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A Culture of Compliance

By Sonjui L. Kumar Email By Sonjui L. Kumar
June 2019
A Culture of Compliance

Compliance may be seen as a vague area with negative connotations. It may evoke visions of archaic regulations and rules. It crops up in every area of operations, from when and how much employees get paid, to safety devices on manufacturing equipment, to financial filings to be made to federal and state tax authorities.

Most small and mid-size entities tend to be negligent or reactionary when it comes to matters of compliance. However, the old adage, “An ounce of prevention is worth a pound of cure,” could not be truer when it comes to the often mundane task of complying with government regulations.

It is important to recognize that most regulations stem from some underlying problem or purpose, whether it’s to make sure that employees are not working overtime without pay, or to ensure that manufacturers are not dumping their waste into our rivers and skies. Whether you agree with that problem or purpose is something that can be addressed through interactions with your elected representatives, rather than failing to comply.

What’s Your Culture of Compliance?
Companies deal with these requirements in a variety of ways. Some smaller enterprises rely on their owners and C level executives to be aware of and implement the rules. Larger enterprises may appoint a Chief Compliance Officer or even have division specific managers with the responsibility. Regardless of who is in charge of daily monitoring of compliance, the importance comes from the top. Companies can stress the value of staying compliant by including statements to that effect in their mission statement, employee handbook, website, and vendor policies. Or they can de-emphasize it by seeing what they can get away with. Still others may operate in a crisis mode. It does not take long for an employee, customer, or potential buyer to see which culture has been adopted.

What’s at Stake?
Government investigations, audits, fines, and penalties are some of the direct consequences of noncompliance. Less visible but more important for long-term viability of a company is the loss of reputation, customers, and employees that can result when a company is under scrutiny. Also, company resources are needed to manage inquiries; civil and sometimes criminal penalties, or even a shutdown, may result. In early 2019, Google was fined $57 million for violations of the European Union’s data privacy laws. Facebook is facing large penalties from the Federal Trade Commissioner for violation of rules regarding privacy. BP still faces major issues with its reputation for its failure with compliance that led to the 2010 Deepwater Horizon oil spill. More than the money damages are losses of reputation, losses that are hard to quantify.

What Does It Take?
The most cited reason given by smaller companies when faced with a compliance issue is lack of awareness. There are many ways to overcome this knowledge gap. Hiring experienced personnel is a good place to start. Regularly sending employees to conferences and maintaining subscriptions to relevant industry publications is another way. No area is more important in this regard than Human Resources. Changes in labor laws can happen quickly and often, and spread across states and cities once enacted. A prime example of this is the regulation of employee background checks. Until recently, background checks were an expected step in the hiring process, but in just a few short years, multiple jurisdictions have imposed regulations on when a check can be conducted and how its results can be applied. Not knowing where employees are protected is risky and can open a company up to liability. So although the cost of compliance may be high, the lack of it will always be higher.

The Positives
Compliance decreases the risk of fines, lawsuits, business shutdowns, and other regulatory problems. Going beyond what’s required can lead to a positive reputation amongst stakeholders, ultimately increasing a company’s value in the marketplace. This heightened level of compliance with regulations and ethics is a way that a company can distinguish itself from its competitors, especially if customers include public companies that are highly risk averse. Finally, a company that promotes compliance should see increased employee retention and morale, creating a healthier, happier, and more productive workplace.


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Business Insights is hosted by the Law Firm of KPPB LAW (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB LAW, practicing in the area of corporate law and governance.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.



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