Rollbacks and new governments: Considerations in an unpredictable compliance landscape in the era of Trump

May 16, 2017 Scott Lane

When governments change they often change their predecessors’ policies. This inevitably means new legislation or, as it has been well noted recently, change by executive order. What should you do when politicians roll back laws that you have spent years trying to comply with and replacing them with new laws or policies that are less onerous? Before simply adjusting standards to fit the new regulations, there are some important issues to consider.

Until recently, it was unlikely that dealing with regulation rollbacks was an issue for many compliance professionals. The concept of a government reducing corporate obligations seemed remote if not unprecedented. Events in the recent past caused politicians to advocate for more stringent legislation to protect all whose financial well-being relied on companies and organisations to do the right thing, or at least adhere to minimum standards. 

Since the start of the Trump administration in the United States, the question has become real, and it is likely to become more prevalent as the administration continues its mission to remove regulations imposed by earlier administrations. We have seen the start of policy changes pertaining to climate change, money transactions, tax reporting, use of conflict minerals, environmental and sustainability issues, and conflicts of interest. 

As far as these issues are concerned the new US administration appears to be reducing the obligations on companies and starting to roll back some existing laws. In many cases, the laws and regulations that are being rolled back have been in place for many years. Companies and their stakeholders, both internal and external, have come to terms with them, accepting them as normal, correct and expected business practices. Many stakeholders have tailored their compliance programmes to embrace not only the letter of these laws but, more importantly, the spirit of these laws. For all intents and purposes, these obligations are being complied with and have become part of the fabric that the business integrity and compliance programmes have duly woven.

Thus, the question is to what extent should companies change their business integrity and compliance programmes to reflect the fact that the proposed changes to current laws or policies are less than what they were when their business integrity and compliance programmes were created? Should companies continue to apply the higher standards, partly because these are already embedded in the culture of compliance and in a programme and, more importantly, because the previous laws or standards may have been a reasonable reflection of today’s expected compliance and legal frameworks — something that stakeholders accept as reasonable, if not simply responsible. For example, if the administration were to reduce obligations on the use of green energy as a percentage of overall energy usage, should companies reduce their targets to match that policy decision of the new government?  What if the company feels that the original higher standard was something that they wanted to achieve?

In some cases, reducing your standards to meet the revised law could be as simple as changing a policy or stance on a specific issue. Policies are easy to change and redraft but only a small piece of building a compliance programme is related to amending a policy or a procedure to reflect a change in the law, regulation or standard. The more challenging pieces of complying with a law or standard — things that can take years to change — are the attitudes, culture and behaviours of employees, partners, vendors and suppliers.

To comply with a legal or regulatory obligation, companies build and promote compliance training and communications, put in place financial and internal controls and parameters, and often implement technology solutions to ensure that compliance is effective. Once you have done all the hard work to build this compliance programme, changed the culture and changed behaviours surrounding a certain obligation, can you, or should you, revert to something less? What message does that send to stakeholders? How do you engage your stakeholders to tell them that you are now doing less than before? How do you change your message and still do what you feel is right?

These are fair questions, and here are some issues to consider when reflecting on a change in position by an incoming government:

Stakeholder expectations

Ignoring the reduced expectations of an incoming government, what is expected by your stakeholders? Is the change proposed by the government a true reflection of the will of the people or was the easing of the regulation a political ploy or an election promise to win over a small group of voters? Ask your stakeholders what they think it should be. Your stakeholders (i.e. employees, suppliers, vendors and partners) might take the view that the original position should remain despite being able to legally reduce your standard.

Customer expectations

There is value in reading your customer base and deciding where to set standards. Your customers may have taken a positive view on your green-energy usage or your sustainability commitment; changing and reducing that commitment now might alienate those consumers who have invested in your previous position. You might want to consider the potential backlash before making such a change. It is highly likely that the change will be viewed negatively, particularly if the change is “anti-environment” for the sake of profits.

Global consistency

Most companies try to consider policy issues globally in the hope that each country doesn’t seek to regulate activity within its borders in its own way. If a market like the United States seeks to loosen obligations around reporting, transparency, or the environmental (or other) standards, the question is whether this position will also be adopted by other markets. It may be the case that you will continue to support the higher standard to maintain some global consistency. Not every country is likely to amend the same issue downwards at the same time.

Messaging

If you do decide to drop the standards to the new obligations, make sure the messaging is right. Think about how this will look and whether or not the position you are taking is the trend in the industry or outside the country of concern. Also, think about how this change might affect your overall set of values in your Code of Conduct. You might, for example, have adopted a strong goal concerning sustainability and environmental stewardship.

You may have implemented programmes and initiatives to meet this goal. How will it look now if you reduce these standards and accept a lower threshold, simply because the law allows you to do so? No doubt when you released your original compliance programme, you tried to emphasise not only the legal requirement but also its benefit to society. Making it real for employees and other stakeholders, and not just relying on a law to implement and achieve good compliance practices, is a common approach adopted by compliance experts to improve outcomes. This will likely not work in reverse. If you are now going to reduce your standards based on a hiccup in the legal requirements only, it may be arduous to get buy-in next time. The built-up value and trust that you garnered with your stakeholders will be eroded by what might be viewed as an attempt to reduce obligations and compliance burdens at the cost of, in this example, the environment.

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