Modern customers expect more from the businesses they patronize. Beyond simply providing quality products to address buyer needs, today’s organizations are expected to operate ethically and accountability, and to function as a positive force on the world stage.
But while many of today’s most prominent businesses have taken it upon themselves to prioritize social conscience and integrity, there is still a need for more formal governance. Legal mandates (in the form of laws, guidelines, and regulations enforceable by federal and state governments) set strict, measurable standards for businesses, helping ensure that those organizations that operate within specific jurisdictions do so in a way that is safe, fair, and in line with established expectations.
Of course, laws are not static; they are constantly evolving and changing, and businesses are expected to remain fully up to date on all relevant regulations—or risk being penalized. To safeguard their interests and guarantee that they are operating within the confines of the law, organizations in every industry depend on regulatory compliance.
Businesses exist to meet customers' needs and generate revenue. Regulatory compliance helps support these goals. Failure to adhere to regulatory statutes typically results in costly fines, lawsuits, and investigations, all of which can offset revenue gains and interrupt an organization’s ability to conduct business. Compliance is likewise pivotal in maintaining a company’s reputation. In an era where information is rapidly disseminated, any regulatory misstep can quickly become public knowledge, damaging a brand’s image and negatively impacting consumer trust.
The Sarbanes-Oxley Act (SOX), for instance, underscores the critical role of compliance in maintaining financial integrity and public trust in corporations. As a regulatory framework, SOX mandates rigorous internal controls and frequent audits to prevent financial fraud and ensure accurate financial reporting. SOX enforces accountability at the highest levels of corporate leadership, protecting investors from financial misstatements and reduces the risk of financial scandals that could devastate company reputations. Furthermore, SOX compliance promotes operational transparency and strengthens data security protocols—helping companies avoid significant legal penalties and fines.
Another example is NERC-CIP, which was created to ensure critical infrastructure at energy and utility companies is properly maintained and protected against cyber threats. We’ve seen the disastrous effects in the form of wildfires that can occur when infrastructure is not properly kept up, resulting in lawsuits and a deterioration of public trust.
That said, regulatory compliance is about more than just avoiding punishment; a greater focus on compliance drives companies to innovate—particularly in sectors like environmental regulation, where compliance can spur the development of greener technologies and more sustainable practices.
Additionally, a powerful compliance program can enhance operational efficiencies by streamlining processes and establishing more comprehensive data security controls. As data breaches become more frequent and threats more varied, compliance with data protection laws is an absolute must. Failing to protect sensitive data can cause irreparable damage, both to the business itself and to its relationship with its clients.
Simply put, regulatory compliance processes and strategies provide guidance for organizations as they work towards their goals. To support this objective, compliance management departments typically take responsibility for ensuring that their organization fully conforms to all official legal mandates.
The importance of regulatory compliance is evidenced by the benefits it provides – it can be a competitive advantage. To reiterate, companies that employ effective compliance programs typically experience the following advantages:
Compliance programs help organizations stay aware of and adhere to relevant laws. This proactive approach significantly reduces the risk of experiencing legal infractions, lawsuits, and restrictions that can interrupt normal operations and lead to fines or other, harsher penalties. By ensuring legal adherence, regulatory compliance helps companies avoid unwanted legal entanglements so they can focus on core business activities.
Consumers and business partners are increasingly favoring companies that are not only successful but also operate ethically and responsibly. For example, many customers will choose to do business with organizations that demonstrate adherence to ESG regulations over those that negatively impact the environment. As such, a strong compliance record enhances a company's brand and reputation. Demonstrating a commitment to compliance can become a powerful part of a company's brand identity, fostering trust and loyalty among customers, investors, and employees.
Compliance programs often involve implementing standardized procedures and best practices. This standardization not only streamlines workflows but also helps in maintaining a safer workplace. For instance, compliance with occupational health and safety regulations ensures a working environment free from unwarranted health risks, reducing the likelihood of accidents while improving overall productivity.
Regulatory compliance levels the playing field in the marketplace. By ensuring that all businesses adhere to the same rules and standards, compliance fosters fair and healthy competition. This is particularly important in industries where non-compliance can provide an unfair advantage, such as cutting corners to reduce costs.
An effective compliance program helps companies mitigate risks before they become major problems. This risk management aspect is crucial for long-term sustainability and profitability; by minimizing the risks of legal penalties and reputational damage, and by creating a safe and efficient work environment, a compliance program can contribute to the financial health and stability of a business.
Although regulatory compliance serves a vital purpose and offers a range of benefits, it also carries with it certain challenges that organizations need to overcome. Many of these obstacles stem from the dynamic nature of the regulations themselves and the complexity of integrating them into existing business structures and cultures.
