All types of businesses, both large and small, must adhere to both a series of legal laws and regulations, plus a standard for conducting business in an ethical manner. A compliance management team, usually with a designated superior referred to as the compliance manager, or chief compliance officer oversees the implementation of a compliance management system. Here is a discussion of what a compliance management system is and why it is essential.
Compliance Management Systems
All companies must follow particular laws and regulations that govern the way they conduct business. For that reason, a compliance management system is essential to guaranteeing that these guidelines are followed. A compliance management system is a fundamental part of any business strategy.
Through a board of directors and management team, a compliance department must be familiar with the legal terminology of the regulations and understand how they must be applied to all facets of the company. When a compliance management system is established, it not only protects the company from the legal ramifications of any violations, but it also helps to reduce the disruptions in daily activities that cost the company profits.
A compliance management system organizes a team of officers who are entrusted with effectively writing company policy for any violations of governmental ordinances. Also, it sets guidelines for how the company will deal with questions of ethics violations. Sometimes ethical questions can be more damaging to a company’s well-being than legal problems.
Legal problems customarily are restricted to interactions with governmental officials, but ethical mistakes can undermine the company’s public reputation. Putting in place, a solid compliance management system helps to prevent problems and keep the company in good standing both legally and ethically.
Compliance Management System Basics
All companies, no matter how large or small they are, need a compliance program. When no compliance department exists, or a written compliance strategy is not in place, employees do not have a solid foundation to conduct business.
Since the scope of compliance management systems includes both adherence to legal regulations and questions of ethics, many municipalities and state governments require a policy be before a company can conduct business. There are situations that involve governmental procurement contracts. In these cases, one cannot process any bids until the compliance policies of the company are on file.
There are numerous manufacturing ventures where a plant or factory will not receive legal permits to begin production. This will happen until the management approves a compliance management program. The type of business, the capacity of the business in relation to public priorities, and regulatory intricacies of business operations will trigger several effects.
Aspects to Consider
- The function, responsibilities, scope of authority, and accountability of the compliance manager and all compliance department officers must be part of a legal document. An attorney is usually part of the compliance department staff. Also, an organization can hire an outside firm to approve the final compliance documentation.
- The amount of time the company must devote to compliance policy. This should include all meeting schedules, inspections and how the company plans to address any violations of the policy of conformity.
- How many staff members the company board of directors deems are necessary to manage all the responsibilities of the compliance program.
- A formal written document with all the legal and ethical ramifications of the company compliance policy explicitly defined. The formal scope of the compliance program will increase depending on the size of company assets, the complexity of business operations and the geographical diversity of operations.
- Companies who conduct business across international boundaries will often have a compliance department directly responsible for following the regulations of a specific country. One compliance management officer usually oversees all of these separate departments collectively.
Benefits of a Compliance Management System
The benefits of a strong compliance management system can be twofold. Well-formulated compliance policy will help manage, and even help eliminate the chance of risk for the company. Moreover, it will improve the company’s reputation across the industry. These violations can be both financially costly, plus destroy a company’s public image. Therefore, the compliance department is essential to help prevent both these risks.
Compliance management systems contribute to reducing the chance of risk. One can associate the risks with goods or services sold to the general public or occupational safety standards. Therefore, employees must receive instructions on how to follow in the manufacture of products. A compliance management system can reduce both the risk of financial loss and the undermining of the company reputation.
The types of risk can be related to:
- Changing product, product style, merchandise, manufacturing specifications, or types of services offered by the business.
- New laws, ordinances, or modifications to existing legislation that address industry changes, or updated environmental standards.
- Noncompliance with consumer protection laws may result in several consequences. Among them, there are the following ones: legal action, financial fines, and penalties, plus other types of legal actions including suspension of operations until the company meets the compliance requirements.
The degree of complexity of company financial transactions will be directly proportional to how large the company is and how diverse their financial interests are. Privately owned businesses must follow legal guidelines. However, their reputation in the public eye does not always affect much more than profits.
- Companies that do business internationally can fall victim to a damaged public image. For businesses that depend on public confidence, violations of laws and ethical standards can be devastating.
- Publicly traded companies can watch their stock value plummet overnight because of a single misguided policy decision.
- Compliance policy guidelines will specify how to handle honest mistakes. Still, they also address what the company guidelines will be in relation to employees that are party to any violations.
- Compliance guidelines can specify who makes the final decision regarding the violators’ punishment. Also, it takes care of the right time for the company to determine it is in their best interest to publicly announce problems.
- Many times, compliance management systems will have established guidelines to follow that can immediately save the company’s public image. This is due to the fact that it guided the company to take action before problems escalated.
Putting It All Together
Compliance management policy is vital to every business structure. The larger and more complex the business, the more detailed this policy needs to be. Every company is subject to local, state and federal laws. Also, no business can successfully operate without clear guidelines to ethical business practices. This is why the compliance management team and the policies they enforce are a key part of every company.