Legal Compliance

Legal compliance is a procedure to ensure that an organization follows relevant laws, regulations and business rules.[5] The definition of legal compliance, especially in the context of corporate legal departments, has recently been expanded to include understanding and adhering to ethical codes within all professions, as well. There are two requirements for an enterprise to be compliant with the law, first its policies need to be in line with the law. Second, its policies need to be absolute with respect to the law. The role of legal compliance has also been expanded to include self-monitoring the non-governed behaviour with industries and corporations that could lead to workplace indiscretions.[6] Within the LGRC realm, it is important to keep in mind that if a strong legal governance component is in place, risk can be accurately assessed and the monitoring of legal compliance be carried out well. It is also important to realize that within the LGRC framework, legal teams work closely with executive teams and other business departments to align their goals and ensure timely communication.

For every company and business, Legal compliance is of utmost importance. This is extremely necessary if the company has entered into contracts with clients. When this is done, the company and the client sign and agree to the terms, conditions, and clauses of business in those contracts and agree to be bound by the legal framework. They also agree to follow and comply with the rules, laws, regulations, and standards set up with regards to a particular business.
In the absence of legal governance risk and compliance, there is a possibility of being sued in expensive litigation. It also comes with accompanying unpredictable damage to the reputation of the company and the particular business. Non-compliance could also make a person land up in jail and made to pay for the damages suffered and compensation be provided to the affected party. With effective and proper management of compliances, one can avoid these risks. Maintaining operational discipline across departments helps ensure that compliance policies are consistently followed, reducing such risks and uncertainties that often lead to Organizational Anxiety within the workforce.

Legal compliance management:

In everyday business transactions with clients, customers and businesses have to actively engage in governance risk and compliance with rules and regulations. It is important for Businessmen and companies to abide by and conduct their businesses as per the rules, laws, and regulations that govern every business activity and transaction. It is essential to follow risk governance and compliance with the relevant legislation as well as by maintaining the standards set by laws. Absence of proper governance risk and compliance according to the law, rules and regulations can affect business adversely; also damage the reputation of the company and clients too.

The act of legal compliance plays a vital role in every business whether it is a big one or small. With every failure to comply with the rules, regulations, and policies and to live up the standard set, there come serious consequences.

Therefore, it is important for every business and Company to plan out, strategize, manage, organise, and control the various business activities and transactions. 

The management and governance of compliance and risk can be done through the following:

• Recognise top compliance risks and efficiently design compliance risk assessment for organization to highlight risks.
• Build a framework for organization compliance risk factors and approaches for risk calculation.
• Bearing the risk assessment to categorize intrinsic risk to Legal influence, financial impact, Business impact, Reputational impact.
• Provide both quantitative and qualitative actions for Effective risk mitigation as this will reduce the likelihood of the risk event occurring, and the potential hazard to the organization.
• Make provision of resources for effective compliance risk vindication.

Steps of Compliance Risk Assessment

• Accumulating input from a cross-functional group.

• Structure it by Focusing on prevailing material, such old enterprise risk assessments and previous internal assessment reports

• Clear risk ownership of specific risks and driving towards larger transparency.

• Request external input wherever applicable

• Treat the assessment as a alive, breathing document
• Repeat the Compliance risk assessment intermittently
• Allow Compliance Risk Assessment data to be used by assimilating and analyzing key data.

Five Essential Elements 

• Leadership

A successful compliance program must be built upon a solid foundation of ethical values; otherwise it’s just a concave set of internal rules and regulations. Support from senior management has come to represent this necessary ingredient. But compliance standard requires a lot more. Companies must also have high-ranking compliance officers with the authority and resources to manage the program on a daily basis. And those compliance officers must have the ear of those ultimately responsible for corporate conduct, including the Board of Directors and top management.

• Risk assessment

Enforcement authorities are demanding that multinational companies have formal processes for assessing the compliance risks everywhere they do business, particularly in emerging markets. As companies become more dependent on global supply chains, knowing the nature of business risks by industry, transaction, etc. is a crucial component of a successful compliance program. A lack of clarity in this process can heighten Organizational Anxiety, especially in complex operational environments.

