Compliance v. Profit

Compliance is a cost center. It's a burden the compliance manager must bear. All too often being a compliance manager feels like Sisyphus pushing that huge rock up the hill only to never quite succeed. And then something happens, such as an examination, when the rock rolls back down to the bottom of the hill and we have to start pushing it back up. This can be depressing.

When compliance is criticized as a cost center, when compliance managers are derided as the nay-sayers, we miss the point. It is easy to be negative, and it is easy to criticize compliance as what gets in the way of "real business." But this is a narrow view and a risky one.

Fundamentally, compliance is about running a business and delivering products in ways that are fair and ethical. The products and services should benefit both the provider and the user. Compliance is an attempt to make certain that this is the case.

A compliance program can only be effective if the organization understands and accepts the purpose of the program: to do business in a fair, ethical and effective manner. The design and structure of the program needs to fit in with the business structure as a whole. This is the function of the architect. If the compliance program can only operate by plugging leaks in the system, it will never reach the level of full participant in the business.

Business - or those who direct the business - tend to see compliance as an add-on which is nothing more than regulatory burden. This attitude traps compliance into plugging leaks and prevents compliance from functioning as a dynamic part of the business.

If the primary motive is profit, it is easy for those who are responsible for delivering the profit to think that the appropriate place for compliance is merely plugging leaks. It takes a much smarter manager to realize that there is more to the bottom line than simple profit. A core part of making a profit - over time - is customer loyalty. And that is where compliance comes in.Looked at one way (the right way, we think) compliance is about building customer loyalty.

Compliance guarantees service. It provides important information. It creates fairness. An organization that incorporates compliance as a part of its business philosophy is an organization that respects and values its customers. And customers who feel valued and respected keep coming back. Customers who keep coming back for more provide a stable base for income.

When we think of ways to gain support or even tolerance for compliance within the organization, it may be useful to draw attention to this long-term benefit of customer loyalty. It can be as simple as looking at the flip side of the requirement. Look at what the compliance requirement does for the customer rather than limiting attention to the burdensome aspects of what has to be done. It's the old advice, accentuate the positive.

Some of the most expensive compliance enforcement actions have occurred because the business failed to value what an effective compliance program could do for the business. In the Providian case, the institution looked only at short term profit and gave no attention to long term relationships. Providian has paid dearly for this attitude. It paid penalties and it dealt with heavy losses that resulted from short-sighted and greedy decisions.

In the AmSouth case, it appears that management thought that it could cut corners by not committing adequate resources to a bank secrecy compliance program. The bank may have avoided spending money on a compliance program, but it is now paying millions in penalties. And it doesn't stop with penalties. Because there was not an adequate compliance program, there was employee fraud within the organization and criminal activity by some of its customers. This is a tough reputation to live down.

The right attention to the compliance program, and to the customers, is all it takes to prevent loss and build strong customer relationships that are where the profit comes from.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 11, 10/04