Why does compliance matter?

Mini-series by Lucy Blake and Kate West, Linklaters LLP. The authors would like to thank James Walker of Compass Group plc for his assistance with the drafting of this article.

It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

Why does compliance matter?

Many organisations aspire to take an approach to business that goes beyond merely complying with laws and regulatory obligations. Stakeholders, including investors, employees, clients, consumers and NGOs are increasingly demanding that organisations conduct their business with greater integrity, purpose and transparency. This is clear from the rise in investor engagement on corporate sustainability and culture (including through shareholder activism), driving the evolution of “soft” law into regulation, enforcement action and increased litigation.

Having a reputation for “doing the right thing” can attract not only customers, but investment prospects, business partners and a wider pool of potential employees. From an operational perspective, employees who have a clear understanding of how to act and what actions and behaviours the company supports can make faster decisions and waste less time on pursuits that are not aligned with the company’s goals and values. Similarly, a robust compliance programme largely prevents diversion of senior management time from the strategic objective of the business. Unsurprisingly, many of the most successful companies in the world are also the ones featured on lists of best corporate citizens.

The shift in society’s expectations has also increasingly been reflected in the regulatory landscape. Prosecutors and regulators are taking a far greater interest in a range of unethical behaviours and issues, including bribery and corruption, anti-competitive behaviour and human rights, environmental and data privacy abuses. Coordination between enforcement agencies, both within and across jurisdictions, has increased, making it even easier to regulate and penalise companies for actions taken overseas. Having a robust programme can potentially mitigate the consequences of wrongdoing by reducing fines and penalties or avoiding them all together.

The fact is – commitment to business integrity makes good business sense.