Compliance Paid for Itself in Many Ways in 2016

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“A culture of ethics ties long-term performance to the interests of long-term stakeholders.”

— Larry Fink, Chief Executive of Blackrock

The quote above was mentioned by Timothy Erblich, CEO of Ethisphere, at the 2016 Ethics & Compliance Virtual Conference last month to make the point that compliance is not just a department that protects against risk. It’s a department that adds value.

Amid geopolitical unrest, economic turmoil, increased risk and accountability and global humanitarian crises, the regulatory, economic and cultural environments of 2016 have rarely been more challenging for organizations or demanded more from their compliance teams.

We couldn’t agree more with Erblich and the chorus of events and thought leaders pointing to the ROI of ethics and compliance. 2016 was a year that proved that stakes are continuing to increase; it also proved that the compliance industry is up to the challenge.

So as 2016 draws to a close, one thing is apparent—it’s safe to say that, once again, the events of the past year make it clearer than ever that compliance pays for itself.

2016 ROI Highlights

Ethical Companies are Outperforming the Market

  • Public companies rated highly by Ethisphere outperformed the overall S&P 500 by 3.3 percent. Part of that derives from savings—ethical companies don’t get fined by regulators. “But we actually believe there is an integrity premium—by investing in robust compliance and ethics programs you attract and retain the best kinds of employees, you have clear policies and programs, you have organizational justice and you have a culture of innovation,” Erblich said.
  • An annual study of intangible asset market value showed that 84 percent of S&P 500 companies’ market value in 2015 was derived from intangible assets compared with 83 percent derived from tangible assets 40 years ago. Intangibles included such things as reputation, which is more at risk after a compliance failure than are tangible assets. Erblich flagged this as another sign that the work of compliance professionals is “directly linked to the valuation of your company.”
  • The reach of compliance continues to expand, with 85 percent of compliance departments receiving training time at sales and marketing meetings. That wouldn’t be happening if organizations didn’t see actual value in the training.

SEC Opts Not to Prosecute Company Because of Cooperation & Programs

The Securities and Exchange Commission (SEC) announced it wouldn’t prosecute Harris Corp., a multinational communications and technology company, because of the company’s established compliance programs and general cooperation with the investigation. The decision was made despite potential violations of the Foreign Corrupt Practices Act (FCPA) alleging that a Harris officer bribed Chinese officials.


Read More: Landmark SEC Decision Cites Compliance, Diligence in Decision Not to Prosecute FCPA Violations


The decision was viewed as evidence that authorities and regulators will support companies that self-report wrongdoing and maintain strong compliance policies and programs. Full disclosure: Harris is a client of NAVEX Global.

Harris’s avoidance of lengthy (and expensive) prosecution should serve as a signal fire for other organizations, proving that strong compliance policies, reporting systems and employee training are well worth the investment.

Regulators Make Good on Promises of Support for Cooperation

The Harris announcement came several months after Assistant U.S. Attorney Leslie Caldwell announced that the U.S. Department of Justice’s Criminal Division Fraud Section planned to try to entice companies to self-report FCPA issues. The program was set up on a trial basis through April 2017 and successful participation could lead to:

  • A 50 percent reduction in fines, and 25 percent for cooperative companies who don’t self-disclose
  • Elimination of the potential for the appointment of a compliance monitor
  • No prosecution

If the carrot wasn’t enough, the DOJ also said it planned to increase FCPA investigations, with an additional 10 prosecutors added to the FCPA Unit. The moves show that the DOJ wanted to make it worthwhile for organizations to identify and self-report FCPA violations and also push organizations to firm up controls and compliance programs to prevent future violations.

Contractors Must Play by New Federal Rules

Starting in October, businesses seeking federal contract work were required to disclose labor law violations going back three years. The requirements stemmed from an executive order signed by President Obama in April, and depending on the violation, a contractor can now be rejected during the bidding process.

Obviously, this is a sign that companies need to stay compliant with labor laws to keep procuring federal contracts. Organizational leaders, managers and employees have more incentive than ever to avoid violating the law.


Read More: New Federal Rules Will Affect Contractors Who Don’t Play by The Rules


Expanded Hotline Reporting Leads to Strong Results

Whistleblowing hotline and incident management hotline reporting is a must have for organizations—the effectiveness and efficiency of those reporting methods is where organizations today are seeing value of the efforts reveal itself.

In August, Jami Segota, Vice President & Assistant General Counsel, Employment Law, from Ricoh USA, explained her organization’s initiative to encourage employees to share questions and concerns. The company expanded reporting to offer more avenues to give employees options that aligned with their comfort levels. Using an effective reporting tool allowed Segota’s team to react quickly to emerging trends, provide assurances to employees that concerns where addressed and use data to identify areas that needed additional focus or training.

How is your compliance program paying for itself? 


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