New global research reveals that more than half of global multinationals surveyed continue to have significant compliance issues
Only one in five companies manage compliance in an integrated way
A global survey launched today by law firm Baker McKenzie has found that more than half (52%) of multinational companies with a turnover of $1.3 billion or more have compliance issues, with significantly more issues for US companies (64%) than their global peers. 'Connected Compliance: The global case for integration' also reveals that companies are taking compliance risks when pursuing M&A deals, with almost two thirds (60%) having acquired or made investments in companies with compliance issues known from the outset.
Over 1300 business leaders across 7 jurisdictions were surveyed as part of the research. Respondents from Canada, the United States, China and Hong Kong, Germany, Spain, and Brazil were asked about their approaches to compliance, as well as their concerns. The report also includes the UK survey results from major research Baker McKenzie conducted last year, examining the compliance practices of over 500 companies with a UK turnover of £1 billion or more.
Compliance and growth
The research found that a quarter of companies surveyed were targeting 'aggressive' growth, with two thirds of organizations taking calculated risks in pursuit of growth. However, despite the strategic significance of large-scale M&A, fewer than half of the respondents (43%) said that they involved compliance teams 'substantively' in planning and implementing multi-billion dollar M&A deals. Interestingly, Brazilian respondents were the most likely to be involved in largescale M&A planning (57%) compared with just 38% of their UK peers.
Consequently, 60% of companies surveyed acquired or invested in companies with compliance issues which were known from the outset, while 49% had uncovered a compliance issue after the acquisition. This was particularly pronounced in the US, where 67% of respondents reported making investments in companies with compliance issues known from the outset or uncovered later (68%). This dropped to 48% for respondents in China and Hong Kong who were the least likely to make investments in companies with known compliance issues.
William Devaney, Co-Chair of Baker McKenzie's Global Compliance & Investigations Group, said: "The results of our survey paint a fascinating picture of the differing approaches of compliance teams globally. We know, for example, that the US has some of the most heavily regulated industries in the world and are subject to incredibly strict reporting requirements. It follows therefore that US companies are likely to be grappling with more compliance issues - which could vary from a small health and safety matter on one end of the spectrum, to compliance with international sanctions on the other - than their global peers."
He added: "The research also highlights that, rather than viewing compliance as a necessary evil, business leaders should realize the benefits of involving compliance teams at the outset. As our report shows, those companies which don't involve compliance teams in business-critical decisions, could be inflicting considerable self-harm and significantly increasing their risk exposure especially in the context of M&A."
Compliance and collaboration
The report also found that siloed organizational structures could breed compliance issues. Almost half of the respondents (45%) believe compliance blind spots exist as a result of siloes, while 69% agree or strongly agree their company could be more compliant with better collaboration across the business. Despite this, more than half (51%) of respondents described their organisation as 'very or somewhat siloed' with 64% of respondents of the view that compliance is solely the responsibility of the compliance team; a sentiment which was particularly strong amongst business leaders in China and Hong Kong (77%).
Perhaps as a result, only 20% of those surveyed admitted to managing compliance in an integrated way, with companies in China and Hong Kong having slightly more integrated compliance practices (29%) compared to their US peers (18%). In fact, almost two thirds of compliance heads across all countries surveyed conceded that compliance standards vary widely across different jurisdictions.
Joanna Ludlam, Co-Chair of Baker McKenzie's Global Compliance & Investigations Group, said: "Compliance is now everyone's job. Regulators are increasingly able to join the dots, so organizations must collaborate, share responsibility and empower every business division to identify compliance issues that fall between siloes."
Connecting to change
Organizations are increasingly anxious about the complexity of regulation in the current market. 56% of leaders admitted to feeling overwhelmed by the risk exposure of their business and 57% report that the volume of new regulation has made it incredibly difficult to remain compliant, with the same number expecting compliance breaches to rise. Perhaps that explains why 63% of managing directors encouraging employees to use their own moral compass when it comes to compliance issues and more than half (51%) relying on their supply chains to police themselves.
Joanna Ludlam added: "With huge swathes of regulation on the horizon and ever-changing global business risks, it's understandable that companies are struggling to stay on top of it all. There are some simple steps however which businesses can take to keep their heads above water and get ahead of the curve, including obtaining tailored regulatory updates and breaking news briefings and examining enforcement trends."
Despite the fact that compliance functions have never been more important, our survey confirms that more than 40% of respondents are taking steps to reduce the compliance services offered to the wider business. This presents a significant risk to overall compliance.
The new report is complemented by an online diagnostic tool. This enables businesses to see how successful their company is in connecting compliance across their organizations, as well as comparing their performance with others in their sector and with high-performing businesses.