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Risks of noncompliance in corporate governance

Paper Type: Free Essay Subject: Business
Wordcount: 1270 words Published: 1st Jan 2015

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In Management, the aspect of compliance is one of the most important element in most businesses whether service or product. It involves the transformation of inputs of production and operation into “outputs” that, when distributed, have the needs satisfying abilities to the consumers. The concept of compliance refers to a state of being in accordance to certain rules and regulations. The process compliance involves the application of independent factors but mainly focuses on the overall corporate function of the organization. In corporate world we tend to associate compliance with leadership and decision making. The concept of Leadership is referred to as the progression of social influence which an individual can sign up in aid and support of others in the accomplishment of a common task. Leadership as a tool of effective management and compliance remains as one of the most pertinent aspects of the organizational context (Bicheno & Elliot, 1997).

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When individuals are put in leadership positions, they are effectively authorized to comply with certain rules and regulations on of other people. They are expected to make wise decisions that serve the interests of the people that elected them, their organizations, state or country. Since compliance involves making tough decisions, its only leaders in involved in corporate governance who are in position to pass authority and influence other people. Good compliance technique is an indispensable skill for success and successful leadership. In the business world, many organizations especially those involved in financial services have compliance workforce whose function entails the idea of making sure the company comply with the laid down rules and regulations (Sparrow, 2000).

Relationship of the cost of compliance against the degree of risk of noncompliance

Corporate governance refers to a system by in which corporates or organizations are managed. It entails building of relationships between the management, committees of the Board, and employees. Effective corporate governance structure maximizes value and proficiency. Since compliance involves certification to do a particular task, it enables organizations to fulfill its goals and objectives for the reason that its functions are not delayed down by risks of non compliance. Organizations should concentrate on issues relating to compliance to ensure they fulfill their functions. There are numerous problems associated with failing to comply with certain regulations. Technically, the extent of risks found in organizations differs from one compliance element to another.   Regardless of issues involved, the cost of compliance is much smaller than the risks emerging out from noncompliance. In observing business ethics, the funds involved in compliance assist states and governments to create jobs and improve social status of its citizens. By enlarge; compliance is beneficial in that it makes corporate bodies to fulfill their social obligations to members of the public. Some of these costs also involve aspects of direct expenditures made by organizations to comply with safety issues, when complied; these regulations ensure consumers obtain high quality goods and services. Though high in some cases, the costs of compliance ensure fair trade and allow productions of goods and services that meet consumer requirements, needs and wants (Wong, 2001).

The major risks of non compliance are the ability of the government to sue the organizations for compliance violations. This in the part of the organizations mostly it’s more expensive than the initial cost of complying with the required rules and regulations. For any organization to function well and achieve its goals and objectives, it must comply with all laid down rules and regulations to avoid risks of loss of clients resulting from closures, to avoid stiff penalties from regulatory bodies which are at times more costly that the cost of compliance and finally to avoid losing consumer confidence. To be effective in compliance matters, organization should do Self-Assessments of their functions and identify their risks. (Bicheno & Elliot, 1997).

Organization that uses committees within their corporate governance structure

Organizations that implement the use of committees in their corporate governance structures have shown to be very effective, efficient and successful, and have shown potential to operate with utmost accountability and independence. this Committees perform duties on behalf of the organization management and shareholders and with efficient delegation of duties , they build stronger capital rights ,increase production and sales and increase the organization profitability ensuring they comply with necessary corporate rules and regulations . One of the most well recognized organization that uses committees with their corporate governance structure is PepsiCo. This company is found in beverage industry and its committee charters are very definitive and its purpose well structured. The organization consists of internal and external audit committees which guide the organization management in regulating quality and efficiency, financial position and organization compliance to regulatory body’s requirement and wants.

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Use of committees by McBride to mitigate noncompliance issues

Like PepsiCo, McBride financial company should use the committees to mitigate the risks associated with noncompliance. The concept of compliance is a very significant issue for any organization. In the case of McBride Financial Services, the knowledge and execution of appropriate rules and regulations are ominous to the organization potential growth and development. Recommendations involving Self-Assessments and identification of risks should be used to mitigate issues of noncompliance in the company. McBride financial company should conduct self-assessment of their program in time before the time the regulators come knocking on their doors. The company should use internal committees to develop a risk-based compliance approach that include identification of risks of non-compliance and the factors required to ensure compliance. The committee analyzes the organization risks and assists the company come to a decision of which risks to focus on. When established, committees serve the function of determining negative consequences of noncompliance. Committees perform quantitative analysis of the company performance and gives guidelines of what to do in order to achieve the company’s goals and objectives (Causey, 2008).


It’s a general business objective for most successful organizations in the world today to strategies on ways of improving their productivity, quality of products and services so as to satisfy the needs of their consumers as well as retaining their hare of the market. The success of the organization in the long-term requires that the organization considers the dynamism of management trends in their operations and comply with necessary rules and regulations. In conclusion we can say that concepts of compliance in corporate governance and s Management is one of the most important aspects of most businesses whether service or product. Compliance promotes creation of products that satisfies basic wants of customers and regulatory bodies. Happy customers promote productivity of a company in that the management produces more to be at level with their requirements. More production leads to increased yields and high profits.


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