The corporate regulatory landscape is constantly evolving, influenced by changes in government, economic conditions, and societal expectations. Recent years have seen increased stakeholder focus on corporate accountability, transparency, and ethics — placing greater emphasis on the role of compliance programs.
Compliance programs serve as the backbone of corporate integrity, supporting essential efforts such as risk management, legal adherence, and ethical decision making. Without an adequately supported compliance program, companies could open themselves up to pitfalls like additional costs, loss of stakeholder trust, and slowed decision making.
Considering these risks, companies must not treat compliance as a passive endeavor. Structuring an effective compliance program requires a nuanced understanding of the various roles, responsibilities, and relationships across an organization. It demands collaboration between multiple functions, each contributing its knowledge in service of comprehensive risk management and adherence to legal and ethical standards.
This insight explores core principles and best practices that business leaders can follow to build and maintain a robust compliance program within their organization.
Trust and Relationships
Trust, both internal and external, is a fundamental component of effective compliance programs. Placing compliance officers within individual business units allows them to build strong relationships with key stakeholders. These officers can participate in regular meetings and provide strategic advice, integrating ethical considerations into everyday decision making and establishing compliance as a value-generating asset, rather than a bureaucratic burden.
But the importance of trust extends beyond internal relationships. A strong compliance program can help emphasize ethical and transparent practices, increasing trust and enhancing the company’s reputation in the eyes of the public and capital markets. A trustworthy reputation can function as a critical draw for external investors and can positively influence the company share price.
Structuring Compliance for Strategic Advantage
Embedding compliance responsibilities into profit centers, such as sales or product divisions — rather than relegating the compliance program to a separate cost center — can help enforce accountability and align compliance efforts with business objectives. For instance, transferring responsibility for compliance with sales practices and anti-bribery regulations to a sales division can help integrate compliance into revenue-generating activities. This approach not only aligns compliance with business objectives but also fosters a culture of accountability, as the division directly benefits from maintaining ethical sales practices and avoiding regulatory penalties.
Common Compliance Responsibilities Across Functions
1. Ethics & Compliance Function
- Ethical Standards and Code of Conduct: Develops and enforces the organization's code of conduct and ethical guidelines, conducting training and awareness programs.
- Anti-Bribery and Corruption: Implements policies to prevent bribery and corruption, ensuring compliance with laws like the FCPA.
- Internal Investigations: Conducts investigations into potential violations of laws, regulations, or company policies.
- Risk Management: Identifies and assesses compliance risks related to ethics and integrity, developing strategies to mitigate these risks.
2. Regulatory Compliance Function
(in industries like financial services, healthcare, and pharmaceuticals):
- Industry-Specific Regulations: Manages compliance with regulations such as FDA or HIPAA, focusing on regulatory reporting and audits.
- Regulatory Relationships: Maintains direct relationships with regulatory bodies to stay informed about changes and expectations.
3. Data Privacy and Protection
- Chief Privacy Officer: Ensures compliance with data protection laws like GDPR and CCPA, focusing on data privacy strategies and risk management.
4. Internal Audit Function (Chief Audit Executive)
- Comprehensive Audits: Conducts audits across the organization to assess the effectiveness of internal controls, risk management processes, and governance practices.
- Collaboration: Works with the Ethics & Compliance department to ensure compliance risks are addressed in the audit plan.
5. Other Functions
- Finance/Internal Audit: Manages compliance with financial regulations such as Sarbanes-Oxley (SOX).
- Health and Safety: Ensures compliance with occupational health and safety regulations.
- Human Resources: Focuses on compliance with employment laws and regulations.
- Information Security: Ensures compliance with cybersecurity standards and protects company data.
Pros and Cons of Different Compliance Structures
Different organizations may elect to adopt various structures for their compliance programs, each with its own set of advantages and challenges. A centralized compliance function can support greater consistency and control, but integrating compliance into profit centers allows for greater alignment with business goals and responsiveness to market demands. Understanding an organization’s unique needs and goals is key to determining the most effective compliance structure.
