Compliance Reporting: Gaining a Competitive Advantage

Rule violations clearly do not pay off, as was made clear by the VW exhaust scandal, among others. Sooner or later, misconduct comes to light and causes considerable damage to companies. In addition to the financial costs that a company has to bear due to criminal proceedings, that company usually suffers considerable loss of reputation. As a result, the company’s value decreases and its position within capital markets deteriorates, often dramatically. Investors expect companies to communicate transparently and honestly, and they withdraw their support from companies that cover up grievances.

Companies are becoming ever more aware of legal risks. As a result, compliance management systems are “best practice” when it comes to proactively dealing with risk factors within a company. These systems include risk mitigation measures, such as an internal malpractice reporting channel. A compliance management system is vital for existing and potential investors because it reduces the uncertainty factor of any given rule violation. Therefore, compliance measures implemented within companies should be coupled with detailed compliance reporting. Compliance management that is convincing and compelling to your investors is outlined in the following four points:

The risks that violations pose to companies vary widely depending on a company’s sector, size, and country of operation. Identify the key risks to your business and report on the issues that are truly relevant to your business. Doing so makes your compliance reporting clear, comprehensive, and relevant to your investors – and provides them with the most important information.

Compliance reporting gives companies a competitive advantage over others who choose not to make their compliance practices public. If a rule violation comes to light despite active compliance management, companies should take a stand as quickly and transparently as possible. Only giving investors piecemeal information through the media regarding improprieties, or an outright denial of a breach, is damaging and poses significant risks to the reputation of a company.

Your compliance reporting should report on more than merely risks and violations. Additionally, it should detail which compliance measures you have implemented to reduce risk in your company, thus reducing investors’ uncertainty. In order to maximize investor confidence in your compliance management system, compliance reporting should be set up according to internationally-recognized principles and, if necessary, certified.

A section on compliance issues in your annual report is not enough to guarantee your investors have up-to-date information. Enhanced transparency should be achieved by including compliance topic sections on your website, updated regularly, ensuring existing and potential investors can always see your proactive compliance measures.