Eastman Kodak Co. this week named Patrick Sheller as its first chief compliance officer, joining a growing pack of companies that want a single person representing their slew of new compliance practices and policies.
For the Rochester, N.Y.-based Kodak, the hiring of Sheller appears timely. His appointment comes two weeks after Kodak revealed that the Securities and Exchange Commission is conducting an "informal" probe into the company's restatement of earnings from 2003 and 2004. In April, Kodak said accounting mistakes had led the company to overstate its 2004 profits by $93 million, and its 2003 profits by $12 million. And other bottom-line issues are looming. The troubled photography company, scrambling to keep up with the digital revolution, is also undergoing a massive restructuring that will eliminate as many as 25,000 by mid-2007.
Asked about the connection between the SEC investigation and the new position, company spokesman David Lanzillo said there is "no connection." The position is new, but its requirements have always been handled by Kodak's general counsel, he said.
For all its particular problems, Kodak is hardly alone in adding a CCO to its roster of top executives. The defense industry was ordered to get busy on compliance programs, following an era of financial and ethical abuses in the late 1980s. Financial services firms have long had compliance officers in place. Mutual funds are now required by the SEC to have compliance offices. And, while the office is not mandatory for most companies, the recent regulatory environment has convinced a much wider group of industries to hire compliance officers.
"If the Federal Sentencing Guidelines issued in November 1991 created the ethics profession, Sarbanes-Oxley created an entire industry," said Keith Darcy, executive director of the Ethics Officer Association (EOA), a not-for-profit based in Waltham, Mass.
Help wanted: Defining the CCO job
Scott Cohen, editor and publisher of Compliance Week, dates the proliferation of CCOs to a 2002 speech by SEC commissioner Cynthia Glassman, in which she called on companies to designate a "corporate responsibility officer." Many companies, including Boeing Co., Kodak, Sunoco Inc. and Walt Disney Co., heeded the call. "At each company it means something slightly different. In some companies, that officer is involved in overseeing investigation of potential wrongdoing -- whistleblower provisions; in others, its compliance issues for the board," Cohen said.
Cohen, whose newsletter conducts a weekly interview with a CCO or person directly involved in compliance issues, said the duties of CCOs vary from industry to industry and training is "all over the map." However, it's not uncommon for a CCO to have served as the company's general counsel. Sheller of Kodak, for example, worked for many years in Kodak's legal department; he will report to both Laurence Hickey, the corporate secretary and chief governance officer and to the audit company of the Kodak board of directors.
While IT executives are rarely tapped for the job, Cohen said, compliance officers are increasingly involved with IT issues, citing the example of the CCO at Cendant, the New York real estate and travel services giant, Cohen said.
"Their chief compliance officer Richard Wolf, a lawyer, is overseeing a huge management records program, many millions of dollars, and some of it that you would traditionally think of as a CIO responsibility," Cohen said.
Big perks, top salaries for CCOs
Established in 1992, EOA has seen its membership double over the past five years, to 1,200, Darcy said. Companies are not only hiring, he said, but paying handsomely for compliance officers. A survey published this month by EOA in conjunction with Salary.com, a compensation data provider in Needham, Mass., shows that total compensation for the top compliance executives at large multinational companies is approaching $750,000.
"One corporate scandal after another has elevated this position to a much more prominent role. In most of these positions, the person is reporting to the board or the CEO," said Joseph Kilmartin, director of surveys at Salary.com.
The perks reflect that. "In the case of the global ethics and compliance executive -- people responsible for worldwide operations -- you're looking at over $300,000 in stock options as the median in the market." The salary data, which includes long-term incentives, was derived from 109 companies. The survey also found that about 79% of these top executive have a law degree or a master's degree.