Is your company at risk of damaging its reputation due to noncompliance?

In August 2004 I wrote an article in my newsletter Powerlines Number 50 that is well worth repeating today.


Well, if you have been reading the papers lately, you would have noticed that quite a few organizations have received nasty fines from the Competition Commission of South Africa for price fixing and other anomalies. And, these are the ones in the limelight.

PricewaterhouseCoopers have found in one of their research studies that compliance failure is one of the biggest reasons for reputation loss.

Here is the article:

A company was fined a heavy penalty the other day for a workplace accident that was caused by the company managers condoning illegal actions, because that is the “way we have always done it in the past”.

In this case an unlicensed driver of a forklift caused an accident. The company decided to plead guilty being negligent in terms of the Occupational Health & Safety Act, expecting a thousand rand fine, but the court decided a fine of R10000 would be more appropriate.

The judge’s words: “Do not think you can just come in here and walk away with a small fine and continue the practice. This fine will help you to take Health and Safety issues seriously”.

What if the accident resulted in a death and the company had no proper safety practices in place? According to the law the CEO could then be held negligent, and he could receive a sentence of two years in jail and a fine of R100000. With that the media would have a field day!

Luckily in this case, no media reporter picked up the case, so the damages were confined to R 10000, but what if they did?

Organisations have two kinds of visibility to deal with.

The first is planned visibility, which is caused by day-to-day operations and actions by your organisation. The second is unplanned visibility, which is caused by the vulnerabilities you face due to the very nature of your business. These threats are caused by employees, environmental threats, safety issues and government intervention due to a company’s noncompliance to a changing legal environment, and unplanned visibility often does more harm, because of its editorial value.

In this case the company caused problems for itself by not taking the law seriously. In South Africa laws are changing “thick and fast”. Keeping up with all the new legal developments is difficult. Maintaining compliance is even more challenging. Fortunately, employers can take practical, proactive steps to maintain compliance and reduce liability risks.

Here’s a list of some of the steps you can take to reduce non-compliance:

  • Take appropriate measures to ensure that you receive timely notice of new legal developments, and that someone be instructed to evaluate its potential impact. Often in companies this is the job of the company secretary to evaluate the potential impact of for instance Internet legislation and the HR department to evaluate Employee Equity and whistle blowing legislation on company policies.
  • Take note of internal developments and their impact on the company’s legal obligations. Reengineering efforts and business expansions can have an impact on employee legislative matters.
  • Find out which policies are being complied with and which are not working anymore. Review current procedures and policies of your organisation — especially those regarding good business practices, including those to reduce risk of product contamination, etc; what hazardous chemicals are used; how product is labelled for distribution; and, what mechanisms are in place for communicating externally and internally. A simple exercise is to conduct a quick survey amongst senior management or the crisis team. Ask them to list those current procedures and policies that need to be examined and documented, or to list those that are no longer in use or working in practice.
  • You could even set up a web based survey using, or– Some of these sites offer a basic free survey. This technology can help you to quickly gauge opinion and get a feel for issues surrounding compliance.
  • Identify all the relevant legislation concerning your products and services. Consult various government departments and in-house or external legal counsel to ensure that nothing has been omitted. Measure your organisation’s compliance with these laws and evaluate likely impact of non-compliance.
  • Review your approach. The old Latin maxim: “Ignorance of the law is no excuse” applies here. What is often ignored is the reputational impact of business decisions taken. Taking a minimum legal compliance approach in your business may not be enough to avoid potential litigation and the ensuing publicity that could accompany it. What about your company’s role in becoming a good corporate citizen and paying attention to the triple-bottom line? Should you go beyond what is legally acceptable? A useful rule of thumb; “Will your decision stand up in a court of public opinion, never mind a legal court?”
  • Noncompliance with changing laws can damage your reputation. How compliant are you? When last have your company conducted a reputational audit? A Reputation audit is a systematic way of approach to identifying issues and risks that currently affect your company or will affect it within the next 12 to 36 months. (Like it or not, your company’s policies and actions are shaped and developed in anticipation of, and reaction to, political, economic, legal, social and technological forces).
  • It is also a process of casting a look internally and examining processes, procedures, policies and issues that could impact and damage the company’s reputation. It involves an in depth look at the quality of management, financial soundness, use of corporate assets, community and environmental responsibility, quality of products or services, value as a long term investment, innovativeness, and the ability to attract, develop and keep talented people.

Does your company have a dedicated person dealing with the issues of compliance? If it doesn’t, perhaps you need to reconsider. Tiger Brands recently only appointed a Chief Compliance Officer after a number of scandals. Perhaps you need to get some advice from the Compliance Institute of Southern Africa.

Take a look at Compliance Institute is the recognised industry body for compliance officers in the South African financial services arena and it endeavours to enable professional compliance and to promote the application of international best practice.

The lesson: Prevention is better than cure.