Profit-driven organisations have specialised in such activities to hold a sustainable competitive advantage while increasing economic value to their stakeholders. This has obviously driven the regulatory landscape within the financial services industry to become more demanding.
As a result, compliance officers have been given an increasing number of responsibilities. These include monitoring compliance risks and ensuring good corporate governance, paired up with safeguarding reputation and ensuring corporate responsibility.
This scenario leads compliance officers to seek closer ties to the running of the institution, with a view to collaborative functions within the firm. This will hopefully help to embed the vision that compliance is everyone’s responsibility.
Why is this important? We all need to gain legitimacy and acceptance from stakeholders and society who may otherwise pose a risk to our organisations. Ultimately, without stakeholders and their continuing participation, institutions cannot survive as a going concern.
Stakeholders make up their minds and hearts as to whether they like or dislike an institution and what they think about its perceived character, actions and behaviours. Employees can be seen to influence the firm because they retain a relationship with the institution that is ultimately reflected on the customer.
Therefore, employees can be seen as a dominant stakeholder. They assist with decision-making and liability and their efficiency may be measured by how effective the director was when managing risk and allocating it to the most risk-tolerant party, who may actually turn out to be the compliance officer.
Also, customers can potentially influence an organisation with their actions, legalistic approaches, voice and exit strategies. This normally creates urgency, placing institutions at risk of circumventing compliance processes in order to serve the client in the fastest and not necessarily in the most diligent manner.
Authorities also hold the power to influence institutions when implementing regulations and guidelines that might be vague or difficult to interpret, implement and/or abide to. Urgency builds up when authorities impose compliant deadlines and fines if institutions fail to regularise themselves with the regulations.
Other antecedents include perception – in the media or pressure groups and social media – about institutions. This information will assist management to bridge the gap between what is expected by the client; what is expected by the employees; and, at the same time, what is expected and imposed by the authorities on the institutions. Top objectives of management are to improve positively the overall internal and external perception of the institution.
This emphasises a more familiar topic: the need to define our stakeholders to assist management when identifying the risks presented to the institution. This brings us back to the compliance officer, who ensures daily organisational routines, where experiences from client-facing employees are delivered to the compliance officer who in turn reports to the board after pro-actively evaluating risks to the institution. Controls then need to be enforced to ensure diligent processes.
Therefore, risk may be reduced by making sense of a situation through processes. This is a prerequisite of strategic analysis and decision-making.
Compliance officers therefore need to gain extra insight and knowledge to understand that within the financial services industry, good corporate governance and corporate responsibility are intertwined and companies need to be accountable and controlled on how they generate their revenue to create sustainable value to their stakeholders.
Only then can the institution attain corporate reputation within the industry and among its stakeholders, in addition to helping the country’s image and reputation from an inter-national perspective.
Many would agree that a good reputation is worth an awful lot. Martin Winterkorn, CEO of Volkswagen, would probably agree with this statement.
Ruth Agius is a Compliance Support Officer with GANADO Advocates. This article was published in the Times of Malta, 27 October, 2015.