Repositioning the Compliance Function in the New Governance Era

Abstract

In a world undermined by prevalent uncertainty, emerging forms of risks and the elusive wits of people, governments and their enforcement bodies are adopting the safe route of prescribing a risk based approach to compliance, shifting the burden of assessment of risks faced, contextual judgement and proof of effectiveness of risk mitigation measures implemented to achieve compliance with intended laws, onto organisations. This innovative turning point in the regulatory landscape requires organisations to not only comply with laws, but to continuously also determine the adequacy and effectiveness of their risk management systems.

Corporates, in turn, try to keep afloat in these deep waters and typically balance their stakes by swinging between the rigidity of hardcoded rules to direct and control the actions of their workforce and the spontaneous flow that each business requires to flourish and operate, such as, allowing sufficient space for situational judgement-based decisions, job enrichment, innovation, customer satisfaction and efficiency. To be safe and to comply with most statutory and regulatory requirements, a Compliance Officer, with sufficient maturity, business knowledge, seniority and independence is usually appointed and is entrusted the overall running of the enterprise Compliance function.

This appointed Officer is called upon to set up a Compliance department, design, develop, institutionalise and maintain an “effective compliance programme” by monitoring, auditing, sanctioning and reporting on non-compliance thereof. To demonstrate the effectiveness of the programme, the Compliance Officer is increasingly answerable for this broad end-to-end process and in several jurisdictions, is also personally liable for ensuing failures.

In this issue, I consider the effectiveness of the Compliance role within the organisational structure and how far the demarcation of the function and its assigned duties are achieving an enterprise-wide culture of good governance and compliance. I posit that, although the delineation of clear responsibilities is important, the benefits of ostensible independence brought about by the departmentalisation of compliance may not be the definite answer to the complex, if not esoteric, challenges faced by organisations in matters of compliance.

The argument upholds that the bundled responsibilities of the Compliance Officer is not an organisational panacea and suggests that it may be opportune for business leaders to consider the breadth of available alternatives not only for improved effectiveness but also to achieve more pertinent gains and unleash better organisational value.

Keywords: Compliance, departmentalisation, privatisation, business ethics, independence, culture, risk management, RACI, corporate governance, self-regulation, internal governance, compliance programme, risk based approach.