A culture of compliance refers to an organisation’s practices and commitment to complying with the laws, regulations, standards, Codes of conduct, and policies. To be active, everyone in the organisation must understand their part in ensuring that they are followed. A compliance structure should provide direction and guidance in decisions and actions. The basic structural framework for compliance includes:
- a) commitment from senior leadership;
- b) delegation of authority;
- c) firm-wide education and training about the compliance process;
- d) discipline and remediation (Donald C. Langevoort ‘Cultures of Compliance’ https://ssrn.com/abstract=2840762, accessed 14 January 2024)).
Compliance is a crucial element of organisational operations, and culture is something critical to good compliance. It ensures that firms comply with the laws, regulations and ethical standards, and fostering business practices. Compliance goes beyond a mere checklist of rules and procedures. It requires a collective commitment to ethical behaviour. This is natured by a strong compliance culture.
A compliance culture requires leadership commitment. A strong culture is an organisation-wide initiative, meaning leaders must lead by example (Saen Thompson ‘Creating a Strong Corporate Culture That Begets Compliance’ www.forbes.com, accessed 14 January 2024)). An effective compliance culture starts with the tone at the top. To create a culture of compliance, leadership should set the tone from the top by adopting a strong commitment to compliance. It must communicate the importance of compliance and ensure adequate resources are allocated to compliance efforts.
Management plays a critical role in implementing a culture of compliance, and in creating and modelling a culture of compliance by prioritizing and visibly supporting compliance training efforts. Practitioners need to demonstrate the importance of compliance and their support by ensuring proper staffing, reporting structures, and training exist to facilitate compliance. The tone and culture set by the management, more often than not, dictates the employees’ compliance behaviour. A robust compliance culture inspires employees to act with integrity, make ethical decisions, and take responsibility for their actions. It engrains compliance as an integral part of the organisation’s identity, guiding day-to-day operations and decision-making. The demand for a healthy compliance culture requires inducing more compliance effort.
Compliance is fundamentally about human behaviour. Compliant behaviour goes hand in hand with instilling an ethical culture across an organisation. Management should involve employees in the compliance process by providing regular training and fostering a learning culture that promotes continuous improvement and knowledge sharing. Compliance training plays a critical role in driving a culture of compliance and allows organisations to integrate policies and procedures more fully into their operations.
Training should focus on what employees should do to support an ethical work environment and depict the positive culture that will be created as a result. Training promotes a healthy workplace culture and should reflect the positive culture that the organisation is trying to achieve. If training is not reinforced through meaningful leadership support, it will not support a culture of compliance. Training should be periodic and cover policies, procedures and laws. To be effective, ethics training should incorporate human conduct such as behaviour and decision-making (Douglas Kelly ‘Six Elements of a Compliance Culture’ (https://everfi.com, accessed 14 January 2024)). Effective compliance training provides guidance not only on what not to do but also on what to do. Values are key to linking employee behaviour with external laws and internal policies. The day-to-day operations matter to compliance culture because they involve decisions employees make every day. Organisations must enforce their policies if they want employees to do the same.
Law firms need to develop comprehensive compliance policies and procedures that are easy to understand and accessible to all employees; and that align with relevant laws, regulations and industry standards. Strong, well-managed policies are essential to creating a culture of compliance. Regular review and update of policies to reflect changes in the business environment and regular training on the organisation’s internal policies and external regulations are essential. Law firms must provide for a formal and structured monitoring of the compliance process to ensure compliance with the applicable laws, and regulations, establish and maintain a culture of compliance, co-ordination of compliance functions within the organisation, and focus on compliance risk within a broader risk management framework.
Active monitoring to evaluate all efforts, and regular training on compliance obligations, are essential in building a culture of compliance into the operations of the organisation. If practitioners do not actively support and cultivate a culture of compliance, the practice will have a paper compliance, not an effective one. An efficient compliance program will promote an organisational culture that encourages ethical conduct and commitment to compliance with the law.
An organisation cannot be compliant if it does not fully understand the regulator’s expectations. Firms are expected to promote an organisational culture that encourages ethical conduct and commitment to compliance with the law. Culture becomes especially important when the structural aspects of compliance and supervision cannot or do not otherwise influence behaviour. A culture of compliance embeds compliance into everyday workflow.
Ethical culture emphasizes ethical behaviour. Creating and maintaining an ethical culture requires a sustainable effort. Compliance programmes that incorporate culture can promote ethical behaviour. Organisations prioritizing compliance build a reputation for ethical practices and responsible behaviour. This can enhance trust, leading to increased credibility and improved brand value.
Instilling a culture of compliance helps ensure an organisation can meet its goals and objectives. Having a full compliance programme implemented is not a requirement for creating a culture of compliance. Creating a culture of compliance in advance will help an organisation to prepare the way for an effective compliance programme. A strong culture promotes better employee performance and engagement, but it also lays the foundation for a stronger compliance programme. The consequence of poor business culture is a lack of compliance with the company guidelines, laws and regulations and social norms, which heighten overall business risk. A positive culture is one of an organisation’s most competitive advantages.
Without an organisational commitment to compliance, policies and procedures are merely documents. High-integrity culture functions as a substitute mechanism for external governance (M. Altamuro, J. L., & Gray, J. V. (2022). Corporate Integrity Culture and Compliance: A Study of the Pharmaceutical Industry. Contemporary Accounting Research, 39(1), 428-458. https://doi.org/10.1111/1911-3846.12727, accessed 14 January 2024)). Integrity can create an environment that supports ethically sound behaviour and instil a sense of shared accountability among employees. Law firms need to be more proactive in creating an ethical culture and climate than reactive and operate in compliance and should establish and maintain a culture of continuous awareness of compliance issues. Practitioners should work towards engendering a culture of compliance in their practices.
|Please note that our blog posts are informal commentaries on developments in the law at the time of publication and not legal advice.