While companies across Australia have been battling to keep afloat during the GFC, important business issues such as compliance have been sidelined as a consequence. Now that the worst seems to be over companies are once again starting to turn their attention back to the perennial challenges of building a solid compliance culture.
“We are finding that lots of clients have been focusing for the past 18 months on getting through the financial crisis but are now turning their minds to compliance,” Middletons technology group partner, Dudley Kneller, says. “They are coming to us and telling us that they are worried about the level of compliance (required), and asking for assistance.”
Adrian Verdnik, special counsel at Hall & Wilcox, says the GFC exposed weaknesses in the compliance frameworks of many companies as their arrangements – regulatory, contractual, financial – came under more scrutiny. “The lesson that many companies took out of the downturn, and the compliance issues that followed, is that they don’t want to be exposed to those risks again,” he says.
Verdnik says that the rise of the Labor Government in 2007 was also a key turning point. “The change in federal government has led to an almost unprecedented period of legislative change and policy review, in areas of the law (industrial relations, tax, superannuation) which were already quite complicated,” he observes. “Companies have realised that they cannot afford to approach compliance on an ‘ad hoc’ basis if they want to stay in touch with these issues. In-house legal teams have also been absorbed with substantial transactions over the last few years: ‘defensive’ work such as refinancing debt arrangements and litigation when the market was in a downturn; acquisitions and growth work when moving into new markets and taking advantage of opportunities now that the economy has started picking up,” he says.
“So they appreciate the value of having a robust compliance system in place that is tailored to their business, that can help look after the ‘business as usual’ work while in-house legal resources are devoted to substantial, one-off transactions.”
Documentation
One particular area of concern for companies in Australia is documentation retention and access. Within various industries there are specific requirements as to what documents and data companies will need to retain, in addition to the broader requirements applied to all corporations. Financial services and the telecommunication industries, in particular, have a high level of compliance obligations.
“They are being overwhelmed by the level of compliance they are required to have,” Kneller observes. “Companies are struggling to find the right balance. They know that they have to retain documents and data, but they are not sure to what extent they need to do that.”
The annual 2009/10 Blake Dawson Risk and Compliance Survey found that 12% of respondents didn’t know if their organisation had a compliance plan, while 42% said that their employer did not have one in the past.
When it comes to litigation, companies and individuals can find it a struggle to produce the required information if there is not a consistence compliance system in place for documentation, advises Kneller. “Companies are struggling to find the right balance between the Enron or ‘shred everything’ approach and the Morgan Stanley approach, which is ‘keep absolutely everything’. We can help clients by updating their compliance program, providing them
with details about what documentation they are – and are not – required to hold onto,” he says.
45% of respondents in the Blake Dawson survey claimed that not all staff in their organisation received compliance training, a response of significant concern for legal practitioners. Without proper staff training organisations will find it difficult to create a holistic compliance culture. Also, an effective compliance policy needs to be updated regularly, says Kneller.
When it comes to documentation and data the policy should include details about how long information is to be stored for, the reasons for keeping or destroying information, in addition to procedures for accessing information and who is responsible for it. The policy should also include procedures to ensure authenticity and integrity of documents over time, Kneller adds.
When companies have failed to ensure they have a comprehensive compliance system for documentation in place they call in legal/IT consulting organisations such as E.law Asia Pacific. “It’s important to properly archive information so that it is easy to find at a later date,” advises Allison Stanfield, the director and CEO of E-Law Asia Pacific. “We normally get called in at the last minute to find a needle in a haystack.”
A large percentage of E.Law’s work revolves around companies that are under investigation by ASIC or involved in a litigation case. “In my experience, the litigation lawyers who are acting for companies that are under investigation come to us for assistance in locating documentation,” she says. As nearly everything today is electronically stored, managing and finding documents can often be complicated.
“Back in the old days, it was all hardcopy; things were stored and archived so if you needed to find something you could. We just don’t do that anymore, it is easy to lose electronic documents if there is not a system in place for their storage and archiving,” explains Stanfield.
Alternative career path? The importance of compliance raises the question of whether there will be a groundswell of lawyers moving into this area. “A good compliance professional will have a similar skillset to a good solicitor, which – combined with good commercial acumen – can make them quite valuable to a business where the legal team is already being stretched,” says Verdnik. “Increasingly, they are taking on roles within projects which would traditionally be undertaken by lawyers: due diligence, analysis, document review and sign-off. However, they too can become overwhelmed with the rate of change in the law, so they may rely heavily on panel solicitors and other external resources to manage the company’s compliance obligations.”
However, Lynne Beggs, the regional director of Hays Legal, warns against the idea that lawyers can simply switch into compliance at will. “Compliance is a niche area and employers recruiting in this area want lawyers with a proven history,” she says.
