Too small to matter? Too young to comply?

You’re a small or young business. You can’t have the compliance bureaucracy of a big firm? This must be correct but a recent bribery conviction has implications for all small and young firms on the importance of culture and what compliance arrangements they do put in place.

At The Compliance Foundation we work with lots of small and start-up firms who subscribe to the philosophy that “small is beautiful”. They talk about the size of their business as an advantage both in terms of speed and agility to market – and a mitigating factor in the level of their legal and regulatory responsibilities. People say, “we’re small and new, so people can’t expect us to have the same processes and approaches as large firms with more people and resources” – and, on first blush, it sounds quite reasonable and persuasive. But is it true?

A recent court case has sent a clear message to the marketplace that being small does not exonerate you from meeting both the letter and the spirit of your legal and regulatory responsibilities. Skansen Interiors Limited was found guilty of failing to prevent bribery after two employees arranged payments to secure contracts. At the heart of their defence the firm argued that, as they were very small – 30 employees housed in one open-plan office, and staff knew what was “the right thing to do” – they had taken reasonable steps to mitigate the risk. The jury disagreed. While its new CEO reacted positively on discovering the bribery, reporting the incidents and assisting with the resulting investigations – the company did not have a strong organisational culture that prevented this kind of behaviour, nor the fundamentals of a clear anti-bribery and corruption policy that had been socialised and understood by all employees.

The verdict throws up challenges for other small companies as it’s making clear that, regardless of your size, UK lawmakers and regulators expect all businesses to create and grow a thriving culture of compliance where customers’ needs, company ambitions – and the wider economy health are all balanced.

Why do regulators and lawmakers expect so much from small companies? Well, there are three reasons. Firstly, bribery is is a global challenge and the involvement of individuals is part of the problem – to exempt small organisations or individuals would otherwise let off every corrupt individual by allowing them to say “I’m only one person/little business”. Secondly, most firms start out with the intention of growing. And, in the increasing velocity of our world, small companies can grow extremely big extremely quickly. Consider that AirBnB grew from renting a small apartment in San Francisco in 2008 and now supports lettings in 191 countries. And, it’s sobering to recall Facebook launched just over 14 years ago from a dorm room at Harvard; now we are engaged in a global debate as to its impact on both world politics and our collective psyche. Thirdly, lawmakers and regulators increasingly realise that at the macro level, good conduct (or at least avoiding bad) is dependent on developing a strong, healthy, regulatory-outcomes focused culture and having the associated structures and policies in place.  These are the keys to the longer-term health of our economies and societies.

But it’s also important to reflect on the fact that influence often outweighs size. Being small does not mean being inconsequential and that is particularly critical to bribery – which is often conducted at an individual level – and money laundering where increasingly cash is laundered at micro level using individuals rather than institutions. The growth of Tech and new businesses means that you can be a FinTech firm of 20 people or indeed a hedge fund of ten and your impact on customers and the wider economy can be disproportionately high. So relying on assumptions and goodwill will not cut it with regulators or law enforcement agencies if the actions of your employees cause damage to your customers or the marketplace.

So what should you focus on? A healthy organisational culture is at the heart of this.  Ask yourself – Is individual accountability and responsibility for compliance at the heart of your company’s values and the attendant behaviour you expect from your colleagues and yourself? We could argue that a smaller company’s leaders have more opportunities to engage easily with their team to develop and nurture good behaviours that produce positive regulatory, legal and commercial outcomes. You could also argue that in smaller companies there is less capacity for leaders and employees to claim “I thought it was someone else’s job to speak up or sort this out” as there should be more space for open and honest conversation.

A strong, healthy corporate culture is echoed in an organisation’s policies and processes, regardless of size. Yes, they need to be proportionate, but they can be crisp and clear and connect to the ways you work in your firm. So it’s not enough to cut-and-paste a policy from the Web; you need to speak clearly to your company’s values, so your colleagues and employees can engage deeply and practice fully what is expected and crucially you need to enforce these. Regularly, we encounter people who have launched policies without follow up, without performance management of staff who have not followed those policies or just plain misbehaved. That engagement needs to be enabled and reinforced through ongoing, regular learning and development opportunities to ensure existing and new employees all understand what is expected of them and why. In smaller companies there is a greater need for – and opportunity to practice, shared accountability. But that has to be acted on. Just having policies on a shelf or in a folder, won’t do.

This might feel like a lot to do within the tight and busy constraints of a small company but it needn’t be. Customer-focused outcomes should be at the heart of any successful business strategy, just as it is at the heart of the UK’s legal and regulatory strategies. Getting these factors right at the start of your company will aid you in maintaining and enhancing this focus as your firm grows.

At The Compliance Foundation we work with firms to create healthy outcomes-focused corporate cultures, processes and policies. Please contact us if you’d like to talk more about this.

 

April 2018