Baker McKenzie survey of over 500 companies with a UK turnover of £1 billion or more 

  • 52% of large UK corporates have unresolved compliance issues yet to be discovered by a regulator, while 57% have already had a violation uncovered by a regulator 
  • Almost a third of respondents reluctant to speak out for fear of uncovering issues
  • On M&A deals, 40% of organisations admitted to uncovering a compliance issue with a new acquisition after closing the deal
  • 55% of leaders are overwhelmed by the risk exposure of their business

More than half of large corporates in the UK (52%) admit they are aware of unresolved compliance issues that are yet to surface to a regulator or the public, according to a new report being launched by leading global law firm Baker McKenzie. "Connected Compliance: The Business Case for Compliance Integration" includes the findings of a survey of compliance leaders across 537 multinational companies with a UK turnover of £1 billion or more. 

The survey also reveals that almost a third of all respondents were to reluctant to speak out for fear of uncovering issues. The TMT sector in particular does not have a culture of disclosure. 56% of respondents are reluctant to speak openly about compliance challenges for fear of issues being uncovered. This makes them just half as likely to disclose a compliance issue as other sectors.

The report confirms that, with the rising tide of regulation, more than half (55%) of business leaders are overwhelmed by the risk exposure of their business, with two thirds (66%) of compliance chiefs expecting breaches to increase as regulation becomes more complex. Notwithstanding this, two thirds (67%) of the business leaders surveyed are taking calculated risks in pursuit of growth by exploring riskier markets and business models, while well over half (57%) of large corporates have already had a violation uncovered by a regulator. Indeed, rather than investing in and bolstering their compliance functions as a way of mitigating risk, one third (37%) of companies were planning to reduce their internal compliance services as a way of cutting cost.

Joanna Ludlam, Partner and Co-Chair of the Global Compliance & Investigations Group at Baker McKenzie, says:

Our research confirms the extent to which businesses are overwhelmed by the volume and complexity of regulation in the market, which is only set to increase.

"They need to avoid the temptation to bury their heads in the sand and, instead, integrate and simplify their compliance policies as quickly as possible. Failure to do so will only increase their risk exposure and the possibility of hefty fines from regulators and serious reputational damage."

Even recent legislation introducing personal accountability for company compliance - the Senior Managers Regime, for example – and an increased focus on enforcement action against individuals has failed to encourage greater company-wide compliance, with one third (35%) of respondents taking no more interest in compliance now that executives are more likely to be held criminally responsible for poor practice. This is something which businesses will need to be mindful of as the UK looks to adopt this US model of criminal liability for corporate wrongdoing in other sectors. 

Compliance breeds success 
The survey also reveals that, rather than inhibiting growth, compliance has a key role to play in an organisation's financial performance. Growing companies are almost twice as likely to involve their compliance leaders in the decision-making process, including M&A decisions, compared to shrinking firms, while high performing businesses - those with more than 20% revenue growth last year - have a more connected approach to compliance. Indeed, in growing companies, 83% report that teams are clear on compliance responsibilities. 

"There is a false perception that compliance exists to scupper business strategy by unearthing problems. That's simply not the case. Good compliance is good business and therefore, it's imperative that business leaders understand the much broader commercial role that compliance should be playing within their organisations," says Luis Gomez, Baker McKenzie EMEA Competition Chair. 

Merger and acquisition activity is one area highlighted by the research as needing better, more integrated compliance. Organisations are failing to consistently include compliance teams in planning and implementing multi-billion pound deals, with fewer than one in five (18%) of respondents saying they 'substantively' involve their compliance function. As a result, 40% of organisations admitted to uncovering a compliance issue with a new acquisition only after closing the transaction.

This is increasingly problematic in light of the increase in requirements for companies to report non-financial information regarding their compliance programme, including their approach to the prevention of bribery and corruption and modern slavery, and the trend towards weaknesses in compliance programmes being used as a basis for criminal enforcement action. The model of holding companies liable for "failing to prevent" acts of criminality has now spread from bribery and corruption to the facilitation of tax evasion, and is expected to spread further in the UK and elsewhere. 

Commenting, Baker McKenzie Compliance and Investigations Partner Tristan Grimmer, says: "Regulators are shining an increasingly strong spotlight on companies' compliance programmes, notably in respect of their approach to tackling bribery and corruption. Businesses need to get their house in order and ensure their compliance function is agile enough and aligned with the business such that it can respond quickly and effectively to these new requirements."

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