Position “compliance” as a competitive tool

Anti-money laundering, anti-bribery laws, data privacy, antitrust, CSR… topics covered by compliance departments are highly heterogeneous. Hence, depending on the company, the compliance function’s names differ. It goes from « ethics and compliance » to « business ethics » or « compliance department ».

We prefer the expression « ethics and compliance » as it refers to a function or a department in charge of checking that the company complies with all the applicable regulations on the one hand, and going beyond those regulations to enhance values and the company’s philosophy (e.g. ethics charters, deontology codes, business integrity…).

We deeply believe that the ethics and compliance function is a competitive tool.Olivier Chaduteau

What is at stake today is not only the perimeter of the ethics and compliance function, what’s in it, what’s out, but also its role and ultimate goal. Some might understand it only as a control function cut off from the business reality, or even as a brake on business. On the contrary, we deeply believe that the ethics and compliance function is a competitive tool. It ought to enable corporations/companies to conquer serenely new markets, contribute to strengthening a sound reputation, and draw the client’s attention towards its products and services.

To do so, the earlier the ethics and compliance function is integrated to the very heart of the company’s strategy, the most likely it is to be a competitive tool.

But what do we mean by competitive tool as far as the ethics and compliance function is concerned? To answer this question, we will follow 4 main ideas:

  • Non-compliance is costly,
  • To build and strengthen a sound reputation,
  • To attract and retain talents,
  • To gain more market shares.

Non-compliance is costly: fines, litigation…

Non-compliance scandals are extremely costly: BNP Paribas paid a $8.9 billion settlement resolving claims that it violated sanctions against Sudan, Cuba and Iran; in response to bribery allegations Walmart spent more than $650 million on an extensive internal probe[1]. We are not short of similar examples. Beyond discovery costs and lawyer fees, the share price of a company might be directly impacted: Volkswagen shares were down 21.77% right after September 21st 2015[2] when the group communicated about the emission scandal.

Therefore a sound compliance program might result in less fines and more spared money available to invest and would foster even more competitiveness.

Build and keep a sound reputation

Above all, the ethics and compliance function becomes a competitive tool as long as it protects, or even strengthens the company’s reputation. A good quality branding is the direct path to customer. From now on, an image considered as “clean”, “ethical”, “with integrity” is no longer a good-to-have but a must-have! It even becomes a sales weapon as it can determine the customer’s choice. As the customer wears several hats: employee, citizen, parents, he/she selects companies with several ethical, social, environmental, human values and keep his/her purchasing power to those which comply with, live and implement their principles at every stage of the production and sales process. Jean-Laurent Bonnafé[3], CEO at BNP Paribas underlines that to respect their principles, companies sometimes have to make difficult choices such as withdrawing from certain markets. Here is when compliance meets strategy! A company needs to select its markets and above all its “way of doing business” to be chosen and cherished by customers.

Alignment-legal-department

Attractiveness and talent retention

In addition, Human resources are also impacted by ethics and Corporate Social Responsibility (CSR). It is a leverage to recruit and retain high potential candidates. The employer brands are today scrutinized by millennials who long for meaning[4]. Young graduates are fed all day long with information about companies on their favorite social networks. They are less likely to apply or stay in a company with a scandalous reputation. In his article published by the prestigious Harvard Law School, Wade Burgess ensures that a bad reputation costs a company at least 10% more per hire[5].

Ability to gain new market shares

Compliance does not just “happen”. It is going to be more and more difficult for companies to do business without having a strong ethics and compliance function they can rely on. Tender process are pickier and pickier about ethics and compliance criteria. The companies without compliance programs or ethical charters will be simply left out. Furthermore, in third-party relationships, being considered as a trustful partner is key. Same for customers, suppliers, and other stakeholders who seek for reliable partners. Acquisitions, joint-ventures, partnerships, all these paths to growth won’t be possible unless the ethics and compliance process are sincere and truly embedded within the company.

To be efficient, compliance shall be embedded in culture not only in procedures

Finally, as regulators emphasize it[6], long hours spent by compliance officers to draft procedures are useless if not enforced by employees. Thus it is crucial for the compliance officers to be well informed and to fully understand the company business, so that they can bring all their added value. From an organizational point of view, the ethics and compliance function ought to be perfectly embedded in the business units and not kept outside. As far as business integrity is concerned, this function is part of the first line of defense since efficient compliance is embedded in culture not only in procedures. The latest condition has to be met to enable the ethics and compliance function to truly become a competitive tool and create the value that will foster company’s development and sustainability.

 (*) Article written by Olivier Chaduteau, and Aurore Marie

 

[1] « Wal-Mart Bribery Probe Finds Few Signs of Major Disconducts in Mexico » – Walt Street Journal (WSJ) – October 19th, 2015

[2] WSJ Market Data Group

[3] Les Echos, BNP Paribas, un an après l’amende 16 septembre 2015

[4] « Génération Y, rupture ou continuité ? » Jérôme Rusak et Daniel Vamos-Fecher du cabinet Day One – LJA – avril 2014

[5] « A Bad Reputation Costs a Company at Least 10% More Per Hire », Wade Burgess – Harvard Business Review – March 29th 2016

[6] « Compliance ‘Culture’– A Timeline of Regulators’ Comments » – WSJ – February 5th, 2016