Compliance has almost become a dirty word in corporations today, especially if their business reaches US shores. The word compliance brings groans and raises goose bumps of fear from senior executives to the finance department to the sales force in the field hustling to meet revenue targets and drive up stock values. Compliance is mistakenly seen by many as a burden rather than as a tool for generating profitability.

Corporations that think of compliance as a vital tool for profitability will find themselves literally richer than corporate colleagues who view it as a box-ticking exercise that eats time and resources. The latter will find themselves co-operating with the letter of compliance regulations rather than the spirit and still find themselves embroiled in scandals that threaten their existence. Meanwhile, according to a survey by Institutional Shareholders Services, better-governed firms are relatively more profitable, more valuable and pay out more cash to their shareholders.

Corporate executives should care about compliance because it is good – it serves as a vaccination against many kinds of problems and wrongs that can occur. Executives should not view it merely as a way to keep government off their backs, and those that do see it that way are more likely to end up on the wrong side of the table with regulators. That said, compliance is not a lifetime guarantee that bad things won’t ever happen.

Companies that have tackled compliance as a vital tool in risk management will benefit in terms of healthier
revenues, competitive edge, staff morale and positive media. If ‘compliance’ is a key part of risk management and is embedded in the enterprise risk management system, the company will thrive. Compliance then becomes part of a strategy to become ‘accountable’ rather than simply an ‘audit compliance task’ for regulators. Embedding compliance into ‘business as usual’ maximizes operational efficiencies and thus bottom-line performance.

Compliance is better thought of as another program for quality improvement, such as Six Sigma. Executed well, particularly in finance and IT, compliance has a positive effect on a corporation in terms of both hard dollars and real risk avoidance. In those areas, technology is a huge help because compliance can be hard-wired into those systems and leave a clear audit trail if someone tries to circumvent compliance.

So to truly gauge a corporation’s level of ‘compliance’, one has to put away ‘cookie-cutter’, ‘one-size-fits-all’ compliance programs because they cannot help a corporation assess the risk posed by its people. Corporations who have rigorous compliance programs for the good of the bottom line rather than to keep government regulators away will do well and avoid being sent to the graveyard where the Enrons and Arthur Andersens are buried.