Compliance Challenges: When the Almighty Dollar Rules
Chief Compliance Officers have to recognize one immutable fact – if a company does not make money, compliance does not matter. I know this is hard to fathom but a company’s purpose is to make money. The issue boils down to an important question – how does the company want to make money?
CCOs cannot sit back and say yes to this strategy and no to that strategy based on high and mighty compliance principles. Instead, they have to act in recognition of the importance of profits and profitability. What does that mean?
CCOs have to foster and promote the importance of ethics and compliance to the revenue-generating (or cost-cutting) functions of the company. CCOs add value to a company when they sit down as a member of a business team and work together to make business decisions. As a member of the C-Suite (hopefully), a CCO has a unique vantage point – they attend important senior staff meetings and they are familiar with the company’s vision for growth and competition. CCOs build compliance systems that cut across all of the company’s functions. They have access to large amounts of information about various aspects of the company’s operations. CCOs can use such information to develop relationships with business managers.
For example, CCOs are uniquely situated to understand the composition of third parties in various regions. They can assist regional business managers with important information gained during the due diligence screening, renewal and monitoring functions. They should inform senior management of the information they collect through the monitoring and auditing process, most of which may relate to ethics and compliance issues but some of which relate to business activity – e.g. third party revenues, employees, significant customers.
CCOs cannot let major business decisions occur without some input from the ethics and compliance perspective. A company wants to enter the China market. They are considering organic growth versus an acquisition or joint venture partner. The CCOs perspective on these alternatives is important. The CCO can address the steps needed to integrate a culture into the company’s existing culture. Further, the CCO can describe the marginal compliance costs (financial and personnel) needed to ensure compliance in China.
From a macro perspective, the CCO can provide important insights on other acquisitions or joint venture relationships, the challenges the company faced, and the company’s strengths and weaknesses in expanding its business operations into new markets.
The CCO, however, cannot just sit back and pay homage to the almighty dollar – yes, financial considerations are always important but long-term sustainability of a company’s profits depend on numerous factors, including the company’s ethical culture. The CCO has to preserve and protect the company’s culture, and cannot watch it devolve into devotion to profits and nothing else.
It is a difficult balance – risk considerations can vary depending on the financial benefits from a specific strategy. A profitable move that includes high compliance risks may nonetheless be warranted for the overall sustainability of a company. A CCO’s challenge is to know when to play the compliance card and when to let the issue percolate.
The one thing we all know is that extreme opinions – one way or the other – compliance always trumps profits or conversely profits always trump compliance – is a recipe for disaster. The trick is to draw lines when and where appropriate under the circumstances.