Historically, the General Counsel was viewed by Business enterprises as a ‘barrier’ to business, to be avoided or, at best, endured; deserving no more time and attention than strictly necessary. Managements, busy with business operations and profit making, had no time to think about the ‘what if’ of legal compliance. Then came the infamous dissolution of Enron, the American Corporation which ran into serious Regulatory violations leading ultimately to its death in 2001. Enron taught the world several lessons in Compliance. It also led to the enactment of the now famous legislation in the United States, ‘The Sarbanes Oxley Act’ or ‘SOX’. Enron’s demise taught us the necessity of implementing Enterprise-wide proactive and robust Compliance management systems in organizations. Following SOX, several countries tightened their Regulatory Compliance regimes, leading to the gradual development of strong and proactive Compliance systems across the world, particularly in countries with complex legislative regimes such as India. Provisions of Clause 49 of the Indian Listing Agreement relating to Compliance are broadly derived from the provisions of SOX.
Most Multinational Organisations have implemented Compliance Programs at a global level. These are primarily focused on Ethical compliance such as internal Codes of Conduct; in the Regulatory field, the internal Codes are supplemented by general Guidelines and Electronic Trainings on a few laws viewed as critical by the Parent, more often than not, the Anti-trust laws and Anti-bribery laws. The Programs are also supplemented by Whistle blower systems.
Since every country is a sovereign jurisdiction in itself and is subject to its own laws which are specific, dynamic and ever evolving, Global CompliancePrograms implemented at a global level remain confined to the realm of “general compliance management.” There remains a need to supplement/ synergise these systems by a “Country-specific compliance management” system which involves proactive handling of applicable legal obligations in accordance with the specific legislative framework of a particular country by specialist departments. To realize success, therefore, Regulatory compliance needs to be infused into every part of the business, where employees are taught how to succeed in a regulated environment and understand that good compliance is a key driver of high performance.
A robust and effective Regulatory Compliance Management system at country level requires a structured approach especially in complex Regulatory jurisdictions. For instance, in South Asian countries like India, the Constitution is complex with three Lists that allow the enactment of a multiplicity of conflicting Legislations and subordinate legislations, Municipality laws, Notifications, Circulars and Executive orders which cast onerous responsibilities on an organization and in the event of non-compliance/violation, the Company and its top management often face criminal prosecution and penalties. To make matters worse, most South Asian countries are common lawcountries where an additional and very large body of law is constituted by binding judicial precedents.
Implementation of a successful Compliance Program requires the following:
Quite an effort! However, the benefits of a proactive approach to Compliance faroutweigh the cost & the effort : risk mitigation such as risks of delayed / vitiated growth plans, punitive action by Regulators, loss of reputation, loss or closure of business. A Corporate’s compliance levels also have a direct impact on its credibility and valuations with prospective investors.
Without a doubt, in the field of Specific Enterprise-wise Regulatory Compliance Management, in the last few years, India has left the World behind. Did Enron truly lead to robust and proactive Compliance Management systems across the whole world? Countries like Germany, Holland, China and other European countries have weak or no systems to manage Regulatory Compliances covering the entire gamut of their business processes. Content to confine themselves with Ethical Compliance Management and a few laws that they view as critical to the business, they blissfully go on ignoring the risks that tick by only to erupt in a most unexpected way and at the most inopportune moment. Compliance systems that have gained popularity in India and are now followed by most professionally managed Corporates are almost alien to Western Counterparts except perhaps in a few countries such as the United States where Enterprise GRC (Governance Risk and Compliance) software solutions are often used.
India offers solutions that are easy to implement and are affordable. For low cost Compliance Programs, India is indeed a land of opportunities for Multinational Corporates.
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