Report: Compliance Resources Getting Tight

The law firm Hogan Lovells just published a report on compliance department budgets and staffing that paints a troubling picture on both fronts. Since budgets and manpower are crucial to any compliance officer’s success on the job, let’s take a look at the details.

The broad message is simple. Businesses in North America and Europe face sluggish growth at home, so they must expand into emerging markets and find that growth there — but they’re not giving compliance functions enough support for the higher corruption risk such expansions bring.

One statistic supporting that thesis: only 41 percent of survey respondents say their anti-corruption budgets have increased in the last three years, compared to 88 percent who said so in 2016. Indeed, Hogan Lovells had a string of numbers that paint a picture of compliance slowdown:


Source: Hogan Lovells

That trend does fit a certain school of thought. In the mid-2010s, FCPA enforcement was brisk and the U.K. Bribery Act had just come into force, so budget increases were common as companies raced to build compliance program capability. Then came the late 2010s and the Trump Administration’s more cooperative stance on regulatory enforcement, so executives believe they can cool it with the budget increases. 

Is that wise? No. FCPA enforcement hasn’t slackened. The Trump Administration is more generous about waiving away corporate penalties, but the work of responding to investigations is still there. Plus more and more countries are climbing onto the anti-corruption bandwagon too, as just witnessed by that mammoth Airbus settlement.

The report also says that 90 percent of compliance officers feel pressure to proceed with growth strategies in emerging markets, despite corruption concerns. See Figure 1, below. 


Source: Hogan Lovells

Um, this is news? Department heads have always felt pressure from the C-suite to proceed with growth plans despite the risks. The question for compliance officers is whether you work close enough to the C-suite at least to argue your anti-corruption concerns early. 

On that front, some good news: 60 percent of respondents said their head of compliance reports to the CEO or the COO. That’s miles better than reporting to the general counsel (12 percent) or the CFO (16 percent). 

The survey itself, by the way, polled more than 700 compliance leaders around the world at multi-national corporations with at least 2,000 employees. The report does not address CCO compensation, but we looked at that issue in another survey about two months ago.

Compliance and Technology

The Hogan Lovells report devoted a whole section to technology, and the good and bad influences new tech can have on a compliance program’s success. 

First, the bad stuff. New tech is creating new ways to communicate that compliance officers don’t like. Messages can be exchanged on secretive apps that you never see; cryptocurrencies can move bribes around the world without a trace. The decline of face-to-face communication in general is just not a good thing — because when everything exists virtually, everything can be falsified and then move at lightning speed.

Whatever. You know that already. The potential benefit of technology is more interesting to discuss. 

The Hogan report talks about how companies can use technology to create tools that battle corruption more effectively. For example, companies can use custom-made applications to manage travel and entertainment expenses, generating heaps of data that you can analyze to find anomalies more quickly. Text analysis for document review, “sentiment analysis” of employee emails to see who’s suddenly getting squirrely about a new deal — all sorts of advances are possible. 

I would stress two points about technology’s potential to help with compliance. 

First, remember what technology actually does: it improves the productivity of your compliance function

Economists define productivity as the rate of output per worker. The more productivity rises, the more efficiently the company turns a profit, and that’s good. The more efficiently the company generates profit, the more things it can do: expand, raise wages, launch new products, whatever. 

That concept of productivity is what compliance officers must keep in mind as you ponder your technology strategy. You want to raise the output of compliance ability per worker on your team. At the abstract level, that’s what you want technology to do. That’s the goal. 

This is not doing more with less. It’s doing, say, three times the work with only 1.5 times the budget. If we really are entering an era of more sluggish growth, more skeptical C-suites, and more stingy budget increases, every extra dollar will need to generate more productivity for the compliance function.

Second, the technology to deliver that enhanced productivity is out there

Look at the rise of cheap, effective, cloud-based technology. They are apps designed for specific business functions, and they work wonderfully. Your challenge is to steer the business to the right cloud-based tech providers, so the apps your First Line of Defense operating units use will generate the data you need to impose compliance more efficiently.

My favorite example is travel-booking software. You can find low-cost apps delivered via the cloud that give you flexibility around rules, speedy approvals for exception requests, preferred third-parties, and reams of data you can analyze. Twenty years ago that would not have been possible; you’d have a full-fledged corporate travel department or leave employees to book travel first, and good luck cracking down on all their abuses after the fact. 

Slowly but surely, the technology is getting better to make compliance departments more productive. It will be a painstaking journey through the 2020s, but the journey is possible. These apps I mentioned above all exist today. You probably use them already. 

And if the first half of Hogan Lovells’ report is right about stingy budgets taking root, more of us will use them soon. 

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