Many start-ups and even small and medium size companies  do not even recognize what a compliance function is, let alone why it’s important.

Compliance is the set of processes and organization uses to ensure that employees and the organization as a whole abide by internal rules of conduct and external rules and regulations. It may include your company’s written values, its ethics policy, the employee handbook, and policies for complying with legal obligations (like filing of Returns and  Reporting). In large organizations, it may include or be housed within a general counsel’s office. In smaller organizations, compliance tends to reside, informally, within the functions of the chief executive officer, chief financial officer, and head of HR.

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Compliance is important for at least Six reasons.

• Compliance is part of your organization’s duties to its community and stakeholders. The first reason is most basic. If you run a business (whether for-profit or non-profit), you benefit from your community’s basic services. In return, you owe duty to comply with the law. Furthermore, if you use the resources of others (investors, creditors, donors), you need to be able to assure them that you are regulating the conduct of your employees and that you are complying with applicable rules and regulations. The unstated assumption seems to be that because the NGOs or Medium and Small Industries including start-Ups thin that they are creating employment opportunities and paying taxes and hence,  “doing good,” it can be laxed about the way in which it does good. That assumption is profoundly risky.
• Without a compliance function, you cannot reliably build or maintain trust with others. Trust is fostered through three elements: (1) repeated interactions with another person; (2) honest communication with that person; and (3) following through on commitments. Organizations cannot ensure that they are meeting element (2) or (3) unless they have adopted rules about proper communications and proper follow through. The head of the organization can’t be confident that others are being honest in their interactions unless the organization has adopted rules about honesty and trained people about the importance of honesty and candor. The leader cannot be confident that people are following through on commitments unless there are rules and norms that have been adopted and emphasized throughout the organization.
• If you have no compliance function, you invite reputational damage. I like to note Warren Buffett’s adage that it takes 20 years to build a reputation and about five minutes to lose one. Research shows that people want to interact with organizations that have a reputation for honest dealings. It’s therefore no surprise that leaders consistently rank reputational risk as their number one worry. If you are not trusted in the marketplace, customers are unlikely to work with you. On the other hand, if you are trusted, customers will give you the benefit of the doubt. Without a strong compliance function, however, an organization is like the blindfolded man: any step may lead to disaster.
• Compliance can serve as a driver of change and innovation. Some people also view compliance as inherently conservative. They think the purpose of compliance is to rein in conduct. Again, that’s not true. Compliance instead can serve as a powerful tool of long-term change. If every day behaviour stems from training and codes of conduct, and codes of conduct stem from values, articulation and modification of values over time can profoundly influence organizational behaviour. In the words of system theorists, values can be a leverage point, and compliance ultimately focuses on the driving values of an organization.
• Compliance enhances consistency.Without a compliance function, decisions are ad hoc and made in a vacuum. Articulated values, ethics policies, and codes of conduct provide reference points for making decisions a matter of routine. As Peter Drucker explained, “All events but the truly unique require a generic solution. They require a rule, a policy, a principle. Once the right principle has been developed all manifestations of the same generic situation can be handled pragmatically; that is, by adaptation of the rule to the concrete circumstances of the case.
• Compliance can reduce unforced errors. It is an important risk management concept. Unforced errors are the most common risks to organizational performance, and compliance helps prevent unforced errors.