Problems Associated with Compliance Programs and Reasons Why Employees and Their Managers Are Skeptical about Them
In a given business environment, a company must always comply with rules and regulations formulated by either the government or industry. As the sets of internal policies and procedures of an organization, compliance programs are majorly established to help any business entity to uphold such rules and regulations. However, successful implementation and adherence to the compliance programs by the employees and managers are met with numerous challenges. The executives feel that a lot of money is spent on compliance costs, yet little benefits are realized. Nevertheless, employees view them as a series of box-checking routines and insignificant activities which only waste their time. According to a survey by Deloitte in 2017, the most outstanding challenge towards these internal policies and procedures is the choice of metrics for evaluation. The survey further indicates that only 70% of firms tried to evaluate the effectiveness of their compliance programs in the US, and only a third among them were confident of using the right metrics (Soltes, 2018). Some companies use incomplete and invalid measurement tools while other executives are biased during implementation resulting in incorrect evaluation results.
Compliance programs should hold individuals accountable for violations as they undertake their duties. However, when incomplete metrics consisting of simple statistics are used to sanction those who breach the rules and regulations, the evaluation results can be misleading. A company which punishes only low-level employees or those with less potential and defends seniors usually faces resistance towards its policies and procedures from workers. Instead of measuring compliance among employees based on how well they demonstrate their understanding of policies and procedures, some companies use the data on the number of workers who have been trained (Chen & Soltes, 2018). Similarly, some firms mistake legal accountability for compliance effectiveness, yet a group of workers may acknowledge policies but do not apply them into everyday work practices. It has also been noted that some employees do not report any form of misconduct, especially among the senior managers, for fear of retaliation. Some people who engage in misconduct may fail to participate in the evaluation processes, hence prompting the management to draw incorrect conclusions on the compliance effectiveness.
AB InBev Compliance Program
When establishing compliance initiatives, the executives always ensure they are effective, efficient, and responsive enough to prevent any violations, which can force the firm to divert its attention or resources towards less beneficial activities. In 2012, AB InBev was subjected to regulatory scrutiny following the allegation of bribery in an Indian subsidiary by some of its employees and was forced to pay a $6 million fine (Soltes, 2018). As an international venture, the firm then used compliance systems which were majorly based on the geographical operating regions and were identified as the main cause of regulatory scrutiny. The program was effective due to its clear definition of key performance indicators and code of business, which could guide employees on how to handle operational, legal, and reputational risks at their place of work. The code was summarized to enable easy review by the employees. To further revamp the program, it was supplemented with an anti-corruption policy and an anonymous reporting hotline that individuals could use to report and seek clarifications on their concerns.
A compliance channel website was created to ensure all inquiries and requests made by employees on policies and procedures were responded to within 72 hours. To avoid bribery and corruption among its touchpoint vendors, AB InBev conducted due-diligence background checks. Employees were prevented from engaging in anti-competitive practices by subjecting them to risk assessments and evaluation to assess if any of them indulged in inappropriate practices to boost sales. To enhance efficiency and responsiveness, compliance champions were appointed to represent each zone (Soltes, 2018). Their major role was to provide feedback and ideas from employees from their respective zones, an effort which helped in improving compliance. Cross-functional compliance analytics known as project lantern was employed to evaluate potential wrongdoings and risks going forward. Additionally, anti-competitive practices were prevented by linking compliance to individual incentives. In this metric, only employees who abide by the laws and achieve their commercial targets could receive bonuses.
Evaluation of AB InBevâs Compliance Program and Recommendations for Effective Strategies
In ensuring their centralized compliance program was effective, AB InBev conducted numerous evaluations. Teams were assessed through compliance dashboards, which were created with the purpose of translating policies into measurable key performance indicators to enhance accountability and track progress. The initiative was further revamped through the subjection of touchpoint vendors to due diligence scrutinizes before they could receive any payments. Dashboard metrics were further used to evaluate employeesâ performers based on the number of awards each could receive in a given period. Those who did not receive any incentive-compensations were assessed to ascertain if they engaged in inappropriate practices. The firm developed an analytic platform with the ability to integrate financial, compliance data, and other systems which could identify any suspicious transactions from third-parties, hence prevention of potential risks (Soltes, 2018). Since AB InBev partnered with SAB, potential malpractices were prone to pose threats to its reputation. The application of risk-scoring became useful in ensuring potential risks associated with business partners, especially SABMiller, were reviewed promptly to improve future scoring. The establishment of a confidential hotline for whistle-blowers also proved vital in monitoring senior managers.
