European companies risk compliance failures


Despite increasingly tough corporate governance codes and growing pressure from regulators, many European companies are still failing to implement safeguards to prevent the sort of ethics and compliance failures that led to corporate scandals such as Enron and Parmalat.

The 2007 European Corporate Integrity Survey, based on research conducted amongst the Heads of Legal and Chief Compliance Officers of Europe's 500 largest publicly listed companies, found that businesses are nevertheless confident that demands from regulators, customers and investors for improved ethics and compliance programmes will increase, as will the number and importance of the risks they face.

However fewer than six out of 10 (56 per cent) companies said that their policies were sufficiently robust to protect them against potential ethics and compliance failures, while only one in 10 (9 per cent) expected to see budgets to significantly increase to address this issue.

The survey, published by the Association of Corporate Counsel and Integrity Interactive, also found that while all bar five of the companies quizzed have either a code of conduct or a statement of a set of values and principles, only half ensure that all their employees are made to read it and almost a quarter (22 per cent) only send their codes to selected employees.

Barriers to implementation of effective ethics and compliance programmes to emerge from the report include conflicts with other priorities of the business, lack of necessary skills and resources, as well as a lack of budget.

Furthermore, nearly half have to fund their activities out of budget shared with other priorities and one fifth has no set specific compliance budget at all.

"The majority of companies have gone through the process of developing a formal code of conduct or set of values, but differences remain in how much progress has been made in disseminating, implementing and monitoring the effectiveness of these codes," said Frederick J. Krebs, president of Association of Corporate Counsel.

As a result, he said, European companies still lagged behind those in the U.S.

"Companies in the US have spent the last several years ratcheting up their efforts on ethics and compliance but many of their European counterparts still have more work to do."

Paul Basson, president of Integrity Interactive Europe, added that the first step towards making compliance programme more effective was ensuring that all employees understood the policies in place.

"It is not good enough to have codes of practice buried on an intranet site where employees have to proactively seek them out. Therefore training on codes and policies and the evaluation of levels of understanding of these, play a significant role in protecting a business against scandal and without it many could be heading for trouble."