Turning Compliance Failure to Success

Turning Compliance Failure to Success

This article was updated July 3, 2018.

Turning compliance failure to success requires the right mindset, one that sees failures not as moments to punish but as opportunities to learn and adapt. As financial leaders know well, compliance is complex and ever-changing, requiring expert knowledge of an evolving regulatory landscape (evidenced by changes such as the Affordable Care Act, new FLSA overtime rules, etc.). But effective compliance also requires having the right systems, people and processes in place to do the job right, not to mention strong compliance training and communication. Failures can stem from any one of several sources, including a lack of knowledge, inadequate systems or organizational culture.

When you simply punish compliance failures instead of learning from them, employees will respond by becoming risk-averse. This heightened anxiety and fear will make it tempting for them to consider simply hiding their mistakes. The result? A stagnant, fear-based and non-transparent culture with low employee engagement and dwindling morale as well as high employee turnover and higher-than-average absenteeism.

So while it doesn't do the organization or the employee any good to review the error ad nauseam, it can be turned around and used as a teachable moment.

Compliance Failures as Lessons for Success

Compliance is dynamic. You'll never truly achieve perfection, and compliance gaps will inevitably open and need a remedy. If they're approached with the right mentality, failures can serve to highlight where those gaps are and provide actionable feedback for closing them. But failing to have a flexible compliance mindset when errors occur could instead breed a culture of non-transparency, where compliance failures are covered up, ignored or even expanded into crises that can cost an organization dearly.

Failures happen, but the larger question is "what's next?" If employees fail to let supervisors and compliance leaders know about it, then small, correctable failures can be transformed into organizational disasters. On the other hand, when people view failure as an opportunity to learn and fix gaps, then they will come forward readily and compliance failures can be transformed into a breeding ground for long-term compliance success.

Systems Matter, Too

Transparency and a willingness to learn are crucial for turning compliance failures into successes, but so is having the right systems in place. The ADP study The Compliance Gap: Don't Be Left Standing in Midair notes that organizations generally have too many compliance-related systems. Not having the ability to access compliance-related data in real time can be akin to driving in the dark without headlights, whereas having an integrated and comprehensive system that can be used as an early warning system can help organizations mitigate risks before they become full-blown failures. As the study says, "once organizations realize they've fallen into a compliance gap, they may already be well on their way to incurring costly fines and penalties."

Indeed, the study shows that 58 percent of surveyed HR and finance leaders graded the ease of using their HCM-related compliance systems as "C or lower," an abysmal result for these important systems. The lack of integration of these HCM-related compliance systems doesn't just increase compliance risk, it also costs you money and time, with 78 percent of respondents in the ADP study reporting higher overall compliance costs, and 62 percent describing these siloed systems as "a drain on company resources." Ensuring your HCM-related systems are comprehensive not only allows you to catch errors and save money, but also gives your people valuable time back to use for other pressing issues.

How Siemens Learned From Compliance Disaster

The multinational engineering/consulting giant Siemens may be the poster child for turning compliance failure to success, according to a Harvard Business Review article. After some violations of the U.S. Foreign Corrupt Practices Act, the organization's reputation was badly damaged. But Siemens did not rest on their laurels after their compliance problems were settled, but learned from them and affected considerable and successful change as a result.

Siemens cleaned house and restructured, appointing a chief compliance officer (CCO) who reports directly to the CEO and the board of directors. They also began a massive compliance communication program, re-training and reinforcing compliance standards from top to bottom. Rules and consequences were enforced, systems adapted and a culture of transparency was eventually forged from these missteps.

Turning compliance failure to success takes a top-to-bottom commitment to having the right mindset (transparency and learning), adopting adequate systems and focusing on continuous improvement. Failure doesn't have to be the final destination. It can instead become a springboard that provides actionable feedback for change.