The intersection of politics and corporate compliance has created a storm of uncertainty, where both new and established regulations are under constant challenge. Compliance Conversations authors Anna Romberg and Julia Haglind reveal four guiding stars for building resilient ethics programs that transcend political turbulence.
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Ethics and compliance has become an increasingly politicized issue. The current political and regulatory landscape is turbulent, creating uncertainty about future requirements and expectations. Many companies are grappling with how to navigate this shifting environment, where both newly introduced regulations and decades-old regulations are being challenged.
Here, we bring forth four guiding stars that will help us navigate this storm: returning to your values, leveraging a risk-based approach, embracing technology and ensuring consistency.
Returning to your values
A common mistake in ethics and compliance work is using regulations as a blunt instrument to influence boards and management. In times of regulatory and political uncertainty, having a strong foundation is more critical than ever. Companies that thrive over the long term do not only focus on the here and now but ensure that the decisions made today can withstand scrutiny in the next five or 10 years. History tells us that failing in this regard usually leads to severe value destruction and disruption to the core business.
There will always be regulations in any type of business. However, companies that have focused on sustainability primarily due to regulatory pressure may now hesitate as regulatory demands ease. Rather than just complying with regulations as they emerge, businesses should proactively integrate compliance into their long-term strategy, ensuring it strengthens their competitive advantage.
It has never been a good business strategy to say that “we focus on minimum legal compliance.” Instead, the focus should be on identifying what creates long-term value and minimizes the risks and harms caused to others. It is actually pretty simple in theory, but in practice this needs consistent and deliberate work. Companies need to define who they are and what they stand for, ensuring that their core values guide decision-making.
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Read moreDetailsLeveraging a risk-based approach
To ensure focus and impact, ethics and compliance teams must continue to have a risk-based approach. And we need to become better at this. Regulatory bodies are emphasizing that compliance functions must prioritize risks effectively rather than treating all new regulations with the same level of urgency.
Operating on a global scale and monitoring all evolving regulations on local levels can be overwhelming. New regulations emerge and old ones develop constantly. A significant challenge for global companies is the increasing regulatory divergence, particularly between the US and the EU. In addition, resources are scarce and perhaps even more challenged in an environment where regulations and compliance are seen as a roadblock and unnecessary evils.
At the board level, it can sometimes be difficult to grasp how much effort and resources are needed to meet local compliance requirements. There is considerable room for harmonization in this area. We need to improve our ability to assess the specific risks relevant to our companies and allocate resources accordingly. Not everything can be a top priority.
Embracing technology and AI
To ensure efficiency and integration in our ways of working, we need to continue embracing technology. AI and data analytics are increasingly expected to be integrated into compliance functions. Many legal and compliance teams are currently exploring how to leverage technology to make better decisions and work more effectively with behavioral and cultural issues.
AI presents both opportunities and challenges for compliance work. First, AI itself is becoming a focus of regulatory compliance. The evolution from GDPR to cybersecurity regulations and now AI regulations illustrates how compliance teams must continuously adapt to new technological developments. Another critical concern is how AI is being used for noncompliance, including fraud, corruption and money laundering.
How do we keep up with the rapid developments in the tech world? We must ensure that we have the right expertise in place. A recent trend has been to hire behavioral scientists for compliance teams. Now, there is a growing focus on recruiting data analysts and AI experts to strengthen compliance functions.
Ensuring consistency
In a rapidly shifting political climate, companies risk losing trust if they appear to adjust their values based on external pressures.
In the current environment, it is very obvious which companies prioritized certain areas only due to political winds. When the winds shift, these companies also change their ambitions and direction. This approach does not build trust with employees or customers. It becomes clear that leaders were swayed by political winds rather than standing by their own values. The company did not stand firm on their own values and their beliefs but crafted these based on external pressure and trends.
Another example is the corporatization of politics and the support of multinational corporations to the inauguration of President Donald Trump. While maintaining good regulatory relationships is essential, global companies should maintain caution.
A company should consider whether they are consistent and why they choose to provide certain types of support at a particular time. Do they do so consistently, or only in certain situations? Industry associations provide an excellent platform for ensuring strategic dialogues with regulatory authorities. These organizations facilitate dialogue and collaboration with other companies, acting as an intermediary to ensure that contributions are not perceived as favoring any particular political side.
Global companies must consider how their actions are perceived in different countries and in relation to other regimes and forms of support they provide. One of the most crucial aspects of building corporate culture is maintaining consistency. On a broader scale, it is also essential for companies to foster and maintain public trust, as this forms one of the fundamental cornerstones of our society.
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