Compliance can help

Increasing regulatory requirements should not be seen simply as a business burden. Organised and implemented policies can deliver...

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Increasing regulatory requirements should not be seen simply as a business burden. Organised and implemented policies can deliver business benefits




Senior managers in small and medium-sized businesses could be forgiven for believing their lives are dictated by an escalating burden of regulation. In some ways this is true, but are they missing the potential benefits regulation can deliver?

Although there has been an increase in the number of regulations managers must comply with, there have also been two policy shifts over the past few years that illustrate how regulation has increased. One is the stricter enforcement and penalties that accompany regulations, the other is the increase in litigation encouraged by "no win no fee" operators.

In the past compliance often meant little more than a signature confirming that regulation and policies had been adhered to. Now the onus is not only on the company, but also the individuals within it to prove compliance and to be able to demonstrate that policies and procedures have been read, understood and agreed to.

Although demonstrating that the relevant policies and procedures are in place is often viewed as simply a hurdle that must be jumped, the effective use of policies can contribute to the value-generating capabilities of the company.

In most organisations, including SMEs, senior management has defined operational strategy. For this strategy to be successfully implemented it must be communicated to and, more importantly, understood by the employees of the company.

If the key policies are fully understood by all staff, the company will operate more efficiently and will generate greater value for all the stakeholders. This means that companies must be proactive with their policy management. For most companies policies can be separated into three categories:

  • Strategy enabling, such as product pricing
  • Regulatory, such as health and safety or equal opportunities
  • Informative, such as security or the use of assets.

Unfortunately, most publicity and emphasis is given to the regulatory policies, although it is the more effective use of the other two that will give enhanced value to organisations. These are the policies that will create additional value through their effective use - and that requires better managed communication of the policies themselves.

Why are companies not able to obtain real value from their policies? It is usually because the policies are not written in a way that makes them easily understandable - often because they are written or reviewed by the "wrong" person.

They are also not communicated effectively and should be sent to the relevant people with a positive message. Senior management generally passes the buck when it comes to policy management. Management will need to become involved as the move towards greater positive compliance, as required by the US Sarbanes-Oxley Act, will continue.

What should management do? The same steps are appropriate for all regulatory obligations. First, understand the regulation and decide whether it applies to your organisation. If so, consider the implications.

Next, review it against existing policies, procedures, facilities and arrangements, then set up the enhancements needed to document, manage and ensure compliance. Finally, prepare systems to measure the effectiveness of the updated policy.

One of the unfortunate consequences of regulation is that "proving documentation" will be required. No one wants to or enjoys producing the paperwork, but it is essential. Software can be used to manage the lifecycle and retain auditable information about regulations and policies. However, this will not guarantee compliance. It will only be an enabler for the work that the company must own and undertake.

The trend will be for more regulation as governments and regulatory bodies strive to balance the power of large companies. The impact of this will feel even greater as the threat of and use of litigation increases.

We can only hope that this will not stifle the entrepreneurial spirit of UK SMEs and hand competitive advantage to the less regulated growing economies of the world.

Mike Anthony is chief operations officer at policy management specialist Zequel

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