Regardless of the industry, corporate compliance should be a crucial aspect of your business operations. To manage compliance and minimize risk, your business should take proactive measures, which may seem tedious initially but can ultimately save your organization substantial costs.
Noncompliance with corporate regulations can lead to severe consequences such as legal penalties, fines, damage to reputation, and more. Don’t wait for your business to learn the hard way; initiate the development of a compliance program as soon as possible.
This write-up aims to explain the meaning of compliance and its significance for your business. Additionally, it will provide insights on how to establish an effective compliance program.
What is Compliance in Business?
Compliance is defined as either “the act of obeying a directive” or “the state of conforming to rules or expectations.” In the context of corporate operations, compliance refers to the process of ensuring that your company and its employees adhere to all relevant laws, regulations, standards, and ethical codes that apply to your industry and organization.
Corporate compliance encompasses both internal policies and procedures, as well as federal and state laws. Enforcing compliance helps safeguard your organization against rule violations, reducing the risk of financial penalties and legal action.
To ensure ongoing compliance, many organizations establish a program to govern their compliance policies consistently and accurately over time.
The Purpose of a Corporate Compliance Program
The primary objective of a corporate compliance program is to safeguard your business. This straightforward purpose, however, can yield significant returns on investment by preventing waste, fraud, abuse, discrimination, and other practices that may disrupt operations and pose risks to your company.
To achieve this objective, your corporate compliance program must integrate all compliance efforts across the enterprise, from managing external regulations and internal policies to providing comprehensive employee training. By ensuring that all departments and personnel work together to maintain standards, you can mitigate the risk of major violations and failures.
An effective program improves communication between leadership and staff and includes a process for creating, updating, distributing, and tracking compliance policies. Employees cannot be held accountable for regulations and rules that they are unaware of, so it is crucial to have a system in place that ensures they are informed.
Once your staff comprehends the expectations, they can concentrate on accomplishing your organization’s broader goals, enabling operations to run smoothly. Additionally, when employees receive appropriate training on compliance requirements, they are more likely to identify and report illegal or unethical activity.
Maintaining compliance empowers your employees to perform their duties well, attain career goals, and ensure customer satisfaction, leading to your company’s growth and success.
In case of a lawsuit, your corporate compliance program will serve as an asset in court. As explained by a report from Rutgers School of Law, “An organization that has put forth a strong effort to prevent and detect violations of the law by its employees and other representatives will be treated more leniently than one that was indifferent to compliance.”
How to Create a Successful Corporate Compliance Program
Postponing the implementation of a corporate compliance program is a luxury that few businesses can afford. Avoid the possibility of hindsight being 20/20 for your organization by taking proactive measures today.
To ensure success, your compliance program should be meticulously planned and executed, with accompanying training programs to ensure that your employees are knowledgeable in all aspects of compliance.
Here are a few suggested steps for establishing or enhancing your corporate compliance program.
Get Your Leadership on Board
Your corporate compliance program requires active management, which is why one person should be designated to oversee its day-to-day operations.
Depending on the size of your organization, you may appoint one compliance officer or several. Regardless, those responsible for managing the compliance program must possess the power to enforce the regulations and hold personnel accountable at all levels.
Additionally, they must have direct access to the company’s governing body, which may comprise senior management or the board of directors.
Having access to senior management and the power to enforce regulations is crucial for compliance officers, as it allows them to respond promptly to potential compliance concerns.
However, communication must flow in both directions. It’s essential for the governing body to routinely evaluate the efficiency of the corporate compliance program.
Corporate compliance revolves around cultivating a work environment that prizes integrity and ethical behaviour.
This begins at the highest level.
For the program to be successful, your leaders must adhere to the regulations initially. They should promote ethical behaviour and openly emphasize the significance of compliance.
It’s crucial for company leaders to promote staff involvement, reassuring them that they won’t face retribution for reporting illegal or unethical actions.
The Department of Justice devised a checklist to assess corporate compliance programs, which includes the following inquiries:
- Have senior leaders, through their conduct and speech, motivated or hindered the type of misconduct at hand?
- What tangible measures have they taken to exhibit their leadership in the company’s compliance and remedial initiatives?
- How does the company supervise the behaviour of its senior leaders? How have these leaders demonstrated appropriate behaviour to their subordinates?
Conduct Risk Assessments
The objective of corporate compliance is to manage risk. To develop a successful program, it’s essential to identify the compliance areas that present the highest risks to your organization. By doing so, you can allocate resources towards addressing those risks.
Given that federal and state regulations, as well as industry standards, are continuously evolving, regular assessments are necessary to avoid noncompliance risk. According to the Association of Corporate Counsel (ACC), it’s recommended to conduct a risk assessment once a year.
To proactively prevent corporate compliance violations, you may follow a formal assessment process such as the one suggested by the ACC:
- Audit results
- Recent litigation
- Compliance complaints
- Employee claims
- Industry enforcement trends
- Compliance policies in each risk area
Establish and Maintain Your Code of Conduct, Policies, and Standards
A well-defined code of conduct is essential for your corporate compliance program as it helps establish the program’s purpose and expectations for behaviour. It acts as a foundation and should outline the following key points:
- Who is responsible for managing the program.
- How employees should report any misconduct.
- Disciplinary measures for violating the code of conduct.
Your corporate policies should build on top of that foundation by providing guidelines for specific areas of compliance. For example, they may address common corporate compliance violations:
- Corporate corruption
- Tax practices
- Conflicts of interest
- Record retention
After identifying risk areas and creating policies, it is crucial to establish procedures that guide employees in implementing those policies accurately. Developing clear, step-by-step guidelines simplifies the process and helps detect non-compliance.
Certain industries with high-risk areas may require additional standards. For instance, the Foreign Corrupt Practices Act may mandate detailed protocols for screening third-party business partners.
Properly Train All Employees
Simply having compliance policies and procedures in place is not enough to ensure compliance. It’s crucial to disseminate them to all employees and relevant vendors, and to provide training on laws, regulations, corporate policies, and prohibited conduct.
To ensure effective training, it may be necessary to tailor it to specific employees in high-risk areas. Tracking, documenting, and following up on training is also recommended. One way to achieve this is using a compliance policy and training management tool. This software can automate many manual processes, including policy distribution, online training, and custom testing. The ACC recommends implementing such a tool to ensure compliance training is thorough and effective.
Improve Your Program with Insurance
Public liability insurance is a type of insurance that protects businesses and individuals from claims made by third parties for property damage or personal injury caused by the business or individual. In the context of corporate compliance, having public liability insurance is an important risk management strategy. By having this type of insurance, businesses can protect themselves from potential financial damages that may arise from legal claims made against them for noncompliance with laws and regulations. Additionally, having public liability insurance can demonstrate a commitment to ethical behaviour and compliance with legal and regulatory requirements, which can help build trust with customers and stakeholders.
In conclusion, implementing a corporate compliance program is crucial for organizations to protect themselves from potential risks and legal issues. By identifying and assessing the areas of highest risk, creating policies and procedures, and training employees on compliance regulations, businesses can foster a culture of integrity and ethical behaviour. It’s important to have dedicated personnel responsible for managing the program, with access to senior management and the authority to enforce rules. Regular evaluation and communication with the governing body can ensure the effectiveness of the program. Overall, a well-designed and effectively executed corporate compliance program can mitigate risks and protect the reputation and long-term success of the organization.