amazing progress for the compliance profession. in short, we are on our way to another level. important steps toward the next level most of my remarks today will be devoted to the things that i believe will get us to the next level. let me turn to them now. 1. ethics and compliance / values and rules the nomenclature that is used in compliance to describe the company officer responsible for compliance has changed, and the change in nomenclature is a clue to revealing a material, substantive change. twenty years ago, we called this officer the “ compliance officer ”, and i emphasize the singular. over several years the title morphed, as compliance programs in re caremark international inc. derivative litigation, 698 a. 2d 959 ( del. ch. 1996 ). bis central bankers ’ speeches developed and compliance jobs multiplied, both with respect to subject matter expertise and the types of skill sets needed to make compliance programs “ take ”. consequently, companies found that the compliance officer turned into the chief compliance officer, because in major companies, it took a village to get compliance done. compliance, you see, turned from singular to plural. more recently the title has again changed. in many companies today, the title is chief ethics and compliance officer, or ceco, reflecting a salutary trend on the part of many companies to integrate ethics and compliance. why is this happening? in my view, it is happening in recognition of the fact that it is easier to have an effective compliance program in a company that nurtures a strong ethical culture. in a recent speech, daniel tarullo, a governor of the board of governors of the federal reserve system, accurately observed that “ culture ” is a “ somewhat contested academic concept ”. yet, the evidence is growing that an ethical culture produces tangible benefits, including making compliance more effective. recent studies attempting to assess the effectiveness of compliance programs have developed a measure called the “ pei ”, or program effectiveness index. early work with the pei shows that companies combining their ethics and compliance programs tend to have better pei scores. the reason for the higher effectiveness measure seems to be something that i find perfectly rational. ethics programs, consisting of measures taken to inculcate organizational values, help to create a culture that is not only conducive to following rules that are embedded in law and regulation, but also conducive to compliance with company mores. a strong ethical culture breeds a more compliant culture. the symbiotic relationship between ethics and

effective controls. i look forward to that time as we move to the next level. 3. developing the methodology to assess effectiveness i mentioned earlier one of the promising new tools to assess the effectiveness of ethics and compliance programs, and that is the pei, the program effectiveness index. the excellent report by the ethics resource center, the federal sentencing guidelines for organizations at twenty years, has drawn attention to standards for assessing program effectiveness. the report states : “ altogether, the lack of assessment standards and guidance on how the quality of a compliance / ethics program should influence the outcome of a matter create the impression, validated by the [ ethics resource center ] and conference board studies... that too many judgments are being made inside a black box. ” 2 while we seem to be on the cusp of a number of promising indicators, like the pei, the truth is that we are not there yet. we simply do not have a tool that will give us an accurate and reliable measure of program effectiveness. instead, we have a situation where enforcers ( including those agencies with civil enforcement authority, such as the banking agencies ) tend to be result oriented. when we see that a particular organization has experienced a major compliance failure, we tend to view the failure as evidence of the ineffectiveness of the ethics resource center, the federal sentencing guidelines for organizations at twenty years at 51 ( 2012 ). bis central bankers ’ speeches ethics and compliance program. we reason backward, “ if the program were effective, this would not have happened. ” i think this is natural and understandable for the enforcement community, but it is not necessarily good policy. to borrow an observation from senator ted kennedy concerning the federal sentencing guidelines, this creates “ a risk that companies without substantial compliance programs will get a free ride, and those with strong programs will not receive the credit that they deserve. ” 3 alternatively, if there were a reliable and acceptable measure of program effectiveness, this kind of backward reasoning would be replaced by reliance on the effective measure. institutions could use the measure when making arguments for leniency, again assuming that the measure demonstrated that their programs were effective. it might, of course, show just the opposite. and there are other, perhaps even more important, benefits. if an industry and its regulators came to have great confidence in a particular effectiveness measure, this might provide a foundation for building a program that could be used to on - board risk. put differently, a particular organization could have confidence that its ethics and compliance program