The Compliance Covenant: More 'Pull' - less 'Push' ^Featured

What is a covenant?

The dictionary definition of a covenant is that it is an agreement, usually formal, between two or more persons to do, or not do, something specified. Another definition is that it is a formal agreement between two or more people; a promise

The Military Covenant is a term frequently used in Britain which reflects the 'duty of care' that the country has to its armed forces. In return for putting the needs of the Army and the Nation before their own, British soldiers must always be able to expect fair treatment, to be valued and respected as individuals

Background to the ‘Compliance Covenant’

One of the most common - and most discussed - challenges for compliance officers is that of ensuring that everyone in an organisation, from the Board down, ‘signs up’ to compliance - such that they understand the need for compliance, what compliance means for them and why they need to - willingly - undertake training and other compliance obligations relevant to them

I’m sure that many compliance officers - whatever their background or industry - reading this article will share that view but, in case you’re not convinced, just take a look at the number of compliance events that feature sessions along the lines of ‘changing compliance behaviours’, ‘improving compliance programme effectiveness’ or ‘making the case for compliance’

I accept that some industries, such as financial services, have a compliance training and certification regime intended to debar individuals if they are not qualified. However, most industries, organisations and companies do not - and that is where the ‘Compliance Covenant’ comes in.

What is the Compliance Covenant?

Training is usually at the heart of an effective compliance programme - but often, despite their best endeavours, compliance officers struggle to deliver acceptable completion rates, largely because the training invariably takes second place to the latest business pressure, and there is neither the support nor effective mandate from senior management. Whilst compliance training of itself would not make a company compliant, it is nevertheless a key element in the ‘corporate shield’. Low completion levels make it difficult to argue - with regulators, the courts, critics, commentators and competitors - that there is a company-wide ethos of compliance

By accident or design, organisations can often pay ‘lip service’ to compliance, which only serves to make the compliance officer’s job more difficult. Compliance ‘horror stories’ abound of assistants undertaking their manager’s compliance training and, worse, with individuals completing the training for entire offices or teams. To compound matters, this behaviour can be effectively condoned by some senior managers - who have their secretaries completing their training and then ‘turn a blind eye’ to everyone else. Not only are people being passive in not doing what is required of them, the only time that they are active is when it comes to avoiding completing their training!

To be fair, whilst I may have exaggerated the scenario above, I am sure that some of the situations will strike a chord with many compliance officers

The ‘Compliance Covenant’, however, offers a way of fundamentally changing this situation through a pragmatic scheme - effectively, an agreement - that generates wider benefit from compliance, both for the company and for employees, as individuals - without ‘over-compliance’. It also serves to raise the profile of compliance in the company and get the compliance message firmly in people’s minds

I fully accept that employees should recognise the importance of compliance - and most do, when pressed. However, the ‘Compliance Covenant’ would not diminish that in any way, nor would it remove the potential for compliance-related disciplinary sanctions. What it does do, however, is serve to raise the perception of compliance such that it becomes more of a business and personal essential, rather than a chore - effectively turning conscripts into volunteers

The ‘Compliance Covenant’ - key concepts

The Compliance ‘Passport’ - for individuals

Most organisations and companies have some form of compliance training regime, usually with a degree of differentiation based on an individual’s seniority, role or responsibilities. The training records system usually records these completions and that is the end of the matter, until the next refresh completion in one to five year’s time

Whilst failing to complete the training will usually generate multiple reminders and escalations, completing the training on time often generates very little - other than the opportunity to print off a simple paper certificate. The Compliance ‘Passport’, however, changes that; it means that once an individual’s training is up-to-date then they have their passport, a more formal - and valuable - certification of their achievement, which is a pre-requisite for them to be able to apply for jobs, promotions and other opportunities. It would also be a qualification that, potentially, could lead to a nationally- or industry-recognised educational qualification

Industry Compliance Qualification

The UK rail industry has a scheme whereby track workers can gain safety and other qualifications and certifications which are then portable to a wide range of rail-related employers and activities. Clearly, this is no different from many vocational qualifications but, outside the financial services industry, there are relatively few compliance-related vocational qualifications

Clearly, the concept behind the compliance qualification was simply that it gave a more tangible - and potentially useable - recognition of the training that an individual had undertaken in compliance. Clearly, to be fully effective, the qualification would need to be recognised by other companies and by relevant regulators - which would also serve to move an industry a little way towards the financial services qualification-type paradigm

Irrespective of the appetite in a wider industry for such a qualification, the principle clearly conveys the message, to government, the regulator and others, that there is a demonstrable commitment to compliance in the leading organisations or companies within that industry.

Compliance ‘Hygiene’ Ratings - for teams

Increasingly, restaurants and cafes in the UK display their hygiene rating, based on a 1 to 5 star scheme measured by their local authority; it has now become known informally as the ‘Scores on the Doors’ scheme. What came from that for me was that although we may require individual employees to complete compliance training and then undergo some form of testing of their knowledge, there was no single and straightforward indicator of a team’s compliance capability or performance - where a team in this context could be 10, 100 or 10,000 people

As a consequence, as part of the ‘Compliance Covenant’, the concept of a team compliance rating scheme was established, driven by a number of parameters including compliance training completion levels, failure rates, numbers of ‘serial offenders’ (employees who had consistently failed to complete their training) and senior management compliance education performance, including levels of attendance

The ‘Hygiene’ rating scheme has the benefit that it also establishes a degree of compliance-related competition between teams, units and divisions and facilitates an additional Board-level reporting measure, achievement awards and similar supporting recognition.

Annual Performance Reviews/Performance against objectives

Clearly, under the covenant an additional approach could be to ‘gate’ or restrict an individual’s Annual Performance Review marking dependent upon achievement of their Compliance Passport or, more simply, completion of their compliance training. The same approach can be used regarding reward for performance against objectives so that although compliance may not be an explicit objective, it is nonetheless implicit

It has to be said that this approach can give rise to concerns from HR and other stakeholders regarding the relationship between compliance, performance and reward and, as a consequence, stakeholder input is critical.

Incentives under the ‘Compliance Covenant’

It could be argued that the use of positive of incentives and the avoidance of disincentives both have a role to play in compliance, and in the ‘Compliance Covenant’

An incentive, for example, would be that the Compliance ‘Passport’ is seen and used as a qualification, thus recognising and rewarding individuals who completed the process. Avoiding disincentives - such as allowing the Passport to fall into abeyance or not differentiating sufficiently between Passport holders and others - is also equally important

Some of the ‘softer’ incentives could include, for example, entering Passport holders into a regular prize draw, although it is not considered that this type of approach should be used as a significant compliance management tool. From personal experience, based on using a prize competition for early completers of compliance training, this type of incentive did not appear to appeal widely to the management community.

I have frequently heard the argument, made by a range of attendees at compliance events and meetings, that without the qualification-type infrastructure of the financial services industry, compliance officers have few tools at their disposal to drive up the focus on, and interest in, compliance

This paper outlines the concept of the ‘Compliance Covenant’, of which the Compliance ‘Passport’, Compliance ‘Hygiene’ Ratings and other technique are key elements. Clearly, this type of approach may not be appropriate in all industries, organisations and companies - but it does go some way in providing additional tools and techniques that can be used to develop an organisation’s compliance performance and capabilities

In short, the compliance covenant goes some way to address the ‘what’s in it for me?’ element of the compliance equation. The concept may well require tailoring, but the principle is certainly worth considering by compliance officers from a range of industry and company backgrounds.