To better evaluate compliance programs effectively, AB InBev should apply multivariate regression analysis where variables can be examined independently while others are held constant. For instance, the effectiveness of employee training should be assessed by evaluating what level of knowledge they had initially and the improvement they have achieved. Based on misconduct reporting trends, the success of compliance programs can be ascertained. The firm should conduct surveys on ethics and organizational policy to gauge the attitudes of workers on company culture (Lee & HaâBrookshire, 2018). In case of negative attitudes among employees and an increase in trends in misconduct, the compliance program should be adjusted to accommodate everybody. As a result of constant change in laws, rules, and regulation of the government and industry, AB InBev should engage outside vendors or experts to help in designing flexible compliance program which can accommodate shifting expectations.
Benefits of Compliance Monitoring and Training
In some cases, bad behaviors increase when training employees on punitive awareness of compliance programs, especially on sexual harassment. With such knowledge, a number of benefits can be drawn from compliance monitoring and training. Monitoring policies helps firms to ensure expected outcomes are being achieved. When variations occur, they can be identified and handled promptly. It also assists in identifying deliberate deviations caused by employees who may engage in inappropriate practices for personal benefits. Watching over such activities helps in improving the processâs accuracy, efficiency and effectiveness as failures can be easily captured (Adelstein & Clegg, 2016). Compliance training aids in promoting an inclusive and safe working place as organizational policies can be defined. It also helps in balancing priorities and ethics, hence improving reputation.
Upholding a positive impact on behaviors among employees is key, and, therefore, I would recommend the following initiatives. Executives should categorically explain to employees the ramifications of their actions. Incentives should be encouraged as opposed to severe punishment to avoid retaliation or backlash. Through rewards, ethical culture can be embraced as employees usually prefer benefits to paying penalties. Employees usually interpret ethics to mean fair treatments; as such, unfair actions against them sometimes prompt a scenario of âbalancing the scales of justiceâ by engaging in unethical behavior such as stealing from the company (Bonner et al., 2016, p. 742). Therefore, rules should be applied equally across the board to ensure all offenders are punished, and good performance is rewarded appropriately.
Transferability of AB Inbevâs Compliance Program to Other Organizations, Industries, or Countries
Every country has its own laws, rules, and regulations which must be adhered to by business entities to be allowed to operate. Before 2012, AB InBev applied different policies and procedures for its employees in different zones. Using a compliance program meant for a certain region can meet many challenges considering the differences that exist. However, a centralized compliance program developed by Martim Della Valle and a group of international employees of AB InBev is unique and was customized to accommodate international regulations (Soltes, 2018). While establishing the program, Indian, European, American, and African laws were considered to enable its employees from all the regions to be able to use it. Confidential hotlines were established to enhance the proper channeling of concerns. The back office was created in Brazil to help in monitoring its effectiveness. Compliance champions representing different zones were appointed to report feedbacks and ideas of employees to enhance proper evaluation. Dashboard and risk scoring were established to keep track of the behaviors of third-parties and to maintain high reputations. Therefore, based on its flexibility and diverse nature, the program can be used in any organization, industry, or country with minimal amendments.
References
Adelstein, J., & Clegg, S. (2016). Code of ethics: A stratified vehicle for compliance. Journal of Business Ethics, 138(1), 53â66. Web.
Bonner, J. M., Greenbaum, R. L., & Mayer, D. M. (2016). My boss is morally disengaged: The role of ethical leadership in explaining the interactive effect of supervisor and employee. Journal of Business Ethics, 137(4), 731â742. Web.
Chen, H., & Soltes, E. (2018). Why your compliance programs are a million-dollar waste of time.Harvard Business Review. Web.
Lee, S. H. N., & HaâBrookshire, J. (2018). The effect of ethical climate and employees’ organizational citizenship behavior on US fashion retail organizations’ sustainability performance.Corporate Social Responsibility and Environmental Management, 25(5), 939â947. Web.
Soltes, E. (2018). Designing a compliance program at AB InBev. Harvard Business Publishing Education. Web.