How does Corporate Compliance impact Business?

Everything about corporate compliance can be summarized in seven words: leading people to behave in certain ways.

The most common perception of corporate compliance is compliance with regulations—the laws, rules, and other regulations from a government that spell out how an organization should conduct itself. We can call that external compliance. 

Those laws and rules don’t care how a business complies with the law, so long as the company does. Consequently, compliance officers will design compliance programs to develop the “how” part. Then employees must comply with those internal policies and procedures. We can call that internal compliance.

The point of compliance programs is to reduce the company’s compliance risk — the potential for regulatory enforcement or other financial losses because the company isn’t in compliance with laws or regulations. 

We can define compliance risks in several ways. 

First, we can define compliance risk by subject. Regulators enact rules to address all sorts of subjects, and companies need compliance programs to address those issues somehow. The main compliance risks include:

* Corruption: companies must work to prevent bribery, bid-rigging, and other improper business practices.

* Reporting: companies may need to file financial statements and other reports to regulators, at required times and in specified formats.

* Data Protection: companies must keep customer and employee personal data secure and disclose any breaches of privacy according to various deadlines.

* Environmental, Health, and Safety: companies need to obey rules for environmental pollution, worker safety, and related issues.

* Employment: companies need to maintain ethical workplace practices, including wage-and-hour issues, anti-discrimination, anti-harassment, and more.

We can also define compliance risk by capability. That is, every compliance program first needs to understand what its regulatory obligations are— and when companies do know which regulations apply to them, there’s also the risk that your compliance program can’t meet those requirements. For example, your due diligence program may overlook too many third parties. 

All of that is part of the compliance risk that a company’s compliance program must address: knowing which regulatory requirements apply to your organization and knowing how well the company is (or is not) poised to meet them.

Compliance officers can maintain corporate compliance through several means:

First, as mentioned above, companies need to adopt policies and procedures to fulfill their regulatory obligations. Those policies need to relate to what the regulations want a company to do, and the procedures need to reflect how employees actually go about their daily routines. 

Second, companies need to manage their compliance programs—that is, to assess their performance at regular intervals, to be sure the program works well. That can involve testing controls, auditing employees’ adherence to policy and procedure, reviewing reports, and more.

Third, compliance officers need to perform risk assessments at regular intervals, too. Assessments can include a review of which regulations do or don’t apply to the company given its business activities, and how well the company’s compliance program works given all those regulatory requirements. 

Now the important question is: How Corporate Compliance Impacts Businesses?

First, compliance can keep a company on the right side of the law. Even when a company does violate the rules (which is bound to happen eventually), the existence of a compliance program will demonstrate to regulators and prosecutors that the company is trying to do the right thing. That can lead to shorter investigations, smaller regulatory fines (or no fines at all), and fewer company resources spent responding to regulators’ inquiries. 

Second, compliance can preserve a company’s reputation. The arrival of social media has brought about two things: unparalleled visibility into a company’s operations; and the new ability for others to hold companies accountable for their mistakes. Together, those forces mean that companies can suffer brutal consequences for misconduct—bad headlines, consumer boycotts, business partners canceling contracts, and more.

Third, compliance can make a company a better competitor in the marketplace. A company with strong compliance makes fewer mistakes and therefore is distracted less often with fixing those mistakes. A strong compliance program can also help a company identify emerging risks earlier, which gives it more time to respond. 

Above all, effective compliance programs make your business a more attractive partner to other businesses. Remember: we are all someone else’s third party. The more effective our ethics and compliance is, the less of a risk we are to others. 

We all agree that compliance is such a strategic issue that it deserves top management’s utmost and undivided attention, and willingness to make resources, like automation tools, available.

Let’s make sure that everybody understands that the compliance program is about protecting the company from regulatory and reputational risk - it will not only avoid fines and prison terms but will maintain the company’s reputation, protect its bottom line and help secure the future of business.

Comments are welcome and automation assistance is available – please contact me at [email protected]