Compliance management? Not ‘tick-in-the-box’ exercise anymore; here is how it supports business growth

Updated: October 22, 2018 11:35 AM

Acquisition of overseas businesses has led Indian companies to adhere to the governance norms of different jurisdictions. This has led to the adoption of the global compliance benchmarks by Indian companies.

Traditionally, the approach for compliance across industry sectors has led to silos of professionals carrying out their specific tasks without coordination with others. (IMAGE: Reuters)

Prasad Nakashe

The regulatory landscape has been an area of continuous evolution and modifications. Regulators are becoming increasingly active in implementing new regulations, strengthening existing ones and increasing scrutiny of compliance. This has led to a significant increase in compliance costs for organisations. Until recently, compliance was approached as a ‘tick-in-the-box’ exercise rather than a tool to support business growth.

However, this mindset is now changing primarily due to the two critical reasons listed below:

Acquisition of overseas businesses has led Indian companies to adhere to the governance norms of different jurisdictions. This has led to the adoption of the global compliance benchmarks by Indian companies. Hence, Indian businesses are expected to be more vigilant and to deploy systems and processes that showcase transparency and adherence to the global norms of good governance.
After financial scandals of the last decade, the regulators’ control/reviews over compliances by organisations became stricter in India. Technological advancements across industries coupled with disruptions in the operating models of businesses becoming rife, we witness an augmented shift in the compliance landscape in India.

Traditionally, the approach for compliance across industry sectors has led to silos of professionals carrying out their specific tasks without coordination with others. This is a reflection of the management mindset that compliance, being a cost centre, needs to be managed only by personnel responsible for respective functions that ensure compliance performance. There is no dearth of organisations wherein one function is completely unaware of the other function’s operations and what it is doing in terms of managing the risks arising out of non-compliances.

When we take up the responsibility of drawing a compliance framework, we have stakeholders giving us insights on the overall failures in managing compliance. Individual managers are territorial in their approach, so much so that if stakeholders seek information to ratify the compliance processes, the managers may not share inputs that may be critical resulting in failure of disclosures and board level repercussions.

The layers of inefficiency created by what we term as the ‘islands of excellence’ functioning style has brought into focus larger questions relating to the future of compliance management within the organisation. Further, this highlights how an organisation should function moving forward for effectively curbing the risks accruing to it as a result of the failure in compliance performance.

The compliance function is strangely wired as the compliance performer is not the risk taker and vice-versa. This is because addressing compliance requirements has always been considered a function best suited for operational managers whereas the risks accruing as a result of their failure is faced by the top management of the organisation. Hence, the manager sees compliance as a pain-point, while the senior/top management sees compliance as a risk factor. The impact of risk can be measured in terms of reputational loss, closure of businesses, imprisonment of the top management, and the board, and heavy financial penalties among others. Strangely, the operational managers are not impacted by the fall-out of failure in performance.

With the changing perception towards compliance management as a business enabler, the management is fast re-thinking its approach with respect to the business sustainability and growth objectives. The ‘silos’ approach to compliance management is antiquated in the current environment where information is key to the rise and fall of business empires. Insecure stakeholders holding on to information they consider proprietary from their peers and superiors is no longer a viable solution. Information flow top-down and bottom-up is critical for the specialised compliance managers to de-risk their senior/top management and ensure an environment conducive to growth within the organisation.

Risk assessment, training, monitoring, evaluation of processes and improvement of systems will depend on facilitating the integration of the compliance function rather than the aforementioned ‘islands of excellence’ style of functioning. Technology, therefore, has a key role to play in integrating compliance functions and bringing them under one process flow that can manage risk. Technology can also ensure the reputational and operational growth of the company leveraging on the efforts put in to create governance and transparency models, thereby enabling sustainability and accountability.

The fundamental objective of a technology-driven compliance management program is to ensure harmonising through common control systems to drive synergies in risk assessment, training and management. From a back-to-back certification process that survived in cloaking failures in compliance performance, organisations have now rapidly moved to driving efficiency through simplification and consistency in managing compliances. This approach results in better business relationships with the regulators, the partners and the marketplace, improved credibility, and greater clarity in terms of the value delivered through compliance management.

In conclusion, as business leaders and enablers, professionals should aim to establish better coordination across compliance teams by leveraging a common compliance management system and avoid duplication of work among the teams through the use of technology. Developing a roadmap that ensures synergies, increases efficiencies and minimises the risk of loss as a result of non-compliance can go a long way in ensuring business sustenance and future-readiness.

The author is Partner at Deloitte India

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