DEREK SMITH: Compliance is critical to corporate success


Derek Smith

A compliance programme is an indispensable element for any company as it helps to prevent, detect and remedy potential violations of law and corporate policies. The US Justice Department emphasises that “an effective compliance programme is a critical component of a company’s internal controls and corporate culture, which can mitigate risks and demonstrate a commitment to ethical conduct and accountability”. Such a system can also eliminate, or at least reduce, penalties and fines imposed by regulatory bodies, and minimise the financial and reputational damage caused by non-compliance. A robust compliance programme is therefore essential for companies to operate legally and ethically, and to achieve long-term success.

In appreciating the role of corporate compliance programmes, in just over six months, the US Justice Department has “revised its corporate criminal enforcement policies to focus more on greater individual accountability, further underscoring the importance of having a strong ethics and compliance programme” and “updated their evaluation of corporate compliance programmes”. This all occurred between September 2022 and March 2023. This article will discuss the critical connection between compensation management and consequences within a compliance programme.

Transparent human resources process

Transparency and fairness should be the hallmarks of the human resources disciplinary process. In addition, the appropriate individuals must make decisions regarding disciplinary action, and the process must be followed consistently for all incidents involving misconduct. Any executive exits caused by compliance violations should also be transparent, as well as how the disciplinary process is designed and implemented. Reasons for invoking disciplinary procedures and actions should be disclosed to employees unless legal or other reasons related to the investigation prevent this from happening. A company should not use pretexts to shield itself from whistleblowing or outside scrutiny. Any disclosure or access restrictions should be clearly justified and necessary.

Compensation scheme design

A compliance culture is fostered by the design and implementation of compensation schemes. All companies should consider whether to include provisions within employment contracts for the recovery of previously-awarded remuneration in the event the recipient is found to have engaged in, or otherwise been responsible for, corporate wrongdoing. If the decision is made to include a ‘claw back’ provision, the action must be logged and reported on to the extent that laws allow.

Effectiveness of consequence management

In order to ensure effective consequence management of compliance violations, insight can be gleaned from how a company handles reports to its hotline. Companies must ensure they accurately maintain and monitor hotlines, and ensure reports are circulated and addressed through best practice channels. Moreover, root cause analyses of over-reported or under-reported behaviour should be conducted and reported on. The investigation completion time when dealing with hotline reports, and their management, must be consistent in every instance. Also, consider linking the effectiveness of the hotline process to executives’ compensation.


In short, corporate compliance programmes are critical for long-term success. Having a transparent and fair disciplinary process, designing a compensation scheme, and managing consequences effectively are crucial.

• NB: About Derek Smith Jr

Derek Smith Jr. has been a governance, risk and compliance professional for more than 20 years. He has held positions at a TerraLex member law firm, a Wolfsburg Group member bank and a ‘big four’ accounting firm. Mr Smith is a certified anti-money laundering specialist (CAMS), and the assistant vice-president, compliance and money laundering reporting officer (MLRO) for CG Atlantic’s family of companies (member of Coralisle Group) for The Bahamas and Turks & Caicos.

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