The Danger of Benchmarking

As the Bible reminds us, “Beware of false prophets,” or in the compliance context, “Beware of false [measurements].” 

Compliance professionals have an obsession with benchmarking their compliance programs.  Why are compliance officers so obsessed with such comparisons?

Compliance is a function that, by definition, involves objective and subjective measurements.  In its simplest form, compliance success is measured by the absence of a negative occurrence.  Such a narrow view, however, falls way short of what compliance really is – the promotion and adherence to a culture of compliance as a guiding mission for an organization. 

Compliance officers grasp for some reduction of anxiety about their performance and their compliance programs.  They search for meaning not from the intrinsic value of their respective programs and whether they align with the company’s risk profile, but they seek reassurance that their program is operating effectively from a comparison of various elements with other companies, sometimes in the same industry.

Like anything else in life, the value of any comparison depends on perspective and understanding what exactly is the objective and the manner in which such comparison is conducted.  In this process is where danger exists. 

Companies vary by a variety of factors – indeed, I would argue that no two companies are alike.  Each bear individual characteristics that reflect the company’s history, ownership, management, business strategies and other specific characteristics.  Each company has its own DNA.  A comparison of one to another – even with confirmation of similar size, number of employees, revenues and other characteristics – can be a deceivingly simplistic comparison that ignores significant distinctions.

Two companies that facially appear similar may differ in basic risk-bearing issues such as numbers of third-party sales agents versus in-house sales staff.  One company may choose to sell to customers from an in-house staff, while another may choose a different strategy to sell through third-party agents.  A comparison of these two companies and the allocation of compliance resources may be a comparison of little evidentiary value. 

It is difficult to isolate the various business characteristics to conduct a meaningful comparison among companies on compliance issues.  The danger of such comparisons can be exacerbated by the weight accorded benchmarking.  If a compliance professional relies on benchmarking as one of many factors, i.e. as a single data point, the risk of over-emphasis on a questionable comparison is lower.  Unfortunately, I have witnessed to many compliance professionals relying on such invalid comparisons to provide “false comfort” as to the quality of the company’s compliance program.

Compliance professionals have to approach benchmarking with a wary and questioning eye so as not to fall into the trap of seeking to confirm a predetermined conclusion.  If benchmarking is used carefully and with a skeptical approach, the data can be one of several important indicators as to a compliance program’s effectiveness. 

A compliance professional who fails to heed such warning will only create potential risks of disinformation by citing so-called benchmarking comparisons.  Like anything else, the value of a compliance program should not be based on the eye of the beholder but should depend on a more objective calculation and analysis.

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1 Response

  1. January 19, 2019

    […] Be wary of false prophets (and benchmarking). Mike Volkov warns on Corruption, Crime, and Compliance. […]