Compliance involves adhering individuals, groups, or companies to a set of rules or regulations determined by the law or any governing body.
When it comes to business and corporate management, compliance refers to the company obeying all of the legal laws and regulations in regard to how they manage their business, their staff, and their treatment towards their consumers in ensuring that the corporations act responsibly.
Compliance, in its broadest form, is the combination of all processes that enable a company to ensure respect for the values and ethics installed by its management. Non-respect can lead to legal and/or administrative sanctions, financial losses, or damage to image and reputation.
An effective compliance program can reduce many of the company’s greatest risks, reduce the severity of claims and penalties when violations do occur, and enhance company performance and profitability. Conversely, a deficient compliance program can result in increased liabilities, harmful management distractions, and negative publicity.
An effective compliance program should include the following; board and management oversight and governance; proper organizational structure and accountability; periodic risk assessments, internal controls, training and education; monitoring and assessment processes, investigatory mechanisms and robust corrective actions and remediation.
A good corporate compliance program generally includes the following components.
- Established Compliance Policies: each company should have its unique compliance program that reflects the specific compliance risks most prevalent in that company. Therefore, the design of an appropriate compliance program should first start with an assessment of the vulnerable compliance areas within the company:
- The program should be tailored to each separate risk factor and to the local cultures, business practices, and languages of the respective business units. A one-size-fits-all program design is probably insufficient.
- The program should be supported by significant money, company resources and management support so that the program both appears to be and in fact is one of the highest priorities within the company.
- A chief compliance officer or other high-level executive should be assigned overall responsibility to oversee the compliance process and should be given broad autonomy and authority with respect to all aspects of the program.
- The program should be simple in its design with minimal bureaucracy so that it is practical and easily understood.
- Provide Training and Education: the best-designed compliance program is useless unless everyone involved with the company’s operations understands what is and is not acceptable conduct, the importance of full legal compliance, and the role of each person in the compliance efforts:
- The company’s compliance standards and procedures should be effectively communicated to all employees and all outside agents who are directly involved in the company’s business.
- The training program should include a compelling explanation of why compliance is critically important to the company as well as the participants.
- All aspects of the compliance program should be fully explained to the participants, including not just what is proper conduct but also how to respond to inappropriate behavior by others.
- Internal Reporting System (whistle-blowing): the company should establish and publicize a simple internal reporting protocol so that employees who identify inappropriate behavior can report such behaviors to appropriate officials within the company. This internal reporting system should be available for use by current and former employees as well as other third parties, should be strictly confidential, should encourage persons to make reports without fear of retribution, and should ensure a thorough and independent investigation of all reports.
- Audit and Monitor Compliance System: no compliance program is perfect or complete, constant evaluation of the program and its effectiveness is therefore critical. Directors should seek to determine if the company’s management is sufficiently supporting the internal compliance efforts through adequate resources and full cooperation. They must also ensure that internal compliance efforts are identifying most issues before regulators do and that the compliance department is identifying and correcting common causes of compliance issues when they arise.
BENEFITS OF ADHERENT TO COMPLIANCE SYSTEM
Avoidance of Criminal Charges
There are regulatory requirements applicable to different industries which when not adhered to can lead to criminal charges. There are so many different regulations and laws in regard to how a business should manage its staff, how stock is handled, how advertising is handled, the rules of engagement when buying and selling, rules on negotiating with customers, on employee salary, safety rules, and so many others. With a proper compliance culture and management, a company can stay on the light side of the law.
Building Positive Reputation
The success of a business depends sometimes on its public image. Compliance with regulatory rules and laws ensures that a company can uphold a positive image and build consumer trust. This also helps build consumer loyalty, since customers are more likely to return to a service or product from a company they identify as trustworthy.
Higher Productivity in the Company
It is important that internal compliance is adhered to since it will ensure that employees are satisfied and that all complaints or issues are monitored and addressed properly before they grow and affect the entire corporation.
With the right compliance team, a company can achieve all of the aforementioned benefits and work towards higher productivity and better market performance.
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