The hidden value in getting compliance right
strategy+business|Autumn 2020
In times of crisis and recovery, a strategic approach to compliance can build trust and create value for customers, stakeholders, and society at large.
Andrew McPherson, Bob Pethick, and Chris Kong

For organizations managing through a crisis, trust is paramount. Em-ployees and customers need to know that leaders are able to guide them through uncertainty and make the best decisions possible, and leaders need to know that the people executing their decisions are doing so in earnest, to the letter of the law. Of course, organizations must also look ahead to the post-crisis world, in which trust remains critical, but they’ll also need to identify efficiencies to support recovery.

The good news is that there is a part of the organizational structure that can help build trust and drive efficiency: compliance. The importance of compliance itself isn’t news. In a trust-based world, the brands, products, and services perceived as trustworthy are highly effective at attracting and retaining customers. Many leaders have also learned that one key breach can be very costly, to both their organization’s profits and its reputation. And they are keenly aware of the complex regulatory landscape they face. In PwC’s 23rd Annual Global CEO Survey, 36 percent of chief executives in a range of industries reported being extremely concerned about overregulation, ranking it the top threat to their organization’s growth prospects. (The survey was conducted in the fall of 2019, before the coronavirus pandemic took hold.)

Still, these same leaders may have yet to connect the dots. There is a widespread tendency to react defensively and meet the minimum legal requirements— to accept the traditional view of compliance as a cost of doing business. But elevating compliance to a position of strategic value can be a game changer in today’s world. It can increase not only the top line by attracting customers through trust, but also the bottom line. In fact, some organizations have gained significant competitive and cost advantage by embracing new technologies and approaches in every area in which they need to follow laws and regulations.

During uncertain times, when trust is of even higher value to customers, regulators, and staff alike, organizations that build trust into their brand, products, and services will generate loyalty. They will enhance their reputation and resilience and meet broader obligations to society at large.

Complexity and uncertainty

Taking a deeper look at PwC’s 23rd Annual Global CEO Survey data, we see that of the CEOs in this year’s survey who were extremely concerned about overregulation, 58 percent said industry-specific regulation was top of mind, followed by compliance rules for data privacy and cybersecurity, labor and workplace safety, environment and climate change legislation, and tax compliance.

With respect to climate change, 30 percent of CEOs strongly agreed that their organization’s response would bring them reputational advantage. But only 17 percent strongly agreed that their organization had assessed the potential risks, such as carbon regulation. CEOs were also conflicted when it came to the Internet; 51 percent believed that it will bring people together, but 71 percent anticipated increased regulation of content.

To be sure, the demands placed on organizations by laws and regulations are increasing. Most organizations spend more on compliance than they do on highprofile risks such as cyber-attack. According to the Cost of Compliance Survey 2019, by Thomson Reuters, companies’ compliance budgets are expected to increase, and 65 percent of respondents expected that the cost of senior compliance staff would also rise.

Moreover, these costs are spread throughout an organization, including customer-facing departments such as sales, back-office functions, and IT. And it’s not just expenses that are widely distributed. The teams that manage the many compliance obligations don’t sit in one place within the organizational structure, and seldom is there a single “owner” with a holistic view of the organization’s compliance activities. As a result, it’s been difficult to minimize the impact of compliance on customer experience, culture, and cost.

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