Creating a Climate of Compliance in 4 Steps

Compliance with internal rules and external regulations is something every middle market company must enforce. Doing so is the only way your employees can protect their jobs while keeping internal and external auditors relatively off your company's back. Most importantly, complying with regulations is the only effective way to keep your company out of the government's bull's-eye, who can bring your business to a grinding halt with lengthy investigations, invasive regulatory actions, and huge penalties.

Compliance doesn't have to be a struggle.

When the rules make little sense (i.e., have no clear goal) and when complying with them is time-consuming and expensive (like so many government regulations, alas), you have a formula for frustration that can spread to all levels of your company. The Economist magazine recently described some absurd overregulations: "A Florida law requires vending-machine labels to urge the public to file a report if the label is not there. The Federal Railroad Administration insists that all trains must be painted with an "F" at the front, so you can tell which end is which. Bureaucratic busybodies in Bethesda, Maryland, have shut down children's lemonade stands" because the kids were unlicensed. How can you create a culture of compliance when you and your people may not exactly embrace the rationale for the rule or regulation? Consider the following:

  • Clearly communicate that complying is non-negotiable, even if you believe that the rule makes little sense or is cumbersome to follow. Everyone in your organization has a right to their private opinions, and they can express those opinions openly or covertly. At the end of the day, however, a simple truth remains: your middle market company must implement systems, processes, and training that enable you to comply with these changes. In an ideal world, your middle market company or your industry trade association had a chance to lobby and offer responses to the proposed regulatory change, to suggest modification that would make the rule less cumbersome while achieving its purpose (assuming it has one). At the very least, your company should have had some advance notice of the change, giving you time to plan your response. As the old saying goes, you can't escape death or taxes. Add cumbersome regulations to this twosome. At its most basic level, compliance is the cost of doing business.
  • Understand what complying should look like. You may have to hire an outside consultant or work directly with the regulatory entity that issued the new rule in order to fully understand what systems and processes you'll need to implement. Also consider working with your trade association, or even partnering with competitors, to share insights and best practices to adapt to the change. Getting your middle market company ready for these rule changes should be treated like any other important project your company has. You have a deadline (the date the new rule comes into effect), and you'll need to allocate resources toward achieving the goal.
  • Your biggest change-management obstacle will be your people. People are obstacles not just because they may disagree with the new rule (and new systems and processes), but because they have grown accustomed to doing things the old way. You will need to train them, monitor them, and keep monitoring them. You'll need internal control systems that keep your compliance efforts on track. As in any change-management initiative, your biggest enemy may not be open resistance but old-fashioned inertia. If given the slightest chance, people generally prefer to revert to the old ways of doing things.
  • Set up a process to regularly review your efforts to comply, coordinating both internally and externally. An ounce of prevention (being proactive) is worth a pound of cure (paying the penalties associated with non-compliance). Set up a time to review and then make any changes necessary to strengthen your systems. If you need outside help, then get outside help. In addition, reinforce your efforts by aligning recognition and compensation systems to reward people who lead your efforts. As the business maxim goes, the things that get measured and rewarded get done.

Following these steps won't make overregulation go away, but it will allow your middle market company to create a culture that makes complying with the rules an imperative. While complying with absurd new rules will never be easy, doing so will help keep regulators at bay and help you sleep comfortably at night.

What steps does your company take to comply with new rules and regulations?

Boston-based Chuck Leddy is an NCMM contributor and a freelance reporter who contributes regularly to The Boston Globe and Harvard Gazette. He also trains Fortune 500 executives in business-communication skills as an instructor for EF Education. Circle him on Google+.


In Collaboration With