Wednesday, October 10, 2012

Why non-compliance can cost you

Failing to have the right controls and culture in place could mean you spend millions in fines. So how can you get it right?

Why non-compliance can cost you

It seems like new global legislation and regulations are announced almost every week, so it’s no surprise that compliance has become one of the biggest challenges facing businesses today. And although the subject has moved up the corporate agenda, it seems the next high-profile case – whether it is related to price-fixing, anti-competition, fraud or bribery – is never far away. 

Take pharmaceutical company Pfizer, which in August 2012 was charged by the Securities and Exchange Commission (SEC) in the US after its foreign subsidiaries were accused of bribing doctors and healthcare officials in order to win business. Pfizer eventually settled for $60m. But even that is dwarfed by the $1.6bn Siemens had to pay US and German authorities in 2008 after eight former executives were charged in connection with a $100m bribery scheme.

Whether it is highly public cases or lesser-reported incidences related to data protection or health and safety legislation, non-compliance brings serious financial, operational and reputational damage to an organization. “The most common reason for non-compliance is when businesses suffer from ‘ethical blindness’,” says Peter Camidge, DHL Supply Chain’s Global Compliance Officer. “The key to a successful compliance program is the tone from the top and putting in place a culture, systems and processes that ensure everyone acts in a responsible way.” Such systems must also proactively “look for trouble” before it happens.

Lee O’Connell, Senior Management Consultant and a global risk and compliance expert at Eversheds Consulting, says he has noticed a change in how organizations deal with compliance and an increase in requests for help to “operationally implement” compliance programs. He adds that where organizations most commonly fall foul of the law is by being too focused on a specific area of compliance to the exclusion of others: “They don’t have the right people contributing to the risk management process and aren’t engaging stakeholders from all areas of the business.” 

For any organization involved in the supply chain across different sectors and countries, compliance is even more complex. “We work in highly regulated environments and are also subject to all the operational regulation that any other company is,” says Camidge, explaining that DHL Supply Chain brought all its compliance activity under one roof to apply best practice across the company. Regional compliance teams are also in place to ensure varying regulations across different economies are adhered to. 

Even for organizations with robust strategies in place, compliance will form an ever-present and ever-evolving challenge for the future. Global legislation is on the rise, as is increasingly aggressive enforcement by authorities in the US, UK and other developed markets. As the Siemens and Pfizer cases prove, penalties are increasing. And in the US, rewards for whistleblowers may see more employees come forward anonymously. Many companies are devising their own codes of conduct, but while this signals good practice, Camidge believes the sector is crying out for an international standard.

Organizations which find themselves on the wrong side of the law, intentionally or accidentally, will soon find that there is nowhere to hide. The best defence is a comprehensive compliance program and due diligence on any business partners or third parties. “Enforcement authorities don’t draw a distinction between an organization or who it has sub-contracted to,” says Camidge. “It is more important than ever to know who you are doing business with.”

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