Five Major Compliance Predictions for 2018

When you look back on the rise of the ethics and compliance profession, you cannot ignore the history of accomplishments.  It is easy to minimize these accomplishments as a reaction to the government’s aggressive FCPA enforcement program.

Companies are starting to embrace ethics and compliance as a positive force to build sustainable financial growth – which is the true calling of a robust ethics and compliance program.  I could easily build a positive posting on this trend and call it a day.  But that is not the real story, and my predictions will outline some significant concerns in this new world of ethics and compliance.

So, here are my five significant predictions:

Ethical Culture is the Key:  Forward-thinking companies recognize that an ethical culture is the best control that a company can implement.  The problem is that the number of forward-thinking companies continues to be relatively small in comparison to the number of companies that ignore this obvious truism – ethical companies make more money and better perform than non-ethical companies.

Luckily, the compliance profession is beating the drum to focus companies on ethical culture.  Chief compliance officers know that pushing ethics is an important means to promote an overall ethics and compliance program.  CCOs are quickly embracing the need for focusing resources and time on a company’s culture.

Watch Out Corporate Boards:  In this era of growing activism challenging corporate boards and senior executives, corporate boards will face increasing challenges to their corporate governance performance, and specifically, their oversight and monitoring of corporate ethics and compliance programs.  As the compliance profession matures, it is inevitable that corporate activists will use ethics and compliance deficiencies as one of several weapons against entrenched corporate boards.

Company boards set the tone of a company and its ethical culture.  If a board ignores the issue, the company inevitable suffers; when the board engages on the issue, the CEO, senior executives and the company benefit.  Corporate boards have been shirking their duties in this area, relying on outdated and defensive corporate governance models, all designed to escape so-called litigation risks.

Ethics and Compliance Resources:  I have written frequently about corporate failures to adequately fund and staff ethics and compliance programs.  It is one thing to make a paper commitment to ethics and compliance, and it is quite another to allocate the resources needed to operate an effective ethics and compliance program.  Too often, I learn about ethics and compliance programs that are short-staffed, under-resourced, and relying on outmoded technology or even paper systems.  To put it mildly, this is unacceptable and an obvious shortcoming across the ethics and compliance industry.

Testing and Auditing Compliance Programs: Companies that have invested in their ethics and compliance programs are increasing their efforts to test, assess and audit their compliance programs. It is an important step in the evolution of a corporate compliance program – corporate leaders and the CCO need to learn how the company’s ethics and compliance program are performing.  A company cannot develop an effective program that continuously improves unless it implements a sophisticated testing protocol.

Auditing Third-Party Agents and Distributors: The Justice Department and the SEC have pushed companies to include robust auditing provisions in their contracts with third party agents and distributors.  Many companies have implemented such contractual provisions in the normal course of business.  However, only a few companies have implemented risk-based auditing programs built on exercising their audit rights to review third-party agents and distributors.  As a consequence, companies need to reassess this area and are likely to increase the number of proactive high-risk audits.

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