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Handling Fit & Proper interviews

In a recent post, Adam Balfour commented on the “two Ethics and Compliance questions that should be asked in every job interview for leaders and managers”. Great topic for which I have some experience.

With 150 000+ employees worldwide, the pool of top executives in Allianz counts about 250 individuals: CEOs of local companies, leaders (CFO, COO, etc.) of the largest entities of the Group, Group functional heads. A well-established practice in the Group is to formally vet top ranking nominations by Group Compliance. For each projected nomination, upon due information by HR, Compliance would perform two tasks:

·       Run a background check (with the explicit consent of the nominee), including on his/her social media footprint,

· Interview the nominees. I was performing these « Fit and Proper » interviews myself as Group CCO.

After these two steps, Group Compliance would give clearance for the nomination.

For the interview, I used a list of pre-defined questions, to « test » the nominee on ethics. But the interview was also a real exchange: as Group CCO, I saw this as an opportunity to reinforce the awareness on ethics and compliance for the top leaders of the enterprise, and a good moment to answer their questions, and to clarify the role of the Compliance function, often not so well understood.

My questions were organized in 5 categories:

1 – General opening questions (“warm up”). I would engage the nominee with topics such as the importance/value of controls, the knowledge of the regulatory framework, how different business strategies generate different risk profiles, the concepts of proportionality, etc. The objective is to position the interview as something else than a “tick the box” exercise, and to look for indicators that reflect a good or weak grasp in the areas of risk and governance.

2 – Personal knowledge, understanding of and experience in Risk and Compliance.

What exposure have you personally had to risk and compliance in your previous roles?

What would you consider to be the three biggest compliance risks/challenges for the Group and why?

What was the most challenging compliance issue/problem you faced as a senior manager in your career and how did you handle it?

Objective: a) look beyond the traditional underwriting risk for example, b) get a sense of the nominee’s logic underlying his/her explanations, c) test the capacity to share experience without breaching confidentiality or privacy.

3 – Independence of mind

Were you ever in a position where you disagreed with a position taken by the Board or your Board member? How did you deal with it?

Objective: understanding of right and wrong, of “can do” versus “should do”, ability to speak his/her mind and stand firm on what is right, ability to communicate his/her position appropriately and persuasively to the Board, etc.

4 – Understanding and experience on Conflict of Interest

In the past did you or your immediate family have any personal interests in another organization that was either in competition or in business with your employer at the time? If yes, how did you deal with that?

Objective: recognition by the nominee of circumstances that can create a conflict of interest and how to manage properly and correctly those e.g. by proactively declaring them transparently and where appropriate also recusing himself from related decisions, etc.

5 – Understanding of effective governance, oversight, and controls

Have you in the past received a report addressed to you personally alleging a breach of law or misconduct with concrete accusations against one of your fellow board members? How did you deal with that?

Would your answer be/have been different if the report was anonymous? Explain (Why/ why not?)

Have you in the past received an Audit report with major findings related to your area of responsibility? What were those findings and how did you deal with those? (follow up question if the answer calls for it: Why did you deal with them that way?)

Then I would have a general closing question:

If you were appointed as the Board member responsible for Compliance in the Group, what would your expectation be from this function and why?

Each interview would last at least 45 minutes, with a constructive and forthcoming tone, I believe well appreciated by the nominees. I am convinced that this rather simple process contributes to a strong Ethics and Compliance culture in the enterprise.

This is especially critical in Financial Services. In my view, two good sources to get guidance and inspiration are:

·       The ECB’s guide on Fit & Proper assessments lists four dimensions for the assessment of the suitability of board members (in line with the provisions of the CRD): a) Experience, b) Reputation, c) Conflicts of interest and independence of mind, d) Time commitment. Many of the criteria for board members/directors can be considered for internal positions. European Central Bank

·       The FCA Handbook (Release 33 from Feb 2024 Fit and Proper test for Employees and Senior Personnel sourcebook. a) Honesty, integrity, and reputation); b) Competence and capability, c) Financial soundness.