Corporate compliance Featured

11:09am EDT July 30, 2006
In a time of Enrons and Worldcoms, corporate regulations have never been so closely watched. The media sheds light on any company’s wrongdoing and the executives or employees who allowed it to happen.

Now, more than ever, companies need to design corporate compliance programs to provide protection and understanding of the values and goals for which the company stands. It is important for executives to do more than put their ideas on paper, says Neal Roach Jr., a member of the law firm Sommer Barnard PC. Companies have to figure out how to implement their plan in the company culture and live it daily.

Smart Business spoke with Roach about the protection compliance programs can offer and how executives can design a plan for their company.

What is a corporate compliance program?
A compliance program is the global picture of what the company does to ensure fulfillment of its obligations to the law. A compliance program is not a list of right and wrongs but is rather a reflection of the entire culture of the company.

The program designates someone within a company to be responsible for making sure all relevant laws and regulations are followed. This person must help create an everyday work culture in which compliance is emphasized.

The size of the company plays a major role in the size of the compliance program. The larger the company gets, the more likely it is that top executives are no longer going to know everything that is going on in the company. That is when more systematic controls need to be created. It is important for someone to have a handle on the system. They should develop and implement a procedure for how the company prevents violations and responds if the law is violated.

How does a corporate compliance program benefit a company?
There is a correlation between companies with well executed compliance programs and stock market prices. Companies with good programs perform well.

All U.S. companies are subject to the Federal Sentencing Guidelines. These guidelines say each company must have a compliance program in place. If a company has an effective compliance program, prosecutors and courts are more likely to give the company the benefit of the doubt if something does go wrong. With an effective program in place, regulators can see that the company has a culture of compliance, even if something has slipped through the cracks.

How does investing now in such a program save companies in the long run?
By investing in compliance, companies reduce their risk of settlements, fines and other repercussions. It is difficult to provide a concrete number because you cannot measure what you have avoided. Compliance is designed to prevent and detect violations of the law. Therefore, investing your program is analogous to purchasing insurance.

What steps need to be taken to implement a compliance program and create employee understanding?
Executives should start with a corporate code of conduct. This should state the company’s purpose and then go into specific details. This code should convey how the company does business.

Steps need to be taken within the organization to make sure all employees have an understanding of the goal the company is working toward. Training meetings, online courses and informal lunch-and-learn sessions can be used to present employees with this material.

Executives need to create the understanding among employees that violations are not acceptable and should be reported. A mechanism needs to be put in place so employees can report suspicions or violations without risking their own job. Many companies are using a hotline where a third party takes the call and gives it to the appropriate official in the office, making the entire process anonymous.

It is also beneficial to bring an outsider into your planning process. Lawyers can provide legal expertise for a plan. They bring an understanding of what aspects a plan must cover. An outsider provides a fresh set of eyes and can look at the plan to make sure all aspects have been covered.

Why should companies that have run successfully for years look into compliance programs?
It is important for executives to realize the business world has changed and compliance is more on the front burner for both regulators and the media. As a business grows, executives will have less control over who is hired and how they perform.

Companies that are already operating and have not had compliance problems have likely installed a good company culture. There is still a need to document how the company is in -- and intends to stay in -- compliance with the law.

NEAL ROACH JR. is a director and member of the Business Practice Group at Sommer Barnard PC. Reach him at (317) 713-3485 or