Wolfgang Kloiber/ March 19, 2019/ Uncategorized

Compliance in Industry

Strict regulations and laws such as in the financial sector – think of the money laundering guidelines or anti-terrorism regulations – do not yet exist for the industry. Regulations are relaxed, which unfortunately takes its revenge in some cases. ThyssenKrupp for example had to pay penalties for price-fixing in the amount of over 900 million euros. Other examples are Daimler paying one billion euros and the automotive supplier Schaeffler paying 370 million euros in penalties – and the list goes on. A change of mind is overdue, but efforts can already be seen. More and more companies are compiling guidelines in accordance with regulations in order to enable legally compliant interaction as the basis for sustainable success.

 

 Success of Compliance Programs

The numbers speak for themselves – the first successes of compliance in the industry can be seen.  According to a study by the University of Halle, corporate crime in Germany still causes damages of more than € 7 million a year, but this is a decrease of 6% compared to 2015. Corruption has also dropped significantly, only 6% of companies were affected and suspicious cases dropped from 19% in 2015 to 11% in 2017. Today, nearly all large companies (97%) with more than 10,000 employees have a compliance management system (CMS).  On average, companies have one compliance officer position per 1500 employees, four years ago, this number was around 2,400 employees. Often the measures extend beyond their corporations, one third of companies demanding a contractual agreement to abide by the Code of Conduct from their suppliers and service providers.

 

Fear of Punishment and Damaged Reputation

What influences this development?

It would be nice, if only insightful behavior and rediscovered morality would drive this development. But high fines are certainly a significant factor, even though a company is legally protected from insolvency. However, slush funds were common practice. Companies, aware of their abusive behavior, have set aside money and made provisions for payments of possible penalties. A system, which does not work so easily anymore. Nowadays, managers are held responsible. They not only have to fear fines, but also imprisonment. That scares off and adds on to the fear of damaged reputation and loss of trust. Another incentive to invest in a CMS is the prospected positive influence in case of penalties.

 

Corporate Social Responsibility

The social responsibility as part of a sustainable management strategy is an important factor of compliance, which should not be underestimated. The so-called corporate social responsibility has become a quality feature and is certainly a reason for more investments in compliance. Those, who act fairly, can advertise for example with fair pay, good working conditions and no child labor. The awareness of this is growing steadily among customers and consumers. Companies that take their responsibility seriously are granted more trust and loyalty by their customers.

 

Implementation with Obstacles

Unfortunately, the implementation of a CMS may encounter difficulties. Especially the compliance officers are often in an ungrateful position. They must communicate and implement the given regulations and make their benefits plausible.

The study by the University of Halle shows that communication problems are often the biggest problem. The lack of integration into business processes and the implementation in global companies where different cultures meet deem problematic.

Unfortunately, sometimes awareness in the workforce is lacking. Action is needed and things cannot just continue as usual. Most important in this process is the “Tone from the Middle”. Top down decisions from the board level are recognized, but it is far more profound, if managers are supporting and backing up those decisions.

 

Surplus and Competitive Advantage

The development shows that compliance and compliance management systems are now on the way to becoming common practice. They are no longer considered “bad for business”, instead became a sign of quality and thus a competitive advantage.  If compliance is communicated as framework to work confidently and as shared social responsibility, companies will receive support and strong identification by their employees.

 

References:

https://www.econcrime.uni-halle.de/research; Zugriff: 23. November 2018

https://www.pwc.de/de/risk/pwc-wikri-2018.pdf; Zugriff: 23. November 2018

https://www.welt.de/wirtschaft/article125967524/EU-verhaengt-370-Millionen-Strafe-gegen-Schaeffler.html; Zugriff: 27. November 2018

https://www.handelsblatt.com/unternehmen/industrie/lkw-kartell-aktionaere-fordern-aufklaerung-von-daimler/19520618.html?ticket=ST-2847394-LPPqJcxTRgWrG7JYTaNB-ap1; Zugriff :27. November 2018-11-27

https://www.bundeskartellamt.de/DE/Kartellverbot/kartellverbot_node.html#doc3591504bodyText3; Zugriff :27. November 2018

https://www.csr-in-deutschland.de/DE/Was-ist-CSR/Grundlagen/Nachhaltigkeit-und-CSR/nachhaltigkeit-und-csr.html; Zugriff: 27. November 2018

Photo by Malcolm Lightbody on Unsplash

Wolfgang Kloiber

About Wolfgang Kloiber

Wolfgang Kloiber is responsible for the care of industrial customers at targens GmbH as Sales Manager Compliance Solutions. He has years of experience in the field of compliance management tools as well as the training and communication of compliance content. He uses this sound expertise for the benefit of the customers. After studying humanities in Würzburg, Berlin and Cambridge, he initially worked as a business coach and trainer, then as a consultant in the areas of personnel recruitment and personnel development.