The Hidden Dangers of Company Growth
When businesses experience rapid growth, compliance can become an afterthought.
While company growth adds to the top line, when revenues increase, it's easy to forget about mundane topics such as compliance. Yet by doing so, businesses run the very real risk of violating one or more of the laws and regulations that govern corporate activity and attracting the attention of regulators.
Maintaining a focus on compliance during a growth spurt requires finance leaders to ask difficult questions about the organization's compliance efforts, when for everyone else it may be an afterthought.
Here are four areas within your organization that require particular attention as revenues grow and the attention on compliance wanes.
1. Hiring Practices
Most businesses hire more employees as they expand. Make sure your firm screens, hires and manages new employees in a legal and ethical manner. A simple mistake such as wrongly classifying employees as exempt versus nonexempt can have long-term ramifications from a regulatory perspective, not to mention the threat of lawsuits by misclassified employees, according to the Department of Labor.
2. Employee Training
Given that businesses often embed compliance within employee training classes, when executives cancel or delay employee training, it raises a red flag. Instead of canceling classes entirely, consider shortening classes or delivering them online. While it's tempting to free up time by removing training, it sends a strong message to regulators regarding your firm's priorities.
3. Internal Controls
When businesses grow, ensuring the internal control environment changes accordingly is the last thing on most executives' minds. However, according to Donald R. Cressey, an American criminologist, when employees feel some form of pressure, have an opportunity and can rationalize their actions, fraud can happen — a method known as The Fraud Triangle, as HRZone notes. Make sure your organization continues to deploy sufficient internal controls and that employees follow the controls that already exist.
4. Changes in the Regulatory Environment
In today's fast-paced operating environment, regulators pay close attention to market conditions. In turn, their assessment often triggers new laws and regulations designed to curb questionable business practices. Keep a close eye on regulators and their attempts to police corporate activity. By doing so, you'll be in a better position to comply with new regulations once it takes effect. Any delays in your ability to comply can increase the chances of engaging in activity that violates the newly-enacted law or regulation and the assessment of a hefty fine or penalty.
When businesses grow, a form of "tunnel vision" can emerge where every conversation focuses on sales and how to support continued expansion. During these exciting times, while compliance can be an afterthought in the minds of executives and employees alike, it remains "top of mind" for regulators. Therefore, finance leaders must ensure that compliance remains a priority.
