The HR manager in a 500-crore manufacturing unit approached the recently appointed President with a request to sign a form declaring the President as the “occupier”. The President, quite understandably, felt insulted that he should be called the “occupier’ when he held the designation of ‘President’. He also could not understand the need for such a form. Not being able to comprehend the law and its procedural requirements, and not being able to fully trust his manager, he undertook the rather futile task of trying to read the relevant sections of the Factories Act himself. After a considerable waste of time, he eventually signed the form, unconvinced and apprehensive about its implications.

It is indeed ironic that a senior executive who is otherwise capable of handling complex issues from manufacturing to marketing and from labour to logistics, was lost when it came to dealing with a routine compliance formality.

In most cases, top management and line managers are not fully knowledgeable or equipped to effectively deal with Legal Compliance Management (LCM). Unfortunately, when management’s reaction to legal compliance ranges from scorn to disrespect, it usually results in rather low compliance levels.

One of the major disadvantages of India Inc. Is its rather poor reputation for legal compliances. Indian companies are perceived to be lax in adhering to regulatory and statutory requirements – a perception that greatly harms the company by turning away potential local and foreign investors and customers. A Management’s dismissive attitude and approach towards Legal Compliance Management are a source of serious concern for an international and an Indian partner.

It is a widespread belief that laws governing commerce and trade are repressive, bureaucratic, outdated and provide arbitrary powers to officials to harass and exploit companies, many a times to their own individual benefit. The distrust of the government’s intentions probably stems from the regulatory agencies themselves protecting the law only in letter and not understanding or appreciating the spirit behind each legislation. There is perhaps merit to such cynicisms but it does not seem convincing to an international partner. European and American companies are equally burdened with stringent regulatory norms and are therefore not sympathetic to arguments that corruptive and diversionary tactics are more suitable for carrying on business in our country.

In many situations, the Indian management’s case that, since India’s regulatory system is intrinsically corrupt, the general practice of ‘managing the regulators’ is the more effective solution, does not go well with the investors, partners or customers. Managing the environment involves maintaining a nefarious relationship with the government at various levels. Since these arrangements can adversely change for reasons beyond the management’s control, the company continues to function under a constant threat of punitive action. This makes many an investor or customer very circumspect.

There are numerous cases where the Indian company’s efforts to reason out that general industry and trade practices force their hands when it comes to adopting certain practices are equally unconvincing. All the units in a particular industrial estate have collectively adopted certain compliance practices that are not entirely legal. However, any attempt by one member to become fully compliant would incur the wrath of the other units. In such situations, the concerned department may even suggest that the unit ignore the issue like all other units or pay a nominal fine and continue the old practice.

In a few situations, the cost of compliance could be greater than the penalty for non-compliance, it would perhaps be commercially expedient to pay the nominal charges and fines and carry on the activity.

In a few other situations, it may be practically difficult to conform to regulatory norms and hence the management may have taken a conscious decision to carry on the business despite such risks. This may seem pragmatic under the given circumstances, but continuous non-compliance would also reflect badly on the company’s reputation.

It is well known that the government does not have the resources to implement all the regulations in force. Companies tend to take advantage of this shortcoming or a loophole in the law and choose to abide with only those stipulations that are actively administered by the government. ‘Let the government first send a notice and then we will respond appropriately’ is a normal reaction. While this may work in the shortterm, it still continues to expose the organisation to a potential future liability.

Even the absence of litigation and taxation claims does not seem enough to convince stakeholders that the company is well run. They have a sneaking suspicion that legal compliances have been “taken care of”. The lack of transparency in our regulatory system fuels their misgivings even further.

Often, the Chairman or CEO emphasising his or her own positive commitment towards legal compliance may seem superficial if it is not reinforced by the top management and reflected in the company’s operations. The management must convincingly prove that all legislations have been procedurally complied with and that the company has auditable systems and processes in place to ensure compliance on a continued basis to mitigate risks and protracted litigation.

Stakeholders are looking for reliable and consistent methods to assure themselves that the Indian company has followed the law in letter and in spirit. They will certainly draw comfort in the management’s commitment to Legal Compliance Management (LCM) if the company is able to demonstrate its values and managerial efficiency in adhering to all compliance requirements and procedures