Key challenges include:
Laws develop and change in response to social circumstances, which makes predicting future regulatory trends a daunting task. The legal landscape can be unpredictable; to mitigate this, organizations can invest in compliance forecasting tools and engage in regular industry benchmarking. Staying updated with regulatory news and developing a network with industry bodies can also provide early insights into potential changes.
Maintaining compliance, such as meeting the requirements of SOX and NERC-CIP, often involves substantial expenses related to testing and audits. To mitigate these costs, companies can employ advanced auditing technologies, outsource to specialized firms, and automate compliance processes to reduce manual work. These strategies help streamline operations and potentially lower the expenses associated with compliance testing.
Many businesses have dedicated compliance management professionals, but that does not mean that regulatory compliance is solely the responsibility of compliance officers and managers. Ensuring that everyone within the organization is operating within the law and in line with established standards requires a cultural shift. Unfortunately, establishing and promoting such a culture can be difficult. Companies can address these issues by getting leadership endorsement of compliance values, and by offering ongoing staff training coupled with clear communication about the importance of compliance. Incorporating compliance into performance metrics and rewarding compliant behaviors can further reinforce this value.
Compliance professionals can help companies connect the dots on regulatory adherence. The problem—as regulatory compliance becomes a greater focus for organizations— is that growing demand is limiting the availability of potential hires with these valuable skill sets. Organizations should focus on creating attractive career paths for their compliance roles, offer continuous training and development, and consider partnering with educational institutions to develop specialized compliance training programs.
In business, even the most positive changes can lead to disruption. Integrating compliance processes seamlessly into existing business operations has the potential to slow or interrupt essential processes. It is possible to offset these disruptions using automation and compliance management software that makes it easy for employees to engage with the compliance team.
Finally, a vital aspect of regulatory compliance is forecasting how emerging laws may affect the company. Understanding and quantifying the impact of new regulations on business operations and profitability demands detailed data analysis. Companies can employ predictive analytics and modeling to assess the potential impact of new regulations. Regular audits and impact assessments should be conducted to evaluate the ongoing effects of compliance on business operations.
Ensuring regulatory compliance is an ongoing process that requires careful planning and execution. This involves several key steps designed to support organizations as they work towards meeting legal and industry-specific mandates. As an overview, key phases in this process include:
Identifying relevant regulations
The first step towards compliance is to determine which laws and regulations are applicable to the organization. This includes understanding federal, state, and municipal rules that might directly or indirectly impact the business or dictate how it should operate. A comprehensive understanding of these regulations helps ensure all relevant areas are covered and that the business is not being held to standards it is unaware of.
Determining applicable requirements
After all relevant regulations are identified, the next phase involves locating the specific requirements within these regulations that pertain to the organization. This takes the form of a detailed analysis of the regulations to understand how they apply within the context of the company, and what changes may need to be put in place to bring the business into compliance.
Conducting an internal audit
Before any new processes can be rolled out, it is important to have a clear picture of the current state of the organization’s regulatory compliance. An internal audit can provide that information, identifying areas of non-compliance and other gaps that might require improvement. This sets a baseline from which to build or modify compliance processes.
Collecting evidence of compliance for future audits
Collect and organize evidence of current compliance practices and any corrective actions taken. This step ensures that when external audits occur, the organization has concrete proof to demonstrate compliance efforts and operational integrity. Keeping detailed records and documentation at this stage will facilitate smoother audit processes and support claims of compliance during regulatory reviews that may occur at later dates.
Establishing and documenting compliance processes
With requirements identified and the initial audit complete, it is now time to adjust internal operations to better address any risk areas. Establish and clearly document compliance processes. Provide clear directions regarding individual responsibilities and goals within these processes, and thoroughly record every change for use in future audits.
Providing compliance training
Compliance is an organization-wide responsibility; everyone has a part to play. Regular training sessions should be provided to educate employees and stakeholders about compliance processes, their importance, and any updates to regulations.
Monitoring and evaluating changes to regulations
Compliance is not a one-and-done task; it requires ongoing attention. Regulations often change, and it is important to continuously monitor these changes to determine if they apply to the company. When relevant changes are identified, organizations must move quickly to update the compliance processes accordingly and retrain staff as needed.
Basic processes aside, there are additional measures an organization can take to help promote effective regulatory compliance. These ‘best practices’ include the following:
Continuously monitor the regulatory landscape for changes. This includes staying informed about industry-specific regulations as well as broader legal changes at the jurisdictional level. By doing so, companies can adapt their compliance strategies promptly and effectively.
