Compliance Attitudes in High-Risk Markets

This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.

A Chief Compliance Officer has a direct responsibility to promote the company’s business. That sounds like a controversial statement, but it is not. Every officer and employee of a company has that responsibility.

A CCO has a job: to design and implement an effective ethics and compliance program to detect and prevent code of conduct and legal violations. As the business grows, the CCO’s responsibilities increase.

A company that decides not to enter a financially lucrative market, such as Brazil, Russia, India or China because of “compliance” concerns is suffering from narrow-mindedness. The CEO responsible for that decision should be terminated, unless the CEO’s analysis found that the “cost” of compliance was greater than the projected increase in profits.

Senior managers, however, rarely – if ever – look at the issue that way. Instead, they may react to gut-level factors that suggest a specific country is “risky.” That is a serious mistake.

A CCO should be able to design and implement an effective compliance program for any high-risk market.   The CCO’s job is not to recommend against entering a high-risk market – rather, the CCO’s job is to design a program and develop a realistic budget for implementing the ethics and compliance program in that particular market.

The business decision should be framed differently; assuming the company can enter the market and increase its revenues and profits from sales in that market, such benefits have to be weighed against the increased costs required for compliance. That is not a difficult analysis, nor is it an issue that senior management should avoid by generalized claims that a market is too “risky” because of corruption concerns.

For this systematic analysis to occur, a CCO has to have a seat at the business table with other senior managers.   The CCO has to have legitimacy in the business operations and the credibility to offer analysis critical to consideration of expanding a business into a new and risky market.

CCOs that do not have a seat at the business table are likely to be excluded from participating in this critical business decision. Instead of having the CCO’s important voice at the table, senior managers are likely to influence a decision by offering generalized assessments of risk without carefully considering the issues.

To those businesses that fail to see the value of having a CCO at the senior management level, they will suffer from a serious myopia that will narrow business opportunities and potential profits. As we all know, a CCO deserves a seat at the senior executive table and will provide important business information needed for critical decisions.

Global companies have a responsibility to their shareholders – to make wise business decisions based on all available information. When a decision is made not to enter a market because of compliance risks, the Board and senior executives need to ensure that such an important decision was made with full consideration of compliance information.

As one example, Russia’s economy is expected to grow significantly in the next 10 years. Over the next 10 years, Russia is projected to have the largest increase in consumer spending. The implication for health care, retail, technology and related companies is mind boggling.

At the same time, everyone knows that expanding into Russia means a significant increase in compliance risks. That is where the CCO must apply his or her specific expertise – the company must plan for entering into Russia and must implement specific compliance strategies to ensure that the company can earn increased profits while avoiding significant compliance and enforcement risks.