Abstract
The purpose of this chapter is to reconsider a traditional approach to the compliance function of firms from a modern perspective, which broadens its concept as a company's liability to only secure its adherence to applicable laws and avoid regulatory sanctions in serving company's interests. The observation of issues regulated by the compliance function in the contest of managing situations of conflict of interest (COI) in different spheres concludes that, in fact, those issues, to a greater extent, relate to sustaining ethical behavior in business rather than stem from regulatory norms. Based on the findings of this analysis as well as other different sources, a new definition for effective compliance has been developed with the focus on adherence to ethical principles in respect to third parties, which addresses compliance function in terms of corporate social responsibility (CSR) and its sustainability role setting a vector for a further research.
TopThe Scope Of Compliance Regulation
What is effective compliance today? Nowadays though compliance in its traditional meaning is still defined through adherence to laws and rules, more often it implies fair business practices, integrity and principles of business ethics. Director of ethics and professional standards, at CFA Institute (Chartered Financial Analysts), Mr. Michael McMillan clarifies the correlation between compliance and ethics:
Just because you have a good or great compliance program doesn’t mean people are not going to be behaving unethically or not have an environment that encourages unethical behavior. Compliance really focuses upon rules and regulations. Are you following the rules, are you following the regulations and the laws of your company, or the laws and regulations of the country or environment in which you work? Ethics are about encouraging behavior that is above just following rules and regulations. It is requiring to get people to act more in consonance with the values of the company. Ethics should permeate the entire company. (McMillan in DiPietro, 2014).
Thus, it is logically to conclude that compliance without strong ethics will be not effective.
Key Terms in this Chapter
Integrity: A culture of business conduct led by high ethical principles rather than formal obligations.
Ethics: Moral obligations and principles of behavior.
Insider Trading: Trading of securities by a person who has non-public material information about the security.
Corporate Conflict: A conflict between a company’s and own director’s interests.
Fiduciary Duties: Ethical obligations of directors to act in the company’s interests.
ISO 19600: An international standard on implementation of effective compliance system.
Conflict of Interest: A situation where the interests of two parties are incompatible (employee vs. company, employee vs. customer, company and senior manager/ director).
Compliance: Abidance by the principles of business ethics to secure the interests of the company’s stakeholders.
Stakeholders: All third parties that are influenced by the company’s operations or activity (employees, customers, shareholders, business-partners, government, communities, etc.).