Compliance as a Competitive Advantage
Our article explores the evolving perspective on Ethics and Compliance, navigating a transition from a focus on risk-centric concerns to strategically cultivating a competitive advantage. Highlighting the benefits of robust corporate compliance programs, we discuss their role in securing finance, enhancing employee satisfaction, and attracting investors. Emphasizing compliance's impact on customer perceptions, fraud reduction, and sustainable growth, we advocate viewing compliance as a comprehensive framework that meets evolving stakeholder expectations in a dynamic global landscape.
Ethics & Compliance (E&C) in businesses for a long time resonated with risks and penalties associated with risks. Therefore, compliance officers had to fight with prejudices, viewing them as enforcers and business blockers. However, times are changing, and it’s time to reframe E&C as a competitive advantage for achieving sustainable business objectives. Companies on the international stage are naturally in competition with each other. It is a well-known fact that having a strong compliance program protects companies from legal, financial, and reputational risks. Although corporate compliance programs are often seen as a legal requirement by companies, they are more than meets the eye.
In today's world, being a strong company in business ethics and compliance in the eyes of the stakeholder chain, extending from consumers to investors, brings many advantages. In particular, it can be said that all companies that put people and human-oriented risks at the center are a few steps ahead of their competitors. The advantages of companies with an effective corporate compliance program can be listed as follows:
Access to Corporate Finance: E&C programs not only help mitigate risks but also assist companies in attracting new investments through international corporate finance institutions. Both public and non-public companies require investment for sustainable growth and cross-border investments. Banks and international financial institutions require borrowers to abide by certain compliance prerequisites. Accordingly, borrower companies are asked to complete anti-bribery, anti-money laundering, human rights, environmental, corporate governance, and similar compliance programs. Having a robust compliance program serves to assess companies as eligible for corporate finance compliance requirements. Borrower companies are deemed as third parties in their relations with borrower institutions. So, failing to address third-party risks shall result in no-go decisions even if the borrower companies are eligible in terms of financial due diligence.
Employee Satisfaction: To be able to accommodate qualified and well-equipped talents and to benefit efficiently by keeping the motivation of the labor force, which is one of the most important capitals of companies, is undoubtedly one of the main factors that make a company stand out in its sector. According to many studies, employee satisfaction is directly related to the feelings of trust and a sense of justice the company provides to its employees. In this context, issues such as the effective implementation of the compliance program, the proper functioning of the whistleblowing mechanism, and the implementation of the disciplinary procedure for everyone by conducting an internal investigation process, when necessary, by the management directly affect the loyalty and efficiency of the employees to the company. Therefore, by implementing an efficient compliance program, it may be possible to successfully manage the workforce effectively, which is one of the most critical factors that will distinguish your company from other competitors in the sector.
Investor Interest: Investors analyze companies in many aspects before making investment decisions. Some of the topics they consider include sustainability and business ethics. In addition to these, of course, the legal, financial, and reputational risks of the companies and the problems that may arise in the future are also discussed in detail. At this point, compliance programs implemented effectively are an important tool to reassure investors and to manage the conditions the company is in by keeping the risk level at the lowest level.
Reputation in the Eyes of the Customer: In the modern world we live in, one of the factors shaping consumer habits is related to the message companies give to consumers and how they position the product. In this context, consumers care about the product’s quality, price, and performance, as well as purchasing from an ethical brand. As such, instead of a brand they do not find ethical, they may prefer its alternative, even if it is more expensive or of lower quality. Therefore, for companies today, avoiding verbal and physical harassment, violence, bribery, and corruption scandals in the workplace is not only a legal requirement but has become just as necessary to maintain competition in the sector.
Savings from Fraud Awareness: According to the ACFE Report, companies lose 5% of their annual revenues due to corruption. In 2022, it was stated that the financial resources lost reached 3.6 billion Dollars. Although this is the case, another interesting fact appears in the report. 95% of the misconduct in the company actually repeats certain behavioral patterns. By systematically observing employee behavior, taking measures to encourage compliance with compliance program requirements in groups that are considered to be at risk of misconduct, and designing behavior-oriented projects, the risk can be minimized, and the amounts lost each year due to corruption can be turned into a new resource for the company.
Increased Growth with Trust and Reputation: Considering all the issues mentioned above, it is, of course, an inevitable advantage for companies with effective compliance programs to achieve sustainable growth. In particular, companies with an ethical culture can be far ahead of their competitors in customer satisfaction, employee loyalty, innovation, and many similar areas. Trust and reputation play a key role in increasing brand value among all stakeholders.
In light of the above, it is necessary to go beyond seeing compliance programs as an element that eliminates risks and is mandatory for some sectors by administrative authorities. With the globalizing world and developing technology, diversification of employee expectations, increased awareness of customers, and turning their attention in different directions, investors also review many parameters and offer opportunities to companies accordingly. Therefore, the task of companies here is to establish a compliance program that meets all these expectations, is implemented effectively, and is adopted by all company stakeholders.
This article was originally published in Issue 32 of the “INmagazine” by the Ethics and Reputation Society. You may access the article on INmagazine by following this link.
Kemal Altuğ Özgün