The Compliance Process

Even as regulators and prosecutors proclaim the importance of effective compliance programs, failures persist. Organizations fail to ensure that they and their agents comply with legal and regulatory requirements, industry practices, and their own internal policies and norms. From the companies that provide our news, to the financial institutions that serve as our bankers, to the corporations that make our cars, compliance programs fail to prevent misconduct each and every day. The causes of these compliance failures are multifaceted and include general enforcement deficiencies, difficulties associated with overseeing compliance programs within complex organizations, and failures to establish a culture of compliance throughout the organizational structure. In short, creating an effective compliance program is an inherently difficult task.

And yet, it may be that organizations can improve compliance within their organizations by rethinking the way they approach the compliance challenge. This Article — drawing on insights from cognitive psychology, behavioral economics, and behavioral ethics — sets forth a new method of evaluating compliance failures that focuses on the compliance process, which has the distinct, albeit interrelated, stages of prevention, detection, investigation, and remediation.

The Article argues that utilizing a process frame will assist industry leaders, regulators, and policymakers in conducting more effective root-cause analyses of compliance failures, which will lead to the creation, implementation, and better evaluation of compliance programs. Delineating clear boundaries for the stages within the compliance process is difficult, but getting these distinctions right is essential when confronted with significant or complex compliance failures, particularly when an organization lacks a robust commitment to compliance. Additionally, the process frame can be utilized across regulatory areas and corporate forms, which serves to cement compliance as its own proper field worthy of further inquiry and study.

By focusing on “The Compliance Process,” organizations, policymakers, and scholars will improve the tools available for them to assist in the creation and implementation of effective compliance programs.

Source: SSRN, Veronica Root, Notre Dame Law School, 28 March 2018. To download the Article: click here.