Mining the Gold in the Compliance Hills: Part 2 – Extending Compliance Value Across an Organization

Thomas Fox

Thomas Fox - Compliance Evangelist

Welcome to a special five-part blog post series on how to unlock the gold in your program. I visit with Gio Gallo and Nick Gallo, Co-CEO’s of ComplianceLine, LLC, the sponsor of this series.

One of the ongoing issues in compliance is to demonstrate the Return on Investment (ROI) in your compliance program. One way to do so is by demonstrating the extended value of compliance literally across your entire company. When overlaid with an ESG component, you can begin to see the gold in your compliance hills. In addition to showing how you can unlock the gold in your own compliance hills, Gio and Nick discussed demonstrating ROI for your internal budgeting process which can provide to you the financial resource to strengthen and improve your compliance program. Today, in Part 2, we consider how a corporate compliance function not only extends its value across an organization but demonstrates the value add of a robust compliance function in improving overall business ROI. It is a way of thinking about your compliance that many compliance professionals fail to grasp.

We began with an exploration of how a finance professional will view things differently from the compliance professional. This is important because there really is a different mindset or at least a different lens that a corporate finance function brings, separate and apart from the compliance function lens. As Nick explained, “in the finance game, people make massive bets, investing hundreds of millions or billions of dollars on acquisitions with no real certainty around how something’s will play out. You do not know if a market will disappear; if the historical growth is going to repeat in the future; if your margin improvements are going to justify a massive purchase price.” Moreover, an “investment committee is really about pushing on those assumptions and saying do we really feel good about how we assume things are going to play out?” He emphasized that it is about “getting comfortable with that level of uncertainty about predicting the future and making bets that are foundationally built on assumptions.”

Gio emphasized that many compliance professionals either believe or are perceived to believe that a company’s bottom line can improve being less risky. However, from the finance perspective that can come across as “Fewer expenses, fewer risk of fines and things like that, or things can get better by growth and improvement. This means not simply getting more revenue but becoming more efficient and even attracting better talent.” Of course, less risk can mean less upside and many finance professionals are “used to jumping to both sides of that kind of gain and loss. This means revenue slash growth versus expense costs.” However, if, as a compliance professional, you can realize that financial professionals are trained to kind of look at the downside, “it can allow you to reframe your perspective and your approach.”

Nick emphasized, “it’s really about being opportunistic. You are opportunistically looking at this risk landscape for things that other people have not seen before.” It was this insight that I found so critical for the compliance professional. Starting with the Department of Justice’s (DOJ) Evaluation of Corporate Compliance Programs released in June 2020, it has become paramount for a Chief Compliance Officer (CCO) to have access to all company data. This necessitates working across corporate silos from the compliance perspective. It allows a corporate compliance function to have insights other functions do not have and allows compliance to “connect the dots”. Nick went on to state, “Once those light bulbs start to turn on, you can have some really powerful outcomes that you never thought would happen.”

We concluded with a discussion of the compounding effect of a corporate compliance program. Even legally trained compliance professionals have some understanding of compound interest. The compounding effect of a corporate compliance program is similar. Consider training an employee to become a compliance advocate and that employee later becomes manager. Gio related, “These are all these follow-on effects. That’s compounding.” Another way to consider this compounding effect is in handling an issue that comes into your hotline, so that person has confidence, and they tell some other people about it. Now there are five people who have confidence in your program and then two of them report. Then they tell five more people. You have this opportunity for compounding of your compliance scope. Gio added in this scenario, “I think we’re going to get 10 more reports this year. A CCO is also selling their program short if you are not drawing that line through the whole story to say this is going to well beat our 15% or three X ROI target. It’s going to blow it out of the water because there are so many ways that what we do in compliance touches the whole organization and those things compound naturally.”

The bottom line is that if you make these little changes, these 1% changes per year, that translate into 40 times impact over a 12-month period. You continue to make these small, incremental changes over time. Then the cultural difference in your organization relative to your competitors very quickly is going to separate in a nonlinear way. It’s in a separate, in a logarithmic way. And that’s where two, three or four years down the road, the real impact of the changes will become apparent the impact that we can have can really be compelling.

Check out the full podcast here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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