How to Ensure Legal Compliance in Company
Legal compliance is becoming increasingly important for companies. Non-compliance with legislation can lead to serious consequences, such as corporate penalties, profit skimming, fines, or even the implementation of legal proceedings against the company. To be able to avoid these consequences, one practically needs professional legal advice.
In this article, we’re explaining to you all the aspects of legal compliance.
What is Legal Compliance?
Legal compliance means complying with legal regulations and legal and regulatory requirements in all areas of the company. It aims to ensure that the conduct and actions of the company or its representatives comply with the applicable standards of law and ethics. This also applies to the subsidiaries abroad, which must adapt to the environmental law at their location.
Environmental law consists of various legal matters. Those laws and regulations that affect the company must be filtered out.
Compliance with the legal regulations must be ensured at all times and must be reviewed on an ongoing basis.
Legal compliance management
Although compliance affects everyone who works at a company, the management is more in focus because the management is responsible for preventing legal violations with the help of a supervisory board and appropriate measures.
Whether it is labour law, occupational safety, fire protection, antitrust law, finance, and tax or quality management, the management is responsible for complying with all applicable regulations.
Depending on how large the respective companies or firms are, one finds different solutions regarding legal compliance management. Large companies have entire internal legal departments that also deal with compliance.
In the absence of their internal legal department, external law firms are commissioned with the task of providing regular advice as well as investigation regarding legal compliance. Professionalism and trust play a major role in these procedures.
Therefore, it is important to choose a well-prepared law firm with experience in this area.
Differences between legal and compliance
The term “compliance” is used in business management as well as in law – compliance with national, international, European laws as well as regulations, various directives, rules, or voluntary commitments (especially internal regulations). Compliance stands for a topic that affects practically every company.
In practice, it is not uncommon for the compliance department to be integrated into the legal department in the absence of general legal requirements.
Compliance departments are organized much more along governance lines than legal departments. However, it would be expected that the organizational principles of the compliance departments would also rub off on the legal departments in cases of joint organization.
Companies therefore apparently see a sufficient thematic similarity between compliance and law to locate them predominantly in a common organizational unit. However, it must be taken into account that the working methods of both functions differ significantly in some cases.
In principle, compliance departments work proactively – for example, they carry out risk assessments without any actual reason to evaluate the emergence of risks in the company from a compliance point of view and build compliance management systems to manage existing risks, i.e. to avoid or at least reduce them.
Legal departments traditionally work more reactively by answering the legal questions brought to them and dealing with risks when they already exist to a certain degree. Despite these different ways of working, the vast majority of companies nevertheless consider a merger of the two departments to be sensible.
What compliance measures does a company need?
How a functioning “compliance system” must be designed depends first and foremost on the respective company. In addition to the industry in which the company operates, several factors play an important role, in particular, whether there have already been violations of rules in the past and whether control mechanisms already exist in the various legal areas.
There is therefore no general answer to the question of which compliance measures appear to make sense for the company in question. Rather, this question can reasonably only be answered after a corresponding risk analysis.
On the one hand, suitable compliance measures should preferably be implemented in the company for “liability-prone” areas; on the other hand, almost every company needs sector-specific and custom-fit compliance modules.
Legal Compliance Audit: Checklist
For compliance to work in a company, all employees and responsible persons must fulfil certain requirements.
The following checklist can be used to conduct an audit:
> The positive example set by superiors and management;
> Guidelines with practical instructions for preventing and dealing with unlawful behaviour;
> Contact point or platform for whistleblowers;
> Regularly inform and train employees regarding the laws and safety measures that are required for the operation;
> Establish an effective internal control system that combines multiple methods for prevention as well as detection of offences;
> Regular accounting audits: Have financial statements assessed by an auditor even when there is no legal requirement to do so;
> Review of facts by internal or external auditors as part of routine audits or in the event of specific suspicions;
> Signature regulations, so that two persons must sign and an additional control authority exists;
> Never have invoicing and accounting done by one person, but separate both functions;
> Regular analysis of areas at risk;
> Raise employee awareness through training and information about criminal practices;
> Technical measures for data protection;
> Security measures in research and development departments;
> Catalogue of measures in the event of criminal acts;
> After termination of employment, immediately block accesses and passwords for the person in question and order return of all data carriers or irretrievable deletion of company data on private devices.
Importance of compliance for companies
A functioning compliance organization can:
> Reduce criminal and civil law risks;
> Represent a competitive advantage, as many public clients only award their contracts if proper compliance management can be demonstrated;
> Ensure that certain rules and guidelines are adhered to;
> Detect or prevent violations.
Legal Compliance means ensuring the legal requirements in the environmental field. Many companies employ their lawyers to maintain this legal compliance, so fulfilling this task is a major challenge for those assigned.
GM Tax Consultancy is your perfect choice when it comes to legal compliance management consulting for commercial and industrial small, medium-sized and large companies. Contact our tax advisors in Barcelona by email or phone.