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Licks Attorneys' COMPLIANCE Blog

HOW MUCH DOES IT COST, AND HOW MUCH DOES A COMPANY EARN WITH A COMPLIANCE PROGRAM?

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A seemingly simple question, but appearances can be deceiving!

The question is much more complex than it seems. After all, it is illusory to compare different matters under the same prism.

A small pub that sells drinks and snacks cannot be compared with a company with hundreds of employees and several internal departments, which, in turn, cannot be compared with a company with tens of thousands of employees, hundreds of affiliates, and shares on the stock exchange.

The focuses of a compliance program in these three examples are different and should be directed towards what matters to each specific business. Therefore, creating a standard compliance program and aiming for its successful application in these three types of business will be a huge challenge, considering their different resources, priorities, and needs.

When it comes to cost in implementing a compliance program, there are those who argue that we are not talking about cost but investment. A sympathetic and even coherent inference if the "investment" will generate some gains, about which we will talk later.

However, whether you like it or not, it is necessary to make a cash disbursement. Therefore, implementing a compliance program costs something, one way or another. By the way, this discussion reminds me of Mr. Bernard John Ebbers, known to the general public as Bernie, former CEO of Worldcom. He, among other mistakes, started to record expenses as investments. The result was a sentence of 25 years in prison in the US.

But the gist of the discussion is: How much does it cost to implement a compliance program, and how much does it return in earnings for the company?

The formula for the cost is relatively and paradoxically simple. The expense is proportional to the complexity and size of the business, which will ultimately determine the scope of the compliance program to be implemented. The secret, therefore, lies in the issue of "scale," i.e., the cost of a code of conduct does not compare to continuous compliance monitoring, using customized and automated data analytics tools to sift through data systems that manage capital expenditures.

With regard to the possibility of earnings, this is the biggest challenge for internal compliance officers to demonstrate to their companies. Most of the time, these gains are intangible. We are talking about a good reputation in the market, an unblemished image, a differentiated organizational climate, attraction and retention of talent, etc. However, the larger the corporation, particularly a publicly traded one, the easier it becomes to idealize an equation because the gains begin to materialize.  Whether by attracting investments from shareholders who feel secure and willing to invest in a healthy company, with promising prospects and an excellent image in the market, increasing their chances of greater profitability, or by seeing competitors under investigation, being penalized millions or even billions of dollars, for a failure due to an ineffective compliance program.

Interestingly, when violating an anti-corruption rule, a wide range of companies assign responsibility to the employee (action agent) only, isolating them from the rest of the corporation. However, unfortunately, it is notorious that there has already been a failure in the compliance program. Its effectiveness did not prevent the misconduct of someone in a position who should know all the potential consequences of their actions.

What is no longer discussed is the importance of compliance programs for the sustained growth of any nation, including not just in companies but in governments. Here in Brazil, for example, they are called integrity programs. Absurd practices formerly found, such as authorities receiving imported cars as gifts, public agents receiving favors from other companies such as intercontinental trips with his family, generous deposits in tax havens, etc., are no longer tolerated. No one can think that this is normal, especially in a country where employment opportunities are far below the needs of the people and where hunger and misery still surround the majority of its population.

In all his genius and quotations, Plato said: Try to change the world – the first step will be to change yourself.

Changing everything wrong that is out there depends on each one of us. A small individual change for each person can result in a massive difference on a global scale.

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