What does compliance mean?
In organizations, compliance is understood to mean adherence to legal regulations, internal guidelines and ethical standards. It encompasses all measures and processes that ensure compliant and responsible behavior. The aim of compliance is to prevent legal violations and misconduct in order to minimize the risk of legal consequences and financial losses.
Compliance: Definition
Literally translated, the term compliance means adherence, observance or fulfillment. It comes from the English verb “to comply”. In the corporate context, compliance means observing all applicable laws, regulations and ethical principles .
The term therefore describes the compliant and conscientious actions of an organization and its employees. Decisions should not only be legally correct, but also morally justifiable.
Important here:
Even though legal compliance is of great importance, the field of responsibility encompasses much more than just adhering to legal obligations. Rather, compliance stands for a comprehensive system of rules and behaviors with which a company maintains its integrity. The guidelines to be adhered to do not necessarily have to be imposed by law. They can also be rules that a company has defined for itself on a voluntary basis.
Compliance: importance for organizations
In today’s corporate world, regulatory compliance is of central strategic importance. In recent years, global markets and international supply chains have meant that companies are subject to a greater number of legal requirements than ever before. At the same time, customers and investors today expect companies to act ethically and sustainably.
Violations of compliance requirements can have significant consequences, e.g:
- Legal proceedings
- Fines and imprisonment
- Claims for damages
- Restrictions on business activities
- Reputational damage
Active compliance, on the other hand, contributes significantly to the protection of a company and its employees. By creating transparency, it strengthens the trust of business partners and the public. This is because it shows that an organization takes responsibility and acts reliably.
As compliance reduces risks, it makes a significant contribution to the long-term stability of a company. This in turn makes it a decisive competitive factor.
What regulations is compliance based on?
| Regulation | Examples | Compliance target |
| Legal requirements | Commercial Code (HGB), data protection laws (GDPR, BDSG), labor and environmental law, competition law, consumer protection law and much more. | Creating legal certainty and preventing violations of the law |
| Official and regulatory requirements | Requirements of environmental and health authorities, BaFin and the EU Commission | Compliance with industry-specific requirements and standards |
| Internal company guidelines | Code of Conduct, employment contracts, anti-corruption and procurement guidelines | Specification of legal requirements and control of internal processes |
| Ethical principles and corporate values | Fairness, sustainability, environmental friendliness, transparency | Promoting responsible action above and beyond legal obligations |
| Contractual obligations | Supplier and customer contracts, non-disclosure agreements, quality standards | Compliance with contractually agreed obligations |
| Industry-specific standards and international norms | ISO standards, UN Global Compact, OECD guidelines | Orientation towards internationally recognized principles and best practices |
What is a compliance management system (CMS)?
Contrary to what the name might suggest, a compliance management system is not a software solution. Instead, the term refers to the overall concept with which a company complies with all relevant laws and guidelines.
The CMS is a combination of different measures, tools and processes that form the organizational backbone of compliance work. For example, it defines who is responsible for which tasks and what is to be done in the event of a breach. The aim is to reliably identify risks and thus create maximum security.
The most important components of a CMS include
- a risk analysis to identify particularly vulnerable areas
- Guidelines and codes of conduct that describe the company’s regulations and values
- Procedures and processes that determine daily actions
- Training and open communication to raise awareness of compliance throughout the company
- Monitoring mechanisms such as audits and internal controls
- a reporting system that employees can use to report violations anonymously
However, even the best compliance management system is of little use if it is not actively practiced. It is therefore particularly important that managers set a good example and establish a strong compliance culture. In such a culture, compliance is not seen as an annoying necessity, but is integrated into everyday working life as a matter of course.
It is just as important to view the CMS as a continuous improvement process. Companies must regularly review their rules and procedures, adapt them to new legal requirements and learn from previous cases.
Good to know: According to a ruling by the Higher Regional Court of Nuremberg on March 30, 2022, all managing directors of a GmbH must set up a CMS. This also applies to small and medium-sized companies. This is because the managing director is personally liable in the event that employees commit serious misconduct due to a lack of a compliance concept.
Who is responsible for compliance?
In principle, all employees contribute to ensuring that laws and guidelines are complied with. Nevertheless, there are different roles, each with their own tasks and responsibilities.
The company management
The management bears overall responsibility for compliance with all guidelines. It sets the strategic direction and provides the necessary resources. In addition, it sets the tone from the top through its communication: only if the top management sets a credible example of compliance will the requirements be taken seriously by the workforce.
Compliance department
The compliance officer or compliance department assumes a central operational role. This department is responsible for the implementation, monitoring and further development of compliance structures. Its tasks include, among other things:
- the identification and assessment of compliance risks
- the development of guidelines and training concepts
- advising managers and employees
- the investigation and documentation of possible violations
Managers
Team and department heads also play a crucial role. By implementing the specified rules in day-to-day business, they set a good example for their colleagues. They are also responsible for ensuring that their employees know and apply the rules.
Employees
All employees are part of the compliance culture. They must act in accordance with the applicable regulations and take responsibility in cases of suspicion – for example by using a reporting or whistleblower system.
Compliance management: the most important software tools
To ensure that compliance is implemented as efficiently as possible, the use of special software solutions is recommended. The following tools make it easier for companies to comply with rules:
| Compliance management software | Used to centrally control and monitor all compliance activities. |
| Risk management tools | Support in the identification, assessment and monitoring of compliance risks. |
| Whistleblower systems | Offer employees an anonymous way to report violations or suspected cases. |
| Audit and control software | Supports internal and external audits through automated control mechanisms and documents results. |
| Training and e-learning platforms | Serve to sensitize employees and managers to compliance issues through interactive training. |
How important is an ERP system for compliance management?
An ERP solution also plays an important role in compliance work. As it transparently maps almost all business processes and creates a central database, processes can be designed to be traceable and auditable.
In addition, ERP systems enable
- Automated checks, e.g. when approving payments or orders,
- the use of authorization concepts to protect sensitive information,
- seamless documentation of transactions and
- the recording of an ERP audit trail.
In addition, ERP solutions can usually be expanded with risk management and document management modules. This allows companies to integrate compliance with guidelines directly into their workflows.
Application example: CML Europe GmbH
By introducing the APplus ERP system, CML Europe can comply with industry and process standards much more easily – for example the requirements of the ISO 9001 standard. Process standardization ensures clearly defined procedures that can be verified at any time. Thanks to the supplementary IMS solution, the electronics specialist is also able to document all processes comprehensively and present the data immediately for certifications or audits.
Webinar: Audit management for secure compliance
Compliance starts with transparency. In this webinar recording, you will learn how to use audits to systematically manage deviations and reliably implement regulatory requirements.
