Is your board complacent about compliance?

Check-01Good governance should be an essential consideration for boards.

But according to a recent report, the appetite for meeting regulatory requirements isn’t as strong as it might be. 

How complacent is your board about compliance?

Compliance – the need for connectivity

The report, Connected Compliance: the Business Case for Compliance Integration was published recently by law firm Baker McKenzie. It surveyed compliance leaders across 537 multinational companies with a UK turnover of £1 billion or more, and ‘uncovers the challenges associated with redefining compliance in today's complex business world’.

The report pinpoints a number of findings that should ring alarm bells with boards.

  • 52% of large corporates claim to be aware of ‘compliance issues’ that have not yet been reported to a regulator or made public
  • A third of companies were afraid to speak up about this for fear of flagging the issues
  • In spite of this, 35% of respondents are not taking any increased interest in governance

In part, the current approach seems to come down to a ‘perfect storm’ of increasing regulation and reducing Compliance resource.

  • Over a third of respondents (37%) plan to reduce their internal compliance teams as a cost-cutting measure
  • More than half (55%) of business leaders report feeling overwhelmed by the risk exposure of their business
  • Two thirds (66%) expect breaches to increase as regulation becomes more complex

This attitude to compliance doesn’t come from a lack of first-hand evidence of regulatory intent, either: more than half (57%) of large corporates have already had a violation uncovered by a regulator.

Why should boards be concerned?

Well, for one, a lack of respect for governance could have significant financial implications for your firm. Non-compliance with the new General Data Protection Regulation, for instance, carries a potential penalty of up to €20 million or 4% of group worldwide turnover, whichever is greater.

Secondly, the reputational risks are also substantial. Compliance is increasingly important to your brand. Ethics are newsworthy, and customers are growing increasingly willing to vote with their feet if they don’t like a business’s way of working.

Thirdly, compliance is – or should be – an inherent part of many of the decisions boards have to make. Overseeing M&A activity, for instance, is a core board responsibility. And yet the survey found that fewer than one in five respondents involve their Compliance team ‘substantively’ in planning and implementing M&A deals.

The report states that success ‘means finding the right balance between strategic growth and compliance practice to increase business value’. This is something we have touched on before, asking whether your non-executive directors focus on risk at the expense of success.

What should directors be doing?

With the volume of obligations likely only to increase, you need to take action if you want to step up your governance.

Maybe having a compliance expert on your board is the solution. Joanna Ludlum, Baker McKenzie partner, says that there is ‘a need for leadership to buy into giving compliance a seat at the strategic table and involving them more fully in the heart of the business’.

Look, too, at ways you can harness technology. Consider exploring whether you can improve corporate governance with a board portal. If you do invest in technology, make sure it’s a solution everyone can benefit from. And look at small wins – find out why something as basic as good minute-taking might be unexpected route to better governance.

Make sure the board takes its share of accountability for good governance. Over 60% of those surveyed believe the Compliance team takes sole responsibility for governance. In fact, as we explored in a recent blog, good governance is everyone’s responsibility.

So – explore adding to the compliance expertise on your board. Investigate the potential of technology. And take your share of responsibility for governance. Because with FCA fines showing a tenfold increase in 2017, now is not the time for complacency in compliance.

As we mentioned, technology can play a key role in helping you to improve governance standards. If you want to find out more, you can download our whitepaper, Board portals - what’s in it for directors? It’s free and you can get a copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

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