MT Masterclass - Compliance

What is it? The moment comes in most management meetings when someone raises the question of compliance. The word is often met with a sigh of resignation. Narrowly, compliance means not breaking the law, but in practice it means complying with an entire framework of corporate governance and other regulations as the entity goes about its business. This is no small matter: modest estimates put the average cost of compliance for UK businesses at £50 million. Abuse of competition law alone, for example, can leave a firm liable for a fine of up to 10% of turnover.

Where did it come from? When robber barons ruled the business world, there was little corporate law to comply with - think of modern Russia's early experience of capitalism in the 1990s. But as economies mature and societies stabilise, the wealthy and not-so-wealthy alike agitate for regulation and security. In the UK, a series of corporate governance reforms - Cadbury, Greenbury, Hampel, Higgs et al - have dealt with issues in the business community, helping to create a new Combined Code with which businesses now have to comply, or explain why they're not doing so. The sins of previous bosses are thus visited on their successors.

Where is it going? You ain't seen nothing yet. In the wake of US scandals at Enron, WorldCom and elsewhere, the US congress drew up the Sarbanes-Oxley Act - Sox for short - which has become the gold standard for corporate governance regulation. Compliance now requires a black belt in bureaucratic pedantry and fine detail. But such is their concern over the cost and difficulty of being Sox-compliant that some firms have considered de-listing in the US and registering abroad. Some dilution of the rules may be offered but, meanwhile, business leaders will have to pull their Sox up.

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