What is Compliance Management?

LAW   |   3 minutes  |   January 31, 2019

In the same way a country’s citizens have laws and regulations they have to abide by, businesses and organisations have rules and legal regulations they need to follow to help them, their employees and stakeholders to safely navigate their environment. Instead of referring to this set of rules as laws, this procedure is known as compliance.

Ensuring employees are aware of the legal process and how to adhere to it, Compliance Managers have become an integral part of an organisation staying on the right side of the law. Although having to comply with laws and regulations is not a new concept, the establishment of a dedicated compliance department within firms or organisations to detect violations and ensure they are corrected is.1 In essence, “compliance management is the process by which managers plan, organise, control, and lead activities that ensure compliance with laws and standards”.2

…compliance management is the process by which managers plan, organise, control, and lead activities that ensure compliance with laws and standards.

Sonia Pearson

Why is this important?

As governments clamp down on business laws, the possibility of fines and penalties have prompted companies to take compliance more seriously, and hire the right talent to ensure they remain within the law.3 Ensuring an organisation is compliant can be a costly process, but as former US Deputy Attorney General Paul McNulty states, “If you think compliance is expensive, try non-compliance”.4

While the laws and standards specific to your business may vary depending on the size of your company, the jurisdiction, and the industry you are in, there are certain key factors relevant to the role of compliance management as a whole:5

  1. Compliance managers need to understand their compliance responsibilities and company’s process in order to know whether there are any market trends or new legislation affecting their industry.
  2. Ensure employees understand how to adhere to compliance.
  3. Align the business functions with compliant procedures.
  4. Review processes and operations to make sure compliance requirements are met in all business tasks and activities.
  5. Correct and update violations where necessary and relevant.

There are generally two core approaches to compliance management managers can adopt, and both find application in different circumstances.

A Rigid Approach

A rigid approach usually entails little to no deviance from the rules put in place by compliance management, and taking a tough stance when there are violations.6 This approach to compliance is usually more applicable to large corporations where extensive research and effort goes into formulating a policy for the company or departments within the company to follow. It would be impractical and inefficient for Compliance Managers to manage company policy purely on a circumstantial basis. Where the system would fail or the company would risk crossing legal boundaries, this type of approach to compliance may be necessary.

If you think compliance is expensive, try non-compliance.

Paul McNulty

A Flexible Approach

Although you can’t take a flexible stance to the law, there are other regulations within a company where a flexible approach may be more appropriate.7 Often relaxing certain standards can help productivity or improve workflow if the regulation does not directly impact the ethical or legal principles of a business. It is generally accepted that not every rule can be followed in every circumstance, and exceptions can be made where it is reasonable. Although this model might be more suited to smaller companies as they have the opportunity to assess situations on a case to case basis, this approach can also find application in larger organisations. Where multiple compliance policies are in place, some may come into conflict with each other and propose contradictory standards. In this instance, taking a more flexible approach and judging the situation based on their specific or unique facts might promise a better outcome.

Moving forward with compliance

In today’s competitive business landscape, transparency is essential to building trust with your customers, employees, and stakeholders. Adhering to laws put in place to ensure fair and civil business practice is in an organisation’s best interest. While the necessity for compliance varies across public, private, large and small corporations, investing in compliance is better done earlier rather than later, as the costs of noncompliance can be detrimental to both the financial state of a business, as well as its reputation.

  • 1 Griffith, S. (May, 2016). ‘Corporate governance in an era of compliance’. Retrieved from Harvard Law School Forum. Harvard Law School Forum.
  • 2 Pearson, S. (Nd). ‘What is compliance management and why it is important?’. Retrieved from Tallyfy.
  • 3 Millman, G. & Rubenfeld, S. (Jan, 2014). ‘Compliance officer: Dream career?’. Retrieved from The Wall Street Journal.
  • 4 Cornelius, D. (Jun, 2009). ‘McNulty keynote on a tale of two sectors’. Retrieved from Compliance Building.
  • 5 (Sep, 2018). ‘FDIC consolidated compliance manual’. Retrieved from The Federal Deposit Insurance Corporation.
  • 6 Pearson, S. (Nd). ‘What is compliance management and why it is important?’. Retrieved from Tallyfy.
  • 7 Pearson, S. (Nd). ‘What is compliance management and why it is important?’. Retrieved from Tallyfy.