The cost of compliance

Once again, a group of major banks face massive fines for illegal trading practices. And once again, a cynical public has its disillusionment with the business world reinforced.

It is in many ways ironic that those imposing regulation (the politicians) are even less trusted and respected than the industries they are regulating. Indeed, one risk is that they use regulation of others as a way to try and demonstrate their own integrity.

But according to a recent report by Deloitte, the massive costs of compliance are not especially due to external regulation. I am told (because I have yet to find the report) that their research suggests just 38% of those costs are due to regulation and 62% arise from internal rules and procedures.

The big question, of course, is how many of those internal rules and procedures are really necessary? How often are they challenged, reviewed, updated? In a fast-changing world, populated with new ideas, techniques and technologies, many rules or practices are outdated – and nowhere is this more evident than in the world of contracts. IACCM data shows the lengthening leadtimes for contract review and approval. We know that ‘compliance’ is a major (and growing) aspect of supplier selection and management. As a community, we have insight to the major causes of delay – but relatively few of us capture this data and challenge whether a) it is necessary or b) it could be streamlined.

Using the contracting process to test effectiveness and efficiency of business controls is a tremendous source of potential value-add. It illustrates the cross-functional nature of what we do and reflects our capacity as ‘agents of change’ rather than administrators of the status-quo.