Global Journal of Management and Business Research, A: Administration and Management, Volume 23 Issue 10

Sustainable Compliance Programs in Complex Organizations Global Journal of Management and Business Research ( A ) XXIII Issue X Version I Year 2023 4 © 2023 Global Journals Allman (2005) argues that organizations have always propounded different codes of conduct by which their employees are governed and expected to act, in an informal setting. However, US Federal Sentencing Guidelines require organizations to promote “ethical behaviour” and “commitment to compliance” by their employees. He suggests the management should provide ‘thought-leadership’ emphasizing the values and commitment which need to be espoused by the employees, and recommends that the aspects of information handling – including retention, be incorporated in the ‘core’ values of the firm, encompassing the information systems training programs and corporate policies and procedures. Allman (2005) recommends “The Sedonna Guidelines” whilst trying to influence the cultural aspects of the firm, for accommodating the practices related to information handling and retention. These guidelines include recommendations on assessing the real drivers for information retention (e.g.) legal considerations and not just day-to-day business drivers, and using technology efficiently to provide an effective archival mechanism, facilitating, easy retrieval and access. Allman (2005) concludes that organisations should adopt a “functional” view of their information retention needs, as opposed to looking from a “departmental” perspective. This holistic approach to documentation management, combined with effective co-ordination between different groups in the organization, led by the legal team, holds the key for formulating a sustainable policy on information retention. With the growing regulatory needs, employees often find themselves suffocated or overloaded with regulatory requirements. One of the unintended conse- quences, for the majority of ‘well-governed’ organizations, relates to employee morale. The employees in such organizations, deluged with paper- work, constantly seek to ‘robotize’ their work output – using lesser and lesser of their own ingenuity due to the fear of non-compliance. Ultimately, this drudgery at work reflects in the lower employee morale. In addition, employees when put under a compliance regime, with clearly defined personal liabilities (like in SOX) tend to work in a climate of fear, not wanting to make any mistakes. This “Fear of failure” is costing organizations heavily, especially in the area of SOX internal control testing (wherein testing objectivity is lost as a direct consequence). Compounding this issue, employees feel less inclined to query or question decisions, taking away an effective ‘sounding board’ for the management. Prior literature is equivocal as to the relative merits of decentralized versus centralized modes of organization that are most conducive to an effective compliance culture. On the one hand, Levine (1997) proposes “a system based on conditional deregulation, where companies with good records of compliance can choose to work with their employees to improve compliance and face fewer regulations, inspections and penalties”. This is based on a mixture of “oversight” and “self-regulation”, facilitated by ‘workers body’ (similar to the dual corporate governance board or joint super- visory and ‘workers council’ model which exists in Germany and France), to negotiate with the organization on the level of “self-regulation” and the “spheres” within the organization which would be managed by this program. By contrast, Bryan and Lilien (2005) relate complexity in the organization process (e.g. operating in multiple tax requirements) to the firm finding material weaknesses in their process. They also imply that in such cases find a positive relationship with the testing resources used for control process testing. They identify the “siloed functional structure” in organization design as an additional factor that contributed to the increased prevalence of controls weaknesses. They also claim that greater efficiency in design underlying process would reduce the level of compliance activity needed to validate the process. Davenport (2005) identifies the processes that affect the given compliance program (in the instance of SOX, those processes that affect the financial accounts in the firm’s statement of accounts). By standardising processes (for their business activities, like order management and revenue recognition), the organization removes one of the primary causes for controls failure within the internal controls structure. However, there are also broader societal demands for accountability which can affect the compliance-oriented effectiveness of organisational culture. While business compliance programs (e.g. SOX) have started to hold individuals liable with legal penalties for any misdemeanours in corporations, any reoccurrence of the misbehaviour (crime) has a substantial cost (Anderson, 1999) and impact on the society (Emmitt, 1993). Murphy (2002) calls for compliance programs to be amalgamated into the overall organizational ethics and integrity program, in order to improve the effectiveness and efficiency of compliance programs. Hartman (2000) suggests ‘rules’ should be part and parcel of a ‘value/integrity-based’ culture. Hartman emphasizes the criticality for a visible, strong and committed organization leadership for this transition. Once, the leaders have bought into the philosophy, to generate the same level of enthusiasm across the organization, the program must reach-out and involve all levels of the organization, creating an infrastructure that facilitates a feedback mechanism from different parts of the organization. Establishing “effective training programs” would help in reinforcing the ‘values’ and “values/integrity-based” ideals, propounded by the organization. Finally, developing an “incentive structure” which promotes ethical behaviour and actively discourages unethical conduct would provide the necessary incentives for the employees for making the transition.