Why Is Compliance So Important in Business?

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Rules and regulations are often seen as a hindrance to business, yet in many cases, you cannot survive without them. After all, markets need peace and stability for growth, and for that, governments are essential – despite their many flaws. 

In the digital age, this issue has only gotten more complicated. While technology has made a lot of things easier in business – such as faster communications, innovative products, and improved productivity – it has also made our world a lot more complex. In turn, this has led to a significant increase in regulations, especially in sensitive sectors such as consumer data privacy, anti-money laundering, sustainability, and ecological protection.

Therefore, with so many regulations to keep abreast of, the importance of compliance cannot be overstated. As a business owner, it is your responsibility to ensure that your company adheres to any relevant legislature, and that you meet any standards set by regulatory agencies and bodies.

What is Compliance?

First, though, it is necessary to understand what exactly compliance entails in an organisation. In business jargon, it simply means obeying all the rules, yet while the definition is easy to grasp, its execution is anything but.

In every jurisdiction, there are specific laws that govern all business-related practices, such as labour, taxation, and anti-discrimination laws. Beyond these, specific sectors will also have other rules to follow, such as licensing and permit regulations, pollution control policies, food safety, workplace safety, and more. On top of that, you may also have multiple layers of government regulations to contend with, including municipal, provincial, and central statutes. 

If your business is operating with all the relevant required licenses and permits, without violating the provisions laid down by any applicable law, then your business is said to be fully compliant. In general, the smaller your business, the lesser your burden from compliance. 

That does not imply that you can afford to ignore compliance as a small business owner, though. Larger corporations can often afford to staff entire departments with legal experts and compliance management specialists to keep the company's activities on the right side of the law, whereas SMEs do not have this luxury. 

Therefore, it is up to the owners and senior managers to keep the focus on compliance management. Given the costs associated with non-compliance, this is something you cannot afford to have in your organisation. 

The Importance of Compliance

Unsurprisingly, the biggest and most immediate risk of non-compliance is that it invites legal trouble. All laws and regulations come packaged with a set of penalties that are enforced by the authorities when you don't comply. 

There are many different types of penalties associated with non-compliance. Depending on the gravity of your offence, it could be something as minor as a small fine, while stiffer penalties for more severe breaches could include work stoppages, closure of your business, or even imprisonment for responsible individuals. 

Usually, large corporations are resilient enough to weather these sanctions; for example, BP was forced to pay upwards of $60bn for damages caused by the Deepwater Horizon oil spill in 2010, yet they are still able to operate with record profits

If you are a small firm, however, the unwanted attention from judicial authorities can be fatal. Depending on your finances and your cash-flow situation, even a relatively small five-figure penalty could leave your organisation in dire straits. 

The Connection Between Compliance, Employees, and the Workplace

One of the chief responsibilities of a government is to ensure the welfare and safety of its citizens, and this is reflected in many of the rules aimed at business organisations as well.

Laws related to labour rights and workplace safety are perfect examples of this. Non-compliance in these areas carries a double-threat, too; along with the risk of official sanctions, you will also alienate and antagonise your employees. 

This is because frequently flouting workplace safety guidelines will earn your firm a negative reputation. The same will happen if it has a poor record in enforcing anti-discrimination and sexual harassment laws. Employee retention and recruitment will become a lot more difficult as a result, making it harder for your company to reach its goals.

Other Legal Implications of Non-Compliance

Lawsuits can be a nightmare for any business – especially smaller ones with finite resources. The best way to avoid them is by paying extra attention to compliance at all levels of your organisation. Failure to do this can make your business vulnerable to lawsuits from multiple fronts. 

First and foremost, in severe cases of non-compliance, government agencies and authorities can initiate legal proceedings against you in a court of law. Employees who suffered injury or harassment can sue you in court, too, often with devastating results

Other threats come from your business partners, suppliers, and, of course, clients as well. If your non-compliant business dealings harm any of these entities in any way, they will have a valid case against your organisation. Dealing with these legal disputes can be a significant burden both in terms of finances and resources, so it is best to avoid them altogether through improved compliance.  

The PR Cost of Non-Compliance

As mentioned, non-compliance can have a significant impact on your reputation, too. If you look at the website of any serious business, then you will likely see an array of badges and certifications associated with compliance to prove their credibility. One of the benefits of full compliance lies in marketing – it is a very positive quality in the eyes of consumers, investors, and potential employees.

On the flip side, the media fallout from accidents, lawsuits, sanctions, and other after-effects of non-compliance can become a PR nightmare. This is especially true in the era of social media where stories can spread quickly and uncontrollably, while anything that gets published online is nigh-on impossible to remove.

The Link Between Compliance and Growth

To put it bluntly, businesses that ignore compliance do not stand a chance in the marketplace in the long run. Your track record in this aspect will have profound implications on all the components of your business that are conducive to growth. 

For instance, the ability to attract investors and secure credit from banks hinges on your reputation and the degree of risk associated with your enterprise. A poor compliance record is a huge red flag in this regard.

Today's consumers are highly sensitive about issues such as personal data privacy and global warming, too. Brands that have a poor track record in these areas often have a hard time retaining millennials and Gen Z customers. 


Ultimately, while the cost of compliance can be quite high, it is an investment worth making. Many of the provisions in the laws and regulations that govern your business are designed to promote best practices in areas such as product quality, employee welfare, and customer safety. 

This is important, as the pressures of the marketplace can often give businesses an incentive to take shortcuts. This is why compliance exists. Adhering to compliance policies may seem like a chore, but in the majority of instances, they will only help your business grow faster, and in a healthier state.

Why else is compliance important in business? Let us know your thoughts in the comment section below.