Compliance is an integral part of our everyday lives and helps us function in certain accepted ways. Like individuals, businesses also need to comply with multiple rules and regulations in order to function.
In a broad sense, corporate compliance is the ability to lead a large group of people (involved with the organisation) to follow a standard code of conduct. Corporate compliance is of two types – external compliance and internal compliance.
Typically, corporate compliance is associated with rules, laws, and regulations from the government and other regulatory bodies that define how an organisation must conduct itself. This is referred to as external compliance. Organisations also have their own set of rules and regulations for the employees and other partners to follow in order to ensure fair practices. This is called internal compliance.
Adherence to compliance not only helps a company stay in the right side of things, but also saves it from any kind of reputational harm that may arise due to negative reports. So, what are some of the areas where a company needs to ensure compliance?
Corruption and money laundering – Businesses must avoid indulging in any act of bribery, bid-rigging, and other such malpractices. These are not only harmful for an organisation but are also punishable by law.
Proper and timely reporting – Companies must file their financial statements in specified formats within a specific time to the regulators.
Data protection – Companies must keep their customers’ and employees’ personal data secure and immediately disclose violations (if any) to the concerned authorities.
Environment, health and safety – Companies must obey rules relating to environmental pollution, workers’ safety, and other related issues. Safety of both, the employees as well as the environment are of utmost importance for most organisations.
How Does Corporate Compliance Impact Business?
First and foremost, we all need to understand that adherence to compliance helps the organisation be on the right side of the law. Compliance policies of an organisation helps demonstrate to lawmakers, regulators and other stakeholders that the company is trying to operate within the prescribed rules.
Now let’s look at something that we are familiar with in our day to day lives. We all know how every company uses Social Media as a marketing channel. While it can give companies unparalleled visibility, it can also have brutal consequences in case of any misconduct or violation: bad headlines, cancellation of contracts, consumer boycotts, and more. The existence of well-framed corporate compliance policies can help the business upkeep its reputation.
Another significant reason why corporate compliance is vital for businesses is that it gives organisations a competitive advantage. An organisation that operates within the corporate compliance framework tends to commit fewer mistakes and, therefore, spends less time and resources rectifying that mistake. A strong compliance program can also help the organisation identify a potential risk much earlier in order to avoid serious consequences. The more compliant a company is, the lesser risk it poses to other companies and partners. An effective compliance process, therefore, makes a business look like an attractive partner to other companies.
A comprehensive compliance and risk management program plays a pivotal role in an organisation’s strategy, and therefore it deserves the management’s utmost attention. It helps safeguard the company from reputational as well as regulatory risks.