11 / 06 / 23
Why does compliance involve the entire senior management?
MEXICO CITY, MEXICO, November 6th, 2023 – The commitment of the different areas of senior management to an organization’s compliance.
Compliance is becoming an ever more important topic in the business world. Today’s organizations face an increasingly complex regulatory environment, and failing to comply with guidelines and regulations can lead to severe legal, financial, and reputational repercussions. Therefore, it is crucial for organizations to establish strong and effective internal compliance programs. However, it is not solely the responsibility of the compliance officer or compliance department to ensure compliance, all employees should contribute, with a particular emphasis of the organization’s senior management.
Let’s explore the obligations and responsibilities of different members of senior management, such as the CEO, CFO, HR Director, Legal Director, Logistics Director, and IT Director, in the establishment, maturity, and sustainability of internal compliance programs, and how this involvement benefits them personally, as well as their leadership and the entire organization.
But before delving into the specific responsibilities of each member of senior management, it is essential to grasp the significance of their commitment to the success of compliance programs. Senior management, led by the CEO, sets the organization’s culture and values. Their leadership determines whether ethics, integrity, and compliance are considered priorities within the organization. When senior management leaders demonstrate a strong commitment to compliance, it resonates across all levels of the organization sending a powerful message to employees that these matters are a priority and must be upheld.
Moreover, it’s crucial for senior management to be fully committed in order to draw in investors, business partners, and clients who highly prize integrity and regulatory adherence. Companies that showcase their dedication to compliance gain a competitive edge in a market that’s progressively prioritizing corporate responsibility.
So, we can say that, in general, any member of the senior management of an organization should work with integrity, quality, and trust. This will help ensure they always do the right thing in every situation, with their fellow colleagues, clients, and business associates of the organization, in other words, in a 360-degree manner.
Each member of senior management must be responsible for understanding and adhering to the internal compliance program and other policies of their organization, as well as the laws of each country in which the organization conducts business or has a presence. Therefore, they have an even more significant role than the rest of the employees. In other words, members of senior management must at all times:
- Lead and act with ethics and integrity.
- Encourage their team members to ask questions and share their concerns, as well as utilize the reporting channels available within the organization.
- Ensure that their team completes all mandatory compliance trainings.
- Publicly support the compliance program, with colleagues, with clients and business partners.
- If necessary, inform the entire organization about policies that protect individuals who report wrongdoing in good faith from any form of retaliation.
- Take swift and effective actions when appropriate to mitigate risks and prevent any reputational, legal, or financial impacts.
Now, we will delve into the specific responsibilities of some members of senior management, in this article we include six positions that we consider very important, without this meaning that there are no other positions equally as important.
1. Chief Executive Officer
The person in the role of Chief Executive Officer plays a pivotal role in the establishment, maturity, and sustainability of internal compliance programs. Their position will determine whether the culture of compliance truly becomes ingrained in the organization. Their primary responsibility is to instill a culture of compliance throughout the organization (Tone at the top). This involves defining a clear compliance vision and communicating this vision to all levels of the organization. Additionally, the CEO must allocate the necessary resources to implement and maintain the compliance program, including hiring compliance personnel, investing in technology, and providing ongoing training for employees.
The CEO’s commitment to compliance benefits their role by demonstrating ethical leadership aligned with the organization’s values. Furthermore, it strengthens the organization’s reputation and reduces legal and financial risks.
2. Chief Financial Officer
The person in the role of Chief Financial Officer also plays a crucial role in supporting the organization’s internal compliance program. Their responsibilities and duties in this context are critical to ensuring that the organization complies with applicable regulations and standards while contributing to the financial success of the company. Among some of their responsibilities and duties, we can find:
i) Financial resource management, to allocate the necessary resources for regulatory compliance, including budget for compliance activities, acquisition of compliance technology and systems, and compliance personnel.
ii) Assessment of financial risks, to identify and manage the financial risks associated with regulatory non-compliance (fines, legal costs, potential revenue losses, etc.).
iii) Expense and vendor control, overseeing and controlling expenses related to regulatory compliance, ensuring they stay within the established budget. Regarding vendors and business partners, ensuring they comply with administrative and tax regulations to avoid risks of improper or non-deductible payments. This includes verifying that they are not listed in SAT’s 69-B (taxpayers who issue tax receipts for goods or services not backed by real operations).
iv) Cost-benefit analysis, as they must evaluate the costs and benefits of compliance activities, determining if investments in compliance generate a positive return for the organization.
v) Accounting and financial integrity, providing accounting and financial reports of transactions, ensuring forecasts adhere to accounting policies, as well as all relevant laws and generally accepted accounting principles.
vi) Internal and external auditing, to ensure transparency and accuracy in financial reports related to compliance, and serving as a tool and ally for the compliance department to verify both internal and external compliance with the organization’s compliance program in a 360-degree manner.
