C2CC : MOVING FROM COMPLIANCE TO COMPLIANCE CULTURE

“Culture does not change because we desire to change it. Culture changes when the organization is transformed – the culture reflects the realities of people working together every day” – Frances Hesselbein.

India Inc, MNCs and all key stakeholders who participate in development and growth of Indian Corporate Sector have realized that days of “management” of compliances with the authorities are over. The other day I witnessed a discussion between a MD of a Rs.700 Cr company and his admin executive. It goes:

MD: Bala, what’s wrong with you? These days you are not able to “fix” the authorities. We are getting more show cause notices; we are paying fines every quarter. Have you lost your contacts? I have given you full discretion to manage these kinds of issues. Remember in 2002 you had saved all of us from closing down our business because of some stupid environmental law that we didn’t catch. And now…. What’s wrong with you?

Bala: Sir… sir, please don’t misunderstand me sir. I have excellent contacts and relationships all over. In fact my friends who were at junior level in bureaucracy in 2002 have now become very authoritative. But sir, now days they are very scared of RTI. Sir, even if I seduce them, they will not do our work sir. One RTI query and they have to answer Departmental Enquiry, Vigilance, CBI. Not only their promotion is stopped, they now fear losing their jobs sir. This RTI has really created havoc sir. Sir, rather than fixing things after they have gone wrong, sir ask Nitin our legal head to make sure that everything is legally correct. We need all our people to understand this now sir. Let us not bring any baraatis to our doorstep sir.

Conversations like this are very prevalent in any discussion on this type of subjects. The days of “managing” Compliances and Compliance Authorities are over. The “Liaison Officers” are being replaced by “Compliance Officers”. The “Change” is imperative. As Jack Welch said “Change before you have to”.

Recent incidences clearly indicate that the change in the outlook for managing the Compliances is not merely to move from old school “management” to “tick the box” approach. Change is imperative from Compliance to Compliance Culture. Let us review some of the recent developments in India.

  1. On April 2, 2013 the Hon’ble Supreme Court of India awarded Sterlite Industries damages of Rs.100 Crore. [1] . The Judgment is welcome, has overwhelming response from all stakeholders including the Company and its Shareholders. No doubt the SC Judgment is only “for such damages caused to the environment from 1997 to 2012 and for operating the plant without a valid renewal (of licence) for a fairly long period, the appellant-company obviously is liable to compensate by paying damages”, however the consequences of shutting down the plant that gives Rs.1600 Crore turnover every year is probably more disastrous to the business. The real impact of any such developments can be gauged by the stock market reactions. Sterlite stock prices improved after the SC judgment. They remained stable after the State Green Tribunal transferred the case to Central Green Tribunal.[2] . The moot question is why did anyone think in his mind that nothing could go wrong by operating a plant without valid renewal of a licence. It is about the corporate mind-set.
  2. Wal-Mart India story is very different. One fine morning four out of five in-house lawyers from Wal-Mart’s Indian entity were asked to go home. With the benefit of hindsight now, we can say that this was consequence of what started in Mexico and the US as investigation against the allegation of violations of FCPA in 2012. Subsequently the CFO was also asked to go. Eventually CEO resigned. The timing of the developments was probably catastrophic[3].While the investigations hit Indian shores, the Parliament was discussing about the controversial “FDI in Retail” issues. We now hear that some dozens of cases have been filed across India against Wal-Mart’s Indian entity. The issues range from violations of Legal Metrology requirements State Governments’ implemented central laws to US FCPA. For now Wal-Mart seems to have postponed its India expansion plans, disparaged its global reputation, is required to face long-drawn battle from governmental authorities. Their cash-n-carry business has been pushed back; the direct investment seems to be long away. When things go wrong, they go wrong. Again, the issue is why did anyone think in his mindset that nothing could go wrong in respect their ensuring compliance while dealing with third party consultants or ensuring Legal Metrology compliances. It is a question of corporate mindset.
  3. From April 23, 2013 the Sexual Harassment Act, 2013 became effective. It is interesting to track the history of SHW legislation in India. In 1997 the Hon’ble Supreme Court of India, virtually took upon itself to codify enactment in the form of guidelines laid down under the Vishakha Judgment[4] . Since 1997 till date though the law existed. It took 16 years after the SC pronouncement to formally codify the law. Initially the private sector was under the impression that Vishakha applied only to Public Sector. Thereafter it took arrests of some top executives of large MNCs, several prosecution cases for India Inc to realize Vishakha needs to be implemented in right spirit. It was used as redress mechanism rather than enforceable law. The issue on SHW is why did anyone think in his mindset that do not require the Companies to set up standing committees and implement the SHW policies in true sense. It is question of corporate mindset again

One can cite many such examples under Indian laws and regulations that lead to the same question about the mindset. The difference between Compliance and Compliance Culture is primarily that of mindset. The difference between compliance and a compliance culture rests with the motives of why we comply. It’s a “gut check” or “mind check” as opposed to a checklist. Compliance is not about being a regulatory expert; it’s about saying and doing the right thing when interacting with the stakeholders, as well as understanding the consequences of saying or doing the wrong thing whether by mistake or with intent. To move from compliance to a compliance culture, we must change the direction of our focus from the negative consequences of noncompliance to the positive results of doing the right thing. In short, compliance is adhering to the necessary rules and regulations in order to avoid consequences that would severely affect operations; however, a compliance culture takes us beyond, “here are the ‘regulations’ and ‘tasks’ – learn them, follow them, or else!” It’s more about doing the right thing for the right reasons which affects every part of the organization.

We are probably seeing Indian mindsets moving to “action” on the Compliances. What we really need to see is moving our mindsets from “action” to “behavior”

4. tuljapurkars_img1

Author: Mr. Suhas Tuljapurkar, founder and director of Legasis Services Pvt. Ltd. and Managing Partner of Legasis Partners.


[1] The Hon’ble Supreme Court of India’s judgment of April 2.2013 in Sterlite Industries ( India) Ltd. v/s Union of India & ors. in CIVIL APPEAL Nos. 2776-2783 OF 2013 (Arising out of SLP (C) Nos. 28116-28123 of 2010) [http://judis.nic.in/supremecourt/imgst.aspx?filename=40214]

[2] Please refer to an analytical article on the SCI ruling by Naiju Mathew titled, “THE BIGGER THE ORGANIZATION, THE HEAVIER THE ENVIRONMENTAL COMPENSATION” .

[3] See Article Walmart case study by Jyoti Chaudhari, in this booklet titled “THE WALMART STORY”.

[4] See Vishakha and others V. State of Rajasthan and others. AIR 1997 SUPREME COURT 3011

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