22 May/12

The Need for Compliance

complianceThe financial meltdown of the U.S. investment and housing market revealed many things about both sectors. It showed how fragile the financial system had indeed become and how quickly the failure of key institutions can quickly erode the entire fragile equilibrium of interest rates and housing loans. In the end, not even the biggest bailout plan in U.S. history could halt the downward turn the nation’s economy had taken.  Once the bubbles of hyper-inflated markets and profits burst in the fall of 2008, average consumers looked on in shock and awe as their lifetime savings dwindled in a matter of hours and the supposedly strongest economy of the planet came to a screeching halt.

While consumers and governments have learned their lessons from the global financial fiasco, corporate America has learned their own. In the last years, few aspects of corporate governance have experience such rapid growth as the compliance sector. Increasingly, companies realized the benefits of tightening internal laws and implementing audits and thereby began to create safer and more responsible business environments. Setting internal standards and laws of operation does, however, not only mean to comply with production guidelines and quality control, but often also refers to the implementation of a companywide code of conduct.  By promoting ethically sound business practices and furthering an atmosphere of transparency, corporations are able to align their products with a corporate identity that transcends the world of board room meetings and production lines. As a result, companies with successful internal compliance departments are producing a business environment that reflects and promotes integrity not only among their own employees but also among their suppliers and customers. Thereby, consistent internal monitoring and recurring risk assessments play an important role to assure employees, suppliers, and customers that the company is striving for responsible business practices. While corporate compliance might not be the holy grail of corporate governance and prevent the next global recession, it might just help corporate America to recover responsibly from the mistakes of the past.

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