Covid-19 has forced companies everywhere into survival mode. Executives, staff, and other workers are losing pay or being furloughed or pink slipped, and no one is exempt. What will the impact be on compliance departments?
During economic dislocations (I’ve already lived through several of them — 1987, 2001, 2008, now this), company revenues typically shrink faster than costs. Cash reserves (usually too small to begin with) vanish. To survive, companies run daily headcounts. And to repeat: no one is exempt, including the compliance department.
Where to cut? What if a company staffed the compliance department in anticipation of acquisitions and the integration to follow? Some M&A activity is now postponed or cancelled because of Covid-19, so some compliance jobs will likely go too. Many companies will hold off expanding into high-risk markets, or pull back back from marginal markets, because of the global slowdown. Other firms or big parts of them will go into mothballs and simply wait for commerce to come back. It’s not unreasonable to expect compliance roles to be trimmed as well, to match the lower levels of business activity.
So, some compliance departments will shrink. Will others disappear?
Bribery isn’t about to become legal or acceptable. Sanctions violations and money laundering are still criminal offenses. So the need for compliance is unchanged and essential.
Beyond that, public companies have now identified their compliance risks in repeated disclosures, to the SEC and other agencies around the world. Most of the companies have also set out their response to those risks, which always involves a compliance program run by compliance officers. On a very practical level, then, it’s highly unlikely any CEO or board of directors would allow themselves to be exposed to the massive potential liabilities they’d face if they stripped away their company’s compliance department. The chances of that happening are about the same as HR disappearing, or internal audit.
How crucial is any given aspect of compliance? That’s the big question now. Each chief compliance officer will have to make their own case to the CEO and board. It’s delicate, of course. A chief compliance officer who demands complete protection for the compliance department is likely to become a former chief compliance officer. On the other hand, a CCO who fails to defend key compliance functions and the people responsible for them could face worse trouble if things go wrong, including tough questions from the SEC and DOJ. Covid-19 won’t be an excuse for professional malfeasance.
Economic bad days have started and more are on the way. It’s not just the travel and hospitality sectors. Energy companies are dealing with collapsed oil and gas prices, caused by both Covid-19 and a disastrously timed price war between Saudi Arabia and Russia. Retail firms have closed their brick-and-mortar stores for now — Macy’s furloughed most of its 130,000 employees. Financial services? New York’s busiest debt broker, Meridian Capital, has already started layoffs. Manufacturing? Germany’s Continental AG , a tire and car-parts maker, shut about half of its 249 factories in Germany and the United States. And on it goes.
Compliance departments everywhere will have to justify themselves with particularity. Can they be cut? Are they muscle or fat? That’s the question CEOs and boards will be asking every day, at least for a while.
This is a difficult topic. I’d welcome hearing from readers about conditions in their organizations for compliance teams.