If prevention is better than the cure, why are companies planning for high regulatory fines?
According to a recent report in the FT, the world’s top 10 investment banks have paid out nearly US$10bn in fines this year alone. Investors remain seriously worried about the cost of compliance, with collective provisions of over US$43bn set aside for 2016.
However, it’s commitment, not just compliance, that’s needed to prevent contraventions in the first place.
We know from our deep client expertise that investing in a sense of belonging, reinforcing commitment and pride (as well as regulatory compliance) should, and will, become more normal than planning for fines.
Late last year, a Director at one of the world’s biggest banks told me “We’re very big on compliance. One in 10 of our employees is now in a compliance role”.
That’s one in 10!
Nine people to do the work. One to check over them and make sure they’re ‘compliant’.
So is it normal, now, to expect fines? To plan them into the budget?
This does not speak of healthy sense of belonging. When belonging is positive and culture is strong it is commitment, not just compliance, that makes sure people do – and understand – the right (and the wrong) behaviours in the context of their daily work and of the whole company.
On top of this the cost of ethical contraventions can be far more than the fine itself. As a rule of thumb, legal costs and customer reparations will cost up to three times more than the headlines fine. The costs to goodwill, brand value and corporate reputation are harder to calculate, but can be fatal – no reputation, no business.
Surely it’s better to invest even 1% of these huge provisions in prevention?
The commitment conviction
Compliance tends to be about control, rulebooks, sanctions and fear of failure. While a competent Compliance Officer will focus on business enablement, the reality is more prosaic. Highly regulated companies are now managed by anticipating everything that can go wrong, setting ever more and tighter rules.
Commitment is about a belief in the overriding ethics, ingrained daily integrity, taking care to understand the detail of policy, being aware of the relevance of rules.
Even the best compliance culture has a downside: the double meaning is not only ‘sticking to the rules’ but also ‘do what you’re told, unquestioningly’. This can lead, albeit unintentionally, to serious ethical breaches. It’s why “I was only following orders” is not an acceptable defence for war crimes.
Commitment runs deeper and is more ingrained. It means candour, openness, and challenge as well as holding true to principles. Guidelines, as much as rules, are the basis. This enables good people to make good decision – to navigate potential grey areas with confidence.
Compliance, rules and regulations are a valuable part of ethical risk management. They set the boundaries. But a pure compliance-led culture, setting out an allowance for fines in an annual budget, gives license to skirt the edges of the regulations, to think through ‘what we can get away with’ rather than ‘what’s the right thing to do’.
Not everything can be set down in black and white: it’s the grey areas that people need help with. This is the risk and the brittleness of rulebook only compliance.
In the busyness of business it’s not always straightforward to know the right thing. It has to be alright to ask. It has to be OK to say when something’s not OK. People need to feel free to speak up. A culture of fear will mitigate against this – and if you hear someone blow the whistle it’s already too late.
That’s why commitment will always beat compliance.
Does your Board lead your company culture?
Commitment comes from a sense of belonging, of a shared ethos led from the top – being part of something means being willing to uphold the rules. People are far more likely to do so because they want to, not just because they are told to.
Muttering about complex regulations and new codes of conduct doesn’t really pass muster anymore – it’s up to the company’s leaders to set the tone.
If you’re an ‘ethics trained’ employee who sees senior rainmakers behaving badly, you may feel betrayed. If you’re an investor who can’t see the true value of your Directors’ pay, you may feel short-changed. If you’re a customer who’s been ‘mis-sold’ a financial product, you may feel lied to.
All these groups of people shape the organisation and its reputation.
Here’s a couple of questions to get you thinking:
What business opportunity would you say ‘No’ to? Do you know how your board and senior team respond?
If the answers to these questions are unclear, try a quick test of the sense of belonging in your organisation by taking our Belonging Space Challenge here.
My recommendation: Invest in a sense of belonging, reinforce commitment and pride, and compliance with regulations and guidelines will become even more normal than planning for fines.
And may you can be confident that a higher proportion of the workforce can get on with doing the work rather than checking the compliance of others.
Join us for our next seminar on 19 October 16:00 – 18:30
We’ll be discussing belonging, ethics and other knotty issues related to the Financial Reporting Councils recent report ‘Culture and the Role of the Board’
See the full invitation here.
Email firstname.lastname@example.org to reserve your place.