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What is compliance and why do we need it?


Themes: Corporate governance and ethics

by Peter Hiscocks, Senior Teaching Faculty in Entrepreneurship & Innovation Management

For many tasks and most business activities there is a right way to do things and a wrong way: sometimes there are many ways of doing something but in almost cases some of these are good and some are not good.

Compliance is a set of structures and processes to guide people towards doing things the right way and then to be able to record and review their work so that their ‘compliance’ with the correct approaches can be measured and managed. The real aim of compliance systems is to make it the right way of doing things ‘the way we do things here’ – to make it a part of our values and our culture.

The traditional approach to compliance, the approach that we aim to move away from, is to provide a list of rules and procedures that must be adhered to and to make people record their activities in a way that they can be monitored and checked to be certain that they have ‘complied’ with the rules. The problems with this approach are that it distances people from the decisions they are making and passes the responsibility for their actions ‘back to the system’. It is likely to encourage the approach of ‘finding ways around the rules’ rather than the correct approach which is that ‘our clear understanding of the culture will prevent us from taking the wrong decision’.

We need to get to the position where employees will know what business activities and deals are appropriate and which are the deals they should not do. The objective is to get to a position where, as a front-line, everyone in the business understands what it right and what is wrong and will make the right decisions accordingly. As a back-up, they can ask their manager what they should do and he or she will enforce the decisions in line with the correct values and culture of the business.

In practice this means that all people have to have a clear understanding of the values of the business and what this means in their day-to-day activities. It means that they have to have thought through what deals or decisions they can make and what they should not do. It means that complying with the values and culture comes a long way ahead of ‘just making money’.