New CEO? Compliance issues can cut off your head

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by | Nov 30, 2020

As a new CEO, understanding whether or not the business is compliant is one of your most pressing requirements.


When it comes to compliance, ignorance is not bliss. As a new CEO, understanding whether or not the business is compliant is perhaps one of your most pressing requirements.

This article will show you why.

At the end is a framework that will get you started.

Compliance is a risk, for a reason.

Let me tell you a story. A number of years ago, I worked in a business that had compliance issues. Now, I didn’t know that before I got there, and neither did the CEO*. The CEO was very new to the business. Because of a multitude of other issues, he had not seen that critical compliance factors had fallen by the wayside before he took over the role.

It doesn’t seem like a huge problem, does it?

It might not have been, if those issues were not in two mission-critical areas:
Industrial Relations and Payroll.

The company had failed to meet its obligations under the relevant Award; its financial advisors had failed to notice; and its team of management (including the Board) were all ignorant.

Ignorance is bliss until it has a dollar value attached. The employees had not been paid correctly (among other things, besides). A small error over time resulted in almost a million dollars that the company had to find.

To answer your question: No, it didn’t find the money, and it subsequently went into liquidation.

The new CEO not only walked straight into a highly stressful mess, but went down with the ship. The chances of him taking on another CEO role in the near future are extremely slim – not just because of the stress, but because of the dark mark it inevitably left on him.

Not knowing whether your new company is compliant is a huge risk for you as a new CEO.

You can’t take meaningful action if the company is non-compliant

If your company is not compliant with any component of your business, you simply cannot take any meaningful action.

Here’s why:

  • You may not have the money you think you have
  • Your staff members may not be conducting themselves ethically
  • You won’t know if there are breaches that must be remedied and addressed to prevent future legal battles.

By failing to assess the compliance of the company, you also won’t know:

  • Whether your advisors can be trusted with the minutiae you delegate.
  • Whether your leadership team is responsible and effective.
  • How your plans for the company’s change and growth may need to be modified.

Compliance blindness erodes your position, even as a new CEO

For ease, I’m going to refer to this situation as ‘compliance blindness’.

Compliance blindness means that you are completely in the dark, You don’t know what’s going on right now; you can’t see what is coming up ahead of you; and you’re unable to take any effective risk mitigation action.

Your position, in other words, is effectively eroded.

This is how compliance eventually impacts on staff members and team cultures. The blind leads the blind, and when difficulties arise, they appear to be People Issues, when in fact they are Compliance Issues.

The best position is knowing that compliance is effective

Ideally, you won’t just know whether or not the company is compliant. You’ll also know whether the compliance is effective.

You will remember that in a past article I talked about spending time in analysis. Compliance is a necessary aspect of that assessment.

Asking the right questions is crucial. In an article about why compliance programs fail, Hui Chen and Eugene Soltes explain that assessing your compliance program means asking questions on both sides of an issue.

That is: If you ask, ‘Are we tracking complaints?’, you also need to ask, ‘Is tracking complaints reducing the number of complaints we get?’.

Or, if you train people, do you know that the training is effective?

Chen and Soltes point to a set of guidelines established in the USA, which help executives to establish compliance programs. You can list all of the people disciplined for breaches of a particular code, Chen and Soltes argue. But if you’re not also listing all of the people caught for breaching a code but whom were not disciplined, then you actually don’t understand what’s going on at all.

Chen and Hui’s ultimate takeaway is that compliance is a cultural matter. This was supported by De Cremer and Lemmich, who point out that compliance alone won’t make your company safe. Rather than creating a ‘policeman culture’, which focuses on rules and restrictions, these authors recommend building a culture of awareness:

‘Awareness is a better long-term strategy than compliance,’ they write. ’The bottom line is that you should want to know what’s happening in your own company.’

For you as a new CEO, this awareness is critical. Once you are aware of what is going on, then, like with your leadership team’s performance, you can make strong, swift decisions about what to do.

If you aren’t sure about what to do, it helps to bring in a third party who can help you with your assessment. This is often how we at Red Wagon find ourselves inside organisations: Compliance reviews is one thing that we do.

In that case, and in others, CEOs both new and long-standing have found that compliance reviews have put them in much stronger positions. Not only can you (as a CEO) see what is going on, but a strong understanding of compliance allows you to question everything, properly.

How to conduct a compliance review as a new CEO

You may not be in a position to bring in someone to back you up on a compliance review. Below is a clear framework you can follow if you’re doing this yourself.

The actual steps that you need to take will depend entirely on your business. Different standards, legislation, and regulations will apply to your company (because of its size and its governance structure), and your industry.

However, there are some things that you can do starting today.

They are:

  • Ask the right questions. You want to know not just if there is a compliance program, but whether the program works, is effective, and has an impact. This means:
    – drilling right to the detail, in every sense. Don’t simply stop with the summaries provided by your peak bodies, or the regulations that they might send you. Go right to the legislation and understand your company’s full requirements.
    considering reports of compliance but also reports of impact. How do you know that the steps already taken to comply have been effective (or not)?
    – taking your data and having a regression model completed, so that you can see which aspect of which program is having (or has had) the most impact.
  • Ask your management for compliance reports in a range of areas. Then, take note of which reports are delivered first, and which ones delivered last. The ones that drag their heels may be more likely to cause problems down the track.

Don’t be afraid to ask for help

Just because you’re the new ‘top dog’, don’t be afraid to ask for help. Compliance isn’t an area to take lightly, in any sense. If you’re not sure that what you’re doing is right, ask for help.

One way that you can do that is to pick up the phone and call the industrial relations experts at Red Wagon. Asking questions is free; not asking questions might be the difference between your success or failure.

Feel free to contact us for a confidential conversation.

‘* Details like names, genders, and situations have been changed to protect third parties.


For guidance in how to strengthen the leadership qualities of your team, call or message Susan at Red Wagon Workplace Solutions for an initial consult.

About the author

As President and South Australian State Councillor of the Australian HR Institute (AHRI), Susan is a valued advisor and thought leader to her clients and the HR community. Maintaining an extensive understanding of employment law and business acumen through her work and connectivity to the AHRI and the business community, Susan is a master at finding innovative people orientated solutions, carefully balanced with the commercial reality.


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