With each passing day comes more information about the importance of ethics and compliance to the successful and profitable operation of a business.
The latest is a survey from law firm Baker McKenzie, which found 80% of global multinational companies are not managing compliance with an integrated strategy, and that 52% of firms with revenue of $1.3 billion or more continue to struggle with significant compliance issues.
The survey of 1,300 business leaders in the U.S., U.K., Europe, Asia and South America found companies are taking compliance risks in their mergers and acquisitions.
Sixty percent said their organization has bought or invested in companies whose compliance issues were known at the start of the deal process, while 43% said their compliance teams are substantively involved in planning and implementing big M&A deals.
“Rather than viewing compliance as a necessary evil, business leaders should realize the benefits of involving compliance teams at the outset,” said William Devaney, co-chair of the firm’s global compliance and investigations group.
“Those companies which don’t involve compliance teams in business-critical decisions, could be inflicting considerable self-harm and significantly increasing their risk exposure, especially in the context of M&A,” said Devaney.
So why is compliance often viewed as an impediment when it clearly can save money in the long run by getting involved early and flagging issues?
“There are certainly those in the C-Suite that view compliance as ‘business prevention,’ but I--perhaps optimistically--think that’s a minority,” said Todd Cipperman, managing principal of Cipperman Compliance Services and author of the new book, “The Compliance Advantage.”
When it comes to budgeting, every function except the ones that bring in money must squabble for small allocations, and historically, compliance officers have done a terrible job in the budgeting process.
“Instead of asking for an allocation based on some business metric, very often the chief compliance officer just asks for more,” said Cipperman, who instead recommends the CCO offer a benchmark in the budgeting process. “Once a firm starts including the compliance function in a legitimate budget discussion, attention and resources will follow.”
This puts the onus on compliance to change this perception. To win support, Cipperman said the compliance chiefs must change the conversation they are having with the C-suite and board.
“In our business--providing outsourced compliance solutions--greed sells much better than fear,” said Cipperman, who added most of his firm’s clients seek help after a potential client asks serious questions about the compliance infrastructure during operational due diligence. “Very rarely does a client retain us because they are suddenly struck by an existential fear of a regulator.”
That means compliance officers should stop trying to scare upper management into allocating more resources. Instead, he said compliance “should try to show how compliance will help secure new institutional investors, help improve operations, or even increase the firm’s franchise value. These positive messages will get the C-suite’s attention.”
Another problem that can lead to more compliance issues are the siloes created by most organizational structures, with 45% saying this creates blind spots. Sixty-nine percent said the company would be better if there was greater collaboration among business units. Just over half said their organization is “very or somewhat siloed.”
Just as worrisome, 64% said the job of compliance is solely the job of the compliance team.
“Compliance is now everyone’s job,” said Joanna Ludlam, co-chair of the law firm’s global compliance and investigations group. “Regulators are increasingly able to join the dots, so organizations must collaborate, share responsibility and empower every business division to identify compliance issues that fall between siloes.”
For all the issues facing compliance, Roy Snell, who retired last year as head of the Society of Corporate Compliance and Ethics, said people need to be reminded of all the forward movement that has occurred since the profession took root 25 years ago.
For instance, where still just 43% of compliance officers are “substantively involved” in M&A deal planning, Snell points out that number “was probably zero” in 1995, when people first were hearing about compliance.
“We need to make more progress but from time to time we should recognize the progress we have made,” said Snell.
About the Author
Joined LRN in October 2018 after 30 years as a journalist, including seven years at The Wall Street Journal, including Risk & Compliance Journal and was a creator of the WSJ Crisis of the Week column. In 2015 was named one of the 100 most influential people in business ethics by Ethisphere Institute. Spent 14 years as a reporter in Hawaii, 11 with The Associated Press.More Content by Ben DiPietro