Legal compliance has been defined as the process or procedure ensuring that an organisation follows relevant laws, regulations and business rules. It has also been observed that the definition of legal compliance, especially in the context of corporate legal departments, has recently been expanded to include understanding and adhering to ethical codes within entire professions, as well. It can also be seen as ensuring that a business complies with and honours its contractual obligations.
Every business has the objective to make money and not to lose money. If a business fails to manage its legal compliance properly, chances are that it would be open to lose money and precious productive man hours. The importance of effective Legal compliance in business cannot be overemphasised as it is one of the key components to building sustainable enterprises. It can save a business a lot of money it would have paid as penalties for failure to observe the relevant laws. Lost business time and disruptions can also be prevented as organisations stand the risk of being shut down if they fail to comply with applicable laws. It can also save a business a barrage of legal actions.
There is therefore a need to manage legal compliance effectively and proactively instead of waiting for regulators to clamp down on the business for non-compliance. Using a “knee jerk” approach would only make the business incur unnecessary expenses that should have gone to its bottom line. The following steps are some basic steps that a Business can take towards managing legal compliance effectively. The steps mentioned below are not exhaustive but are only guides.
Understand the business environment: It is important to understand your business environment and the sector you play in to manage legal compliance effectively. It is the very first step to managing legal compliance.
Identify key contractual obligations, applicable laws and regulations: After you have understood your environment, the next step is to identify contractual obligations, which laws and regulations apply to a business generally and the sector specific ones e.g. Value Added Tax Act, Companies Income Tax Act are generally applicable to businesses. A sector specific Act like the NAFDAC Act would be applicable to businesses that play in the Food and drug sector.
Identify the risks that apply to your business: If a business can effectively identify its risks from a legal perspective, then it would be easier to know what to protect the business from and how to do it.
Develop and regularly update a compliance rulebook and communicate same to relevant job function holders: There is a need to come up with a Compliance rulebook which sets out the relevant applicable laws and regulations as well as timelines within which to comply with them. Once the rulebook is put in place communicate same to relevant staff to enable them have this constantly on their dashboards in running the day to day affairs of the business. It is worthy to note that there is a need to constantly update the rulebook as laws and regulations emerge and evolve.
Conduct regular periodic audits to assess /monitor legal compliance: Regular periodic audits should be carried out to test how well the business is doing in terms of legal compliance. Areas of strengths and weaknesses will be identified through this process and relevant recommendations will be made to further strengthen legal compliance within a business.
Set a strong tone at the top: There must be a show of strong support for Legal compliance by top management and the board. If this is evident, then it would be easier for employees who are involved in the day to day affairs of the business to take legal compliance seriously.
Advocacy and engagement with regulators: There’s a need to be vigilant in order to know when new laws that affect a business are about to be made. When these laws are in the pipeline, it is also necessary to engage with the Regulators to ensure that provisions which might not augur well with a business are not passed.
It has already been stated that the above steps are not exhaustive but are guides. Management of Legal compliance should be innovative to adapt to evolving business environments and ensure that its benefits are fully reaped.
ULOAKU EKWEGH
Ekwegh is a lawyer who writes from Lagos
