Establishing a Corporate Compliance Program.
Updated: Jul 30, 2020
Establishing a Corporate Compliance Program is no longer “Nice to Have”, but rather an absolute “Must Have”
Over the last few years, we have observed a strong increase of international collaboration in enforcement by various authorities. Not only does this help bring international corruption cases to conclusion more quickly but it also gives a clear message to potential perpetrators: the chances of getting caught are increasing.
With all the public discussion around corruption scandals and the massive impact that sanctions such as debarment, monitorship, and huge monetary penalties, executives that continue to ignore corruption run the risk of not only exposing their organizations failure to implement effective anti-corruption compliance programs, but are also acting with gross negligence and gambling with the future of their company and its employees.
The dramatic reputational and financial impact of non-compliance and unethical management practices as presented in the press and social media in connection with SNC Lavalin, Bombardier, Volkswagen, Valeant, Petrobras and others have contributed to the investment community taking increased interest in long term sustainability of companies within their portfolios and how ethics and compliance are embedded in a company’s corporate culture. Institutional investors are increasingly demanding evidence of effective compliance programs before making significant investments in portfolio corporations.
There clearly is a new recognition that establishing a corporate compliance program is no longer “nice to have”, but rather an absolute “must have” for all corporations. As more and more stakeholders are demanding robust compliance programs, those companies that embrace ethics and compliance will emerge with a competitive advantage.
The C-suite executives need to provide the appropriate tone from the top and ensure that ethical behavior will be considered as part of the performance evaluation process of middle and senior managers. Equally there should be zero tolerance for violations, even if it may affect top executives and other “high achievers”.
A key element of the foundation for a successful compliance program will always have to be a thorough compliance risk assessment, taking into consideration the companies’ geographical footprint, industry sector, government interactions, past identified fraudulent activities and other policy violations, third party relationships and overall business models, to name just a few of the input factors that should be considered for an in-depth compliance risk assessment.
Only if compliance risks are clearly identified will the Chief Compliance Officer or equivalent be able to design effective risk mitigation measures, helping to prevent corrupt activities. Such risk assessment should be repeated regularly, in order to account for changes in the respective market environment as well as other changes to related risk parameters.
Prevention of corrupt activities largely depends on targeted risk mitigation measures and starts with ensuring sufficient awareness across all company stakeholders. The more people know about the factors that contribute to corruption, the harder will it be for corrupt individuals to continue their unethical practices.