Several concepts apply to sound corporate governance in all countries where international investors invest their money. Many are ethical in nature and might be described as overarching corporate governance principles including fairness, accountability, responsibility and transparency. Compliance Programs and associated training will likely have at their core these principles, but are companies getting a decent return on their investment in compliance training?
It is often hard to tell until something goes awry. In the absence of any major transgression, it may be difficult to find the time, focus or support to account for the investment in employee training or to improve internal compliance. Taking employees away from their day-to-day tasks to train them is expensive, as is testing whether they are compliant in an increasingly fraught regulatory landscape.
What is clear is that compliance initiatives are futile unless employees appreciate the true value. To effectively manage risk, companies need their employees to understand the vital role their efforts play and to believe in the key corporate values that go beyond the compliance rule book. To achieve this, employee engagement must be viewed as a key pillar of regulatory compliance. The following tactics will enhance the value and effectiveness of any compliance program:
recognize-that-employees-are-perceptive-1. Recognize that employees are perceptive and smart
Employees are quick to distinguish myth from reality. They may be asked to sign a Certificate of Compliance and report violations of the company's code to the Compliance Officer. But even a model compliance program will have limited impact if the employees witness or hear about unethical practices among the organization's leadership.
model-desired-behavior2. Model desired behavior
In the modern compliance era, regulators expect the board to play an important role in nurturing an effective compliance culture. Organizations must ensure there is an appropriate and effective "tone from the top." While the responsibility for managing risk is typically delegated to senior management, all leaders should demonstrate unassailable integrity and adherence to the company's code of ethics. If non-compliant employees at any level, are not held to the company’s compliance policies, then compliance messages will have a weakened effect.
provide-a-safe-arena-for-whistle-blowing3. Provide a safe arena for whistle blowing
If a voluntary reporting system for improper behavior is to work, the board must ensure there is protection for individuals acting in good faith who report possible compliance issues. Employees who fear reprisal will stay silent and breaches of compliance may go unnoticed.
link-individual-compliance-efforts-to-pe4. Link individual compliance efforts to performance reviews and compensation
Whereas compliance training may be viewed as a chore, performance reviews and compensation linked to employees' compliance efforts will incentivize employees to implement the ethical business practices they have been taught. This is particularly important for senior management, as the most recent global financial crisis has demonstrated, but the same arguments might also be relevant for all employees where certain behaviors must be encouraged to achieve good compliance outcomes.
strive-for-a-culture-of-compliance-that-5. Strive for a culture of compliance that is rooted in ethical behavior
Focusing on ethics encourages behavior that goes beyond rote allegiance to the rule book - it also requires employees to act in conformance with the values of the company. Culture should ideally align with the long-term strategy and sustainability of the business. Board meetings are therefore a suitable forum for articulating the strategies that will embed compliance in the corporate culture, taking it beyond a box-checking exercise.
ongoing-compliance-training-is-critical6. Ongoing compliance training is critical
One-time training is weak, because it offers little opportunity to integrate the lessons learned from past compliance issues. Without such integration, employees are likely to repeat the same mistakes and in turn this puts the company at risk On-going training is important to ensure employees are equipped with a deep understanding of the investigative processes, thereby giving them the confidence to rely on their own good judgment when investigating possible compliance issues.
value-compliance-transgressions-for-what7. Respect the risks but value the opportunities from compliance transgressions
Any incident that surfaces is a serious risk to the company, and internal controls should be in place to manage or mitigate these as appropriate in the circumstances. Continuous improvements are necessary to stay ahead of the risk environment and a company might reflect that by learning lessons from incidents there is an opportunity to tighten processes and procedures not only for better regulatory compliance, but to protect the long-term sustainability of the business.
be-transparent-about-results8. Be transparent about results
Communicating both the successes and the failures of the internal control systems demonstrates that leaders are putting compliance front and center. This reinforces positive behavior and in turn reduces the risk of compliance issues materializing., particular when the information impacts the company in terms of cost-savings, efficiency or culture-building.
In summary, it can be relatively easy to build a compliance program, but without employee buy-in and behaviors aligned with the overarching corporate governance principles I started with, the battle to manage risk may be lost and a company's approach to engaging employees is critical to achieve this objective.
To learn more about engaging employees in your compliance program, download the whitepaper, Maximize Employee Engagement as Your First Line of Defense in the Battle for Regulatory Compliance. You can also find additional educational materials for board members and executives teams on the Directors Desk Resources page.
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