Over the years, corporate compliance evolved from simply reporting specific data to government agencies. In the high-risk environment of today’s world, it warrants setting formal policies, extensive training, and monitoring to ensure regulatory compliance – otherwise known as a corporate compliance program.
The two underlying goals of any compliance program are the same – to promote ethical behavior throughout the company and stay compliant with the law. But while moving to the future, which areas do corporations need to focus on specifically?
In this article, we’ll talk about the corporate compliance programs to initiate in 2021, along with the ingredients that make an effective compliance program.
Let’s get started.
What is a Corporate Compliance Program?
Before jumping into the specific programs, a crash-course on corporate compliance programs, and why they’re essential, might be useful.
A corporate compliance program refers to a formal system through which a company ensures that its employees and external business partners behave and operate in accordance with the laws that apply to them.
A company’s compliance program consists of formal corporate policies for internal control, training programs, monitoring systems, and escalation and remediation protocols.
The company’s chief compliance officer is usually responsible for creating, managing, and monitoring its corporate compliance programs and ensuring that all relevant stakeholders – board of directors, employees, and third party entities respect and follow the established code of conduct.
Why Corporate Compliance Programs are Needed
Establishing and running formal programs may seem like an unnecessary use of resources to the inexperienced eye.
While the definition of an “effective corporate compliance” program may vary from company to company, all corporations have to employ some level of compliance efforts to protect them from various risks.
In any case, with a corporate compliance program, you can:
Protect Your Company’s Reputation
An obvious reason to have a compliance program is to protect your organization from legal action.
However, lawsuits aren’t the only things you should be worried about. Another potential risk of non-compliance is losing your company’s credibility/reputation.
For instance, if the board of directors has a history of compliance issues, it can get in the way of potential profitable business deals, drive talent to seek employment with your competitors, and more.
Protect the Company from Legal Action
An obvious risk of non-compliance is legal action from prosecutors.
Having a corporate compliance program can protect you in two ways:
- With an effective program, you can significantly cut down on chances of non-compliance.
- If an employee of your organization is charged with non-compliance (such as bribery), you can protect your corporation by showing the prosecutor that the accused broke the law despite your company’s efforts to educate, train, and prevent them.
Having a compliance program doesn’t eliminate the possibility of non-compliance. But it can help reduce it.
Protect the Company from Monetary Penalties
Last but not least, a compliance program, by keeping your employees in line, can protect your organization from hefty monetary penalties.
In the United States, there are several laws such as the Foreign Corrupt Practices Act (FCPA), Fair Labor Standards Act, etc., that ensure responsible and fair practices from businesses. Strict disciplinary action is taken against a business that doesn’t comply with these laws.
Corporate Compliance Programs to Initiate in 2021
In the digital age where transparency is crucial, it’s more important than ever to invest in corporate compliance programs.
Having a solid ethics program is a must for everyone. But what risk areas do compliance officers need to consider moving to 2021?
Depending on recent events and the current climate, here are a few corporate compliance programs you should consider initiating in 2021 (these can either exist as separate initiatives or as components of one central program – it’s completely up to you):
There are many labor laws that prevent the leadership of organizations from exploiting or wrongfully intimidating their employees.
A relevant example includes the Families First Coronavirus Response Act, under which, certain employers are required to provide paid sick leave or expanded family and medical leave to their employees if they meet certain conditions.
If an employee is eligible for leave, the employer must comply and cannot give threats.
Another example is the No FEAR Act, which applies to government agencies.
Considering all of the above, it’s important to have a special program that trains the senior management from breaking these laws.
Workplace harassment, whether physical, verbal, or visual, stems from a lack of ethics and general decency.
Employees can file for formal administrative complaints against their employers with the US Equal Employment Opportunity Commission (EEOC).
To prevent that from happening, a special non-harassment program that raises awareness, trains employees, and establishes regulations can go a long way in ensuring compliance.
Laws like the FCPA exist to prevent businesses from using underhanded tactics (such as bribing foreign officials) to achieve strategic goals.
In case you don’t already have one, you should consider initiating an anti-corruption program in 2021.
Such a program could involve monitoring the corporate expense accounts of employees belonging to senior management, and questioning them about any suspicious expenses.
One thing that truly helps enforce a corporate compliance program is a human firewall.
When employees report unlawful activities, they should ideally report them to the concerned internal department. However, most of the times, they’re afraid of the consequences, especially when the person they have to report is a senior executive.
For that reason, you must have a solid whistleblower program in place, one that encourages employees to come forward and has a hotline for confidential reporting.
Third-Party Due Diligence
As mentioned earlier, corporate compliance doesn’t only apply to the employees of an organization. Third-party partners, such as suppliers, retailers, contractors, consultants, and attorneys should also be in full compliance with the laws.
If they’re not, it would look bad for your company and possibly result in prosecution.
Because of that, you need to have a third-party due diligence program that screens business partners, informs them about their compliance obligations, and educates them about the company’s policies.
Setting Up Effective Corporate Compliance Programs
In most cases, businesses are free to set their compliance policies and regulations however they like, as long as they follow the law.
But in order to create a successful compliance program, there are certain factors that must be considered. These include:
First and foremost, you need to set clear objectives for your corporate compliance program.
It all starts with a thorough risk assessment, which involves looking at the various compliance risks for your organization.
Once you identify said risks, devise programs around them, and set quarterly, annual, or 2-year goals to track the effectiveness of your program.
Formal Training Program
To establish a culture of compliance, you need some form of compliance training.
Ideally, a training program should be formal, with its own goals, and administered through a proper learning management system (or at least documented).
You can share mandatory training modules and arrange workshops.
To ensure optimal performance, you can even send your chief compliance officer and other senior leaders to a compliance conference.
A close evaluation of corporate compliance programs is necessary to ensure you’re not wasting potentially thousands of dollars.
For that reason, you should have a system for collecting and refining data relevant to the objectives of your corporate compliance program.
Furthermore, create an internal audit committee, responsible for auditing and ensuring program effectiveness.
Escalation and Remediation
You just created policies, administered training, and set up a method for analyzing the program’s effectiveness – what’s next?
The only thing left to do is to create systems for escalation and remediation.
Escalation refers to proactively looking for any red-flags within the system.
Remediation, on the other hand, refers to taking appropriate steps to address and mitigate any potential risk.
Laws, regulations, and disciplinary measures are set in place for a reason.
Aside from the ethical obligation, businesses must comply with all the applicable laws to protect their employees, ensure fair practices, and avoid devastating monetary losses in the form of fines.
In 2021, having programs that promote safe environments for the employees, stop corruption, and screen strategic partners will help win the race.