Reduce
Your Legal Risk; Here's How
Ask
executives what keeps them awake at night, and high on the list will be legal
compliance. After all, managers can't control what employees do 24 hours a day.
And even an honest mistake can lead to lost revenue and devastatingly expensive
litigation.
"Managing
compliance is integral to good leadership for two reasons: first, because it's
the right thing to do, and second, because an airtight compliance process
actually can enhance your business practices, such as Purchasing, and increase
profitability," said John King, president of the Roster Network of CPAs and
professional-services firms.
From
OSHA to the IRS, from the city government to insurance regulators, commerce is
driven by countless regulations. Add such ethical issues as sexual harassment,
insider trading, kickbacks and gratuities, and there seems no limit to the
potential for compliance violations - even inadvertent ones. Even if you are
pure as snow, unwarranted allegations and accusations can tie you up in costly
litigation. According to the National Federation of Independent Business (NFIB),
33% of all small business owners have had to defend themselves against a
lawsuit. Over 50% have been threatened with lawsuits within the past five years.
The
good news: There is a compliance solution that can help managers sleep easy - or
at least fret about other matters. Fines for wrongdoing can be reduced by 95% if
a company has concrete internal programs to detect and prevent illegal acts,
according to the Federal Sentencing Guidelines, which spells out fines and
penalties for corporate wrongdoing. But if a company can't produce documentation
that it has tried to prevent wrongdoing, fines and penalties can be ratcheted up
by 400%, according to the Oct. 21 Wall Street Journal.
"Often,
companies have compliance procedures that are not well documented," King
said. Most companies have ethical business practices and most employees behave
ethically. But that's not enough; you need to demonstrate your commitment to
regulatory compliance in order to reduce your exposure. "You'll always have
people who will make mistakes," King said. "The solution is to address
the issue systematically to limit your liability."
Each
employee should have a simple one-page job description that tracks the tools
needed to do his or her job - including compliance tools such as employee
handbooks, Purchasing policies on gifts and gratuities, and so on. This one-page
document also can be used to assure that you hire the right type of people in
the first place. "Without generating a lot of new paperwork, a system of
job descriptions documenting what people do and how they do it provides an
integrated solution to lots of business problems, including regulatory
compliance," King said.
Take
Lockheed Martin Corp. for example. The company paid a fine of $24.8 million in
1995 because it violated antibribery laws. Since then, the company has
instituted a tracking system to document ethics and compliance training its
employees have attained. Doing so helps insulate the company in the event of an
isolated violation by a renegade employee, or from an inadvertent violation.
Were this to occur, the tracking system would provide evidence of the company's
management commitment to compliance, reducing the likelihood of a larger fine or
penalty.
King
said companies in the Indiana Roster Network have seen numerous improvements in
their profitability as a result of using systems to document what employees do
and how they do it. For example, he said, companies with such a system are more
easily able to meet the rigorous standards of ISO 9000 registration and other
quality standards mandated by their big customers.
Unfortunately, it's not enough just to "do the right thing" - you have to be able to demonstrate that commitment if a question arises, King said. Doing so can make a lot of compliance problems go away.