Therefore, the Chief Financial Officer plays an essential role in compliance management, ensuring that financial resources are used effectively to comply with regulations, minimizing financial risks associated with non-compliance, and promoting financial stability and sustainable growth.
3. Director of Human Resources
The person holding the position of Director of Human Resources also plays a crucial role in the establishment and sustainability of compliance programs for their employees. Their primary responsibility is to recruit, retain, and train ethical collaborators. They must establish human resources policies that promote ethics and compliance, including selection processes that assess the integrity of candidates and ongoing training programs in ethics and compliance. They also have the obligation to issue, respect, train, and monitor policies aimed at protecting the human rights of their employees, which include, among others:
- Right to equality, inclusion, and diversity, as well as non-discrimination,
- Right to a fair, equitable, and gender-equal salary,
- Right to social security,
- Right to unionization and collective negotiation,
- Right to a safe and healthy work environment,
- Right to protection against harassment (both workplace and sexual) and bullying,
- Right to maternity and paternity,
- Right to training and professional development, and
- Right to privacy.
The involvement of the Director of Human Resources in compliance is beneficial to their role by ensuring the hiring of employees aligned with the organization’s values and by reducing labor and recruitment risks. Additionally, it contributes to a more ethical and productive work environment.
4. Legal Director
In some organizations, it is common to see the Legal Director taking on a dual role and responsibilities, occasionally also serving as the head of the compliance department, acting as the Compliance Officer. However, at this moment, our priority is to exclusively analyze the legal integration.
Therefore, we believe that the person in the position of Legal Director or Head of Legal Affairs plays a central role in regulatory compliance management. They must work closely with the compliance department to ensure that all policies and procedures comply with applicable laws and current regulations. They are also responsible for managing legal risks and defending the organization in cases of regulatory non-compliance.
The Legal Director’s involvement in compliance benefits their role by minimizing legal risk and protecting the organization’s reputation. Also, aligning legal objectives with ethical ones strengthens the organization’s image.
5. Logistics Director
The Logistics Director plays an important role in sustaining compliance programs, especially in organizations operating in sectors with complex supply chains. They must ensure that suppliers comply with regulations in their production process, transportation, import/export, labeling, etc., and that these logistics processes are ethical and sustainable. Therefore, the person acting as Logistics Director bears the responsibility of ensuring that their suppliers in the supply chain adhere to the same ethical standards as their own organization, ensuring and monitoring that these business partners, at the very least, reflect in their policies a commitment to the care and respect for the human rights of their employees and the environment.
The involvement of the Logistics Director in compliance benefits their role by ensuring a reliable, sustainable, and ethical supply chain, which in turn reduces operational risks and improves the organization’s efficiency.
6. IT Director
The Director of Information Systems or Technological Infrastructure plays an essential role in the maturity of compliance programs, as technology plays a key role in the collection and analysis of data related to regulatory compliance. They must ensure that information systems are confidential, secure, and compliant with data privacy regulations for all colleagues, clients, and business partners.
The person tasked with leading the technology department within their organization must assess and ensure that IT systems comply with industry and organizational regulations and laws. They collaborate with compliance teams to implement policies and procedures related to data handling and information security. They develop and enforce data privacy policies and practices to safeguard personal data and confidential information. This includes implementing security measures such as data anonymization, encryption, and access controls to protect data privacy. They also oversee and audit system and data access to prevent leaks and safeguard against cyber threats, malware, and cyberattacks.
Furthermore, the IT director is responsible for developing business continuity and disaster recovery plans to maintain the operation of critical systems in the event of interruptions caused by natural disasters, cyberattacks, or other incidents. They evaluate and supervise IT service providers to ensure they meet the organization’s security and privacy standards. Additionally, they must carry out all the necessary technological updates.
Based on the aforementioned, we can conclude that regulatory compliance must come from the top. It is not solely the obligation and responsibility of the Compliance Officer or compliance department, but rather an integral part of senior management’s governance, since they play a crucial role in the establishment, maturity, and sustainability of internal compliance programs. As outlined, each member of the senior management has specific responsibilities that contribute to the success of the compliance program within the organization. Their commitment to compliance not only benefits the organization in terms of reputation and efficiency but also enhances the work and leadership of these executives. This, in turn, becomes an asset in attracting new business ventures, business partners, investments, and collaborators.