• Standards and controls

It’s almost next to impossible to find a global company today that doesn’t have a code of business conduct — a summary of corporate do’s and don’ts. But law enforcement authorities require much more detailed written policies and procedures. For example, companies can’t just state that their representatives are prohibited from paying or taking bribes. They must have clearly established protocols for screening their partners, distributors and local agents for criminal backgrounds, financial stability and improper associations with any government agencies.

• Training and communication

Technology such as webinars, video conferencing and online testing has made it much easier for companies to train their officers, employees and third parties on prohibited code of conduct. But enforcement officials want to know if the message clearly got through. Thus, company training is often subject to scrutiny regarding the viewers, mode and frequency. Live training is the preferred method for employees in situations where risk is high.

• Monitoring, auditing and response

After all the compliance controls have been put in place and communicated to the appropriate audiences, the question remains whether the workforce is actually complying with it or not. Implementing this sort of oversight is often the weakest link in a company’s compliance program. Yet businesses are required to not only conduct regular audits to monitor employee conduct, but also to respond quickly to allegations of misconduct and discipline those who violate the company’s compliance requirements

Importance of Compliance in Business

• Compliance Demands Grow with Your Business

In its business sense, “compliance” refers to a company meeting its legal obligations, often to protect the health, safety and welfare of everyone. Simple examples of compliance include obtaining a business license in your town and paying the taxes. The importance of compliance is more evident as issues become more complex when the business grows. You will have extended responsibilities regarding your workers, covering hiring, firing, discrimination, harassment, safety, wages, payroll and benefits. The way you make and sell your product and service might fall under the patronage of a government agency, such as a restaurant needing to meet health department guidelines.

• Reduced Legal Problems

The most obvious consequence of compliance is that it decreases your risk of fines, penalties, work stoppages, lawsuits or a shutdown of the business. When you don’t meet some compliance requirements, such as posting an employment poster in the wrong area of your office, you might get a warning and a chance to rectify the problem. In other situations, you might face costly sanction. Failing to meet your legal obligations, such as in your manufacturing procedures or advertising methods, can also help someone suing you build up his case. Hire a compliance expert to make sure you understand all of your legal obligations and how to comply with it.

• Improved Operations and Safety

Many business rules and regulations can help you more than damage you. For example, rules regarding discrimination and harassment help you create a better working environment for the employees, which can lead to more worker productivity. Following safety and security rules helps prevent injuries, fires or building evacuations that hurt the profitability. In addition to learning the bare minimum you need to do to meet your legal obligations, review suggested business practices and learn more ways to strengthen and safeguard your company’s operations.

• Better Public Relations

When you meet your legal obligations, one of the benefits of compliance is the ability to peddle these on your website and in your marketing materials. For example, when you place a job advertisement, include the fact that you are an equal opportunity employer. If you post your mission statement on your website, mentioning that you do not discriminate based on race, sex, creed or sexual orientation. When you recruit new workers, highlight your company’s commitment to both physical safety and mental health by referencing key policies and benefits dedicated to proactive healthcare and overall wellbeing, such as extended maternity and paternity leave or free gym memberships.

• Higher Employee Retention

Many business compliance program deals with protecting employees. The more employees feel they work in a fair, professional and safe environment, the more likely they will be to stay with you for a long haul. Even if you don’t harass or discriminate against any employees, if you don’t take steps to ensure none of your employees do, you can actually lose valuable workers. Companies should include policies and procedures in your employee handbook that mirror your legal compliance obligations. Remember, a policy is only strong if it is enforced effectively. Your policy should not only present the rules but also specify the detailed procedure for dealing with infractions, such as a reprimand and additional training on a first infraction and suspension or termination for a second. Check in with managers or supervisors regularly to ensure complaints are handled properly.

References:  

https://en.wikipedia.org/wiki/Legal_governance,_risk_management,_and_compliance#Legalcompliance

https://www.bakermckenzie.com/~/media/Files/BDSUploads/Documents/global%20corporate%20compliance/br_compliance_fiveessentialelements_12.pdf