Create a compliance code of conduct. This document should articulate the organization's commitment to fair, safe, and ethical practices—serving as a compliance guideline for employees in their day-to-day operations and decision-making.
Prioritize testing while defining controls. Doing so will help prevent an overload of controls as regulations increase. By harmonizing controls to cover multiple regulations, unnecessary testing and maintenance can be minimized, enhancing efficiency and control manageability.
Regularly review and update the compliance policy to ensure that it remains relevant, identifying and correcting any weaknesses in the policy and adjusting it to align with the latest regulatory changes. These reviews help in maintaining a useful and up-to-date compliance framework.
Automating compliance-related activities can significantly enhance efficiency and accuracy. Automations can monitor regulatory changes, manage documentation, and ensure compliance processes are consistently followed across the organization. This technology-driven approach streamlines compliance management and reduces the risk of human error.
Formalize the organization’s commitment to compliance by drafting and sharing a detailed regulatory compliance policy.
A regulatory compliance policy is a formalized set of guidelines and procedures established by an organization to ensure adherence to legal standards and industry regulations relevant to its operations. This policy serves as a cornerstone for guiding the organization's behavior and decisions in compliance with external regulatory requirements. The purpose of such a policy is twofold: It exists to prevent legal infractions that can lead to penalties while also seeking to uphold the organization's integrity and reputation in the eyes of regulators, customers, and the general public.
The policy typically outlines the specific laws and regulations applicable to the business, details the responsibilities and expectations for employees at all levels, and describes the processes for monitoring and reporting compliance. This can include protocols for regular audits, training programs for staff, and methods for addressing and rectifying compliance breaches. By clearly defining these aspects, a regulatory compliance policy helps create a culture of compliance within the organization, ensuring that all activities are conducted within the legal framework and ethical standards set by regulatory bodies.
Depending on where a business is headquartered and who its customer base is, an organization will potentially need to be familiar with many different local, state, federal, and foreign regulations. Additionally, specific industries are often governed by their own sets of laws and standards; industry-specific regulations are just as essential to include in any regulatory compliance initiatives.
Although it is recommended that every business make a detailed evaluation of regulations within their own industries, some important industry regulations to be aware of include:
SOX: This law was enacted in response to financial scandals like Enron and WorldCom. SOX mandates rigorous auditing and financial regulations to protect shareholders and the general public from accounting errors and fraudulent practices.
Family Educational Rights and Privacy Act (FERPA): for educational institutions and other organizations that collect student data.
Health Information Technology for Economic and Clinical Health (HITECH) and Health Insurance Portability and Accountability Act (HIPAA): for healthcare providers and other businesses or groups that collect, store, or transfer digital patient data.
Payment Card Industry Data Security Standard (PCI-DSS): For payment processes, businesses, and groups that store and transfer digital financial data.
NIST Risk Management Framework: Developed by the National Institute of Standards and Technology (NIST), this framework provides a comprehensive process that integrates security, privacy, and risk management activities. It is used by U.S. federal agencies and other entities to help manage IT security risks.
NERC Critical Infrastructure Protection: Enforced by the North American Electric Reliability Corporation (NERC), these standards are designed to secure the assets required for operating North America's bulk electric system. They cover physical and cyber assets essential to a reliable electric grid.
California Consumer Privacy Act of 2018 (CCPA): This act solidifies California residents’ rights regarding their personal data and imposes data protection responsibilities on businesses that collect or sell such information.
General Data Protection Regulation (GDPR): A critical regulation for businesses operating in the European Union or dealing with the data of EU residents. GDPR is known for its stringent data protection requirements, providing individuals with significant control over their personal data and imposing heavy penalties for non-compliance.
ServiceNow, identified as a leader in the Forrester Wave for governance, risk, and compliance (GRC) platforms Q4 2023, is instrumental in helping organizations focus on meeting regulatory compliance expectations.
Designed to streamline and reinforce regulatory compliance through a comprehensive suite of tools and features, ServiceNow Integrated Risk Management (IRM) integrates risk management and compliance processes into a single system of action, making it easy for organizations to operate within legal and regulatory frameworks.
IRM provides real-time visibility, for a holistic view of the organization’s risk posture and compliance status. Automated workflows boost productivity and help reduce costs, while advanced AI enhances essential decision-making—critical aspects in managing and mitigating risks promptly and effectively. Additionally, continuous monitoring and automated risk assessments ensure that businesses can quickly adapt to regulatory changes without compromising operational efficiency.
For businesses looking to elevate their compliance strategy, ServiceNow IRM offers a powerful and reliable solution. See how ServiceNow can transform your regulatory compliance efforts; demo ServiceNow today!