Business leaders still view the need to comply with legislation as an unwanted burden rather than a chance to define their company. It’s time to listen and not dictate.
With the increasing number of corporate scandals, it is difficult to understand why risk management is still seen as a cost rather than an opportunity. Yet, business leaders still view the need to comply with legislation as an unwanted burden rather than a chance to define their company – to stand out from competitors in a world of heightened risk and global competition.
Historically management hear the term ‘compliance’ and equate it to expense. That’s right, it does cost in the short-term. What many fail to grasp however, is that done well, compliance can deliver a top-line benefit that comes from creating a strategic advantage by placing risk management at the heart of a company, rather than at the edges.
Business risks are intensifying as supply chains become more disparate, complex and intertwined. Most business leaders know complying with legislation is vital to the management of their risks. But, many continue to miss the opportunity new legislation presents to model the business in a way their competitors are failing to.
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The Modern Slavery Act 2015 is a good example of how a business can use new legislation to define itself, rather than to simply fulfil the bare minimum required. The new laws came about as a way to stop the exploitation of people. No decent business leader would want to exploit their workers or have any role to play in the exploitation of workers. But how can you ensure your business runs in accordance to a robust ethical culture? The perception that companies will always act in the right way is critical now more than ever.
In the wake of the financial crisis, the behaviour of multinational organisations has come into sharp focus and heavy criticism. Without the trust of consumers and the wider public there is no future for sustainable business. Regaining confidence in business practices should be central to every board’s strategy. By fulfilling the spirit of new laws – and not just the bare bones of it – management can show the public, clients, employees, prospective recruits and competitors that they are in business for the long-term.
Of the companies I work with, it’s the ones that take a holistic approach which are best at managing risk. Instead of inviting just general counsel and the chief financial officer to the table to draft a policy on, say, the Modern Slavery Act, they invite all key stakeholders – legal, finance, HR, procurement, internal audit, marketing, sustainability and risk.
When I work with companies that handle compliance proactively, their peers, suppliers and customers all acknowledge it. Increasingly, organisations award contracts based on ethical standards as well as price and if a company is known for its principled approach to business, this puts it on the front foot commercially.
Admittedly, there is a tension between the cost of compliance and the cost of failure. But the price tag of dealing with a scandal such as Libor rate rigging or child labour is much higher. The list of high street names that have fallen foul of new laws is too long to list. No company wants to be associated with this headline news. The multimillion pound fines organisations face for breaking laws should be deterrent enough. But the reputational damage such a scandal can inflict on a brand is untold. It is that damage that tends to last the longest and is the hardest to calculate.
Trust and transparency should be the watchwords for the years ahead. If tackling compliance head-on becomes part of an organisation’s DNA, that tone from above will filter through the ranks and spread outwards.
The potential benefits – job retention, staff productivity, strong suppliers, loyal customers and an ethical brand – surpass the initial outgoings.