By clearly defining roles and responsibilities across functions, organizations can create a cohesive compliance strategy that leverages the strengths of each department. This collaborative approach makes compliance both a protective measure and a strategic advantage that supports the organization's overall objectives.
Navigating Change
As administrations change and regulatory focus shifts over time, some business leaders may seek to deprioritize compliance. CCOs must remain vigilant and proactive, and work to ensure that compliance remains a competitive advantage. Taking a strategic approach — focusing on predicting, protecting, and enabling — can empower CCOs to adapt their programs and highlight the enduring role of compliance in delivering business impact.
Proactive Adaptation
To effectively navigate regulatory changes, CCOs must stay informed about potential shifts, regularly engage with industry peers, and leverage data to anticipate and respond to changes. By adopting a forward-thinking mindset, compliance programs can remain agile and responsive. In instances where CCOs face a need to justify why compliance should remain a priority, they should consider pointing to outcomes from investigations at similar companies. Cases where a weak compliance program was a root cause of misconduct can help illustrate the risks and demonstrate the value of internal efforts in preventing similarly costly breaches.
Just as domestic policy changes impact compliance efforts, globalization has also added complexity to the regulatory landscape. Organizations with a multinational footprint need to navigate myriad international laws and standards, some of which may even overlap or conflict. CCOs must stay attuned to these global dynamics and ensure that their compliance programs are equipped to handle cross-border challenges.
A Culture of Compliance
A strong compliance culture — an environment where ethical behavior is valued and rewarded — can be a powerful bulwark against new complexities or challenges. When compliance is integrated into the fabric of the business, individual employees will be better able to make decisions that are consistent with established ethical and legal frameworks and will feel more enabled to speak up if they become aware of actions that place the business at risk.
But creating a culture of compliance requires a concerted effort and investment from CCOs, business leaders, and compliance officers across the organization. For a compliance program to truly impact culture, it must go beyond monitoring and advice to offer ongoing training, clear communications, and an exemplified commitment to ethical leadership.
Elevating Compliance as a Career Path
Even the most well-structured compliance framework is powerless without teams to communicate and enforce its standards. But compliance work is often perceived as less glamorous compared to other business careers, and leaders may find it hard to attract or retain employees. To elevate compliance as a desirable career path, organizations should aim to reposition it as a dynamic field at the intersection of regulatory regimes and technological change.
Attracting Early-Career Professionals
To appeal to early-career professionals, leaders can emphasize the meaningful work of compliance teams, such as combating financial crime and terrorism. Highlighting the core values of integrity and corporate responsibility can resonate with younger generations, who often prioritize purpose-driven careers. Offering other benefits like job flexibility and emphasizing the compliance function’s role in protecting consumers and investors can also help set compliance apart and make it more appealing.
The Role of Leadership
No matter the approach, leadership plays a crucial role in changing perceptions around compliance. The tone from the top must reflect the importance of compliance as a central and respected part of the organization. By treating compliance as a vocation and emphasizing its strategic importance, companies can better attract and retain talent in this critical field.
Ongoing Compliance
Even as the regulatory landscape continues to evolve, compliance will remain a core strategic asset for any business, helping to guard against risks and cultivate trust. That trust is a foundational element that supports a company's long-term success and sustainability. It influences customer behavior, investor decisions, talent attraction and retention, regulatory interactions, and overall market perception. But given compliance’s critical importance, leaders looking to assess or augment their compliance programs may find it difficult to know where to start.
No matter its maturity level, BDO’s professionals can assist in strengthening your organization’s compliance program. Our knowledgeable teams can help you conduct a comprehensive assessment of your compliance program and related policies, procedures, and systems to identify gaps, craft strategies for improvement, and help monitor the program on an ongoing basis.
Looking to strengthen your compliance program? BDO can help. Contact us to learn more.