties, private damages suits, and reputational effects. The reputational effects and competition for high quality workers also create positive incentives for compliance.
At the individual level, two major negative factors suggest a greater incentive for compliance. The first is incarceration. The second is financial penalties. Both types of penalties lend themselves to classroom instruction. An additional concern for more senior people within a firm to comply is debarment. Individuals may be barred from serving as directors or officers of a public company or from the securities industry. On the positive side, the need for compliance can be reinforced with an appeal to ethics – being compliant is ethical. There are also individual positive incentives for compliance in terms of allowing individuals who are compliant to reap financial rewards without the worry of clawback due to illegal gains.
One thing that I note in the essay is that I have explored syllabi for compliance classes across a number of law schools. Without requiring pre-requisites (except perhaps corporations) these classes do not emphasize the importance of understanding the language of business, issues and motivations of individuals and of firms. Nor do these classes seem to require an understanding of business strategy. Further, much of the compliance function requires some basic understanding of accounting, finance, and economics. I argue that a compliance class needs to include an understanding of these core concepts (unless there are a series of pre-requisites in the class) and to integrate these concepts into each subsequent class’s discussion. The failure of existing syllabi to incorporate active compliance issues and integrate these issues within a broader curriculum limits the effectiveness of such compliance programs. For example, in class I explore how to identify risk and various risk assessment methodologies and processes that are tailored to the specific type of compliance and compliance risk (by level) within the firm. This means teaching that there are different compliance risks (and training needs) at different levels within an organization based upon function, level, probability of risk, and the impact of a compliance issue within the firm. I also teach about risk factors that may drive illegal behavior.
The preceding post comes to us from D. Daniel Sokol, Professor of Law at the Levin College of Law at the University of Florida. The post is based on his recent essay, which is entitled “Teaching Compliance”, is forthcoming in the Cincinnati Law Review Corporate Law symposium and is available here.