Attorney, Uehara Makoto Law Office
Instructor of Legal Practice, Chuo University Law School
Areas of Specialization: practice of law, corporate law, and financial law
Cultivating Compliance Awareness－Compliance Aimed at Increasing Corporate Value－
Lawyer, Nishimura & Asahi Law Firm, Fukuoka Office
This work was supported by JSPS KAKENHI Grant Number 15K03220. (Public Relations Office)
A long time has passed since the need for corporate compliance (“compliance”) was first emphasized. Different corporations respond to this need in an infinite variety of ways; for example, creating compliance manuals, electing compliance officers, establishing dedicated compliance divisions, and holding compliance training. Today, some form of compliance is implemented at most corporations.
Even so, there are no end to the corporate scandals occurring today. Each time a scandal occurs at a corporation that seems to be paying attention to compliance, we are forced to consider the root of the problem and the necessary actions that must be taken to prevent scandals.
Recently, I had the honor to participate in the Grants-in-Aid for Scientific Research Project (JSPS KAKENHI 15K03220) led by Professor Shinichiro Touyama. It was a wonderful opportunity to consider compliance aimed at increasing corporate value, which is the research theme of the project. It is my opinion that cultivating compliance awareness for implementing compliance aimed at increasing corporate value will help prevent corporate scandals. In this article I would like to discuss my idea about such cultivation of compliance awareness.
2. Cultivating compliance awareness
In the past, compliance was regarded solely as legal compliance; that is, to comply with statutes, orders, rules, and other hard laws established by the national government. However the scope of compliance has spread to encompass soft laws, meaning securities listing regulations (Tokyo Stock Exchange) and other items outside the scope of government regulations. Today, the definition of compliance can be said to have expanded to include taking into account social demands against corporations by stakeholders including shareholders, business partners, and consumers.
Assuming that the definition of compliance has expanded to include taking into account social demands against corporations, corporations must take action based on accurate assessment of stakeholder demands, and taking prudent action will most likely result in an increase in corporate value. Furthermore, it is not sufficient for individual employees to simply engage in compliance as instructed. Instead, employees must be aware of compliance and take independent/autonomous action (action from the perspective of stakeholders such as shareholders, business partners, and consumers) in order to respond to stakeholder demands.
How is it possible to cultivate compliance awareness among employees with the goal of implementing compliance aimed at increasing corporate value?
(1) Foster a healthy corporate climate and corporate culture
Not too long ago, at a press conference held by Dentsu Inc. to address the problem of long working hours, former company President Tadashi Ishii made the following statement: “Our company had a culture in which working without limit was viewed as appropriate. I intend to undertake a complete revision of working styles at Dentsu.” In summary, Tadashi pointed out the redefining of corporate culture as an urgent theme. In some cases, even if employees seek to do the right thing, the corporate climate or corporate culture may prevent them from taking the correct action, and may even force them to act contrary to their will. Personally, I have been involved in company surveys where interviewees from companies which had been accused of wrongdoing gave the same sort of opinions. Therefore, in order to cultivate compliance awareness among employees, it is first necessary to foster a healthy corporate climate and corporate culture.
When a corporate scandal occurs and measures to prevent reoccurrence are being formulated, there are many examples of creating new awareness among top management (for example, breaking away from the idea of emphasizing sales over anything else) and then having management play a leading role in implementing compliance. In such cases, it is not enough for management to simply issue internal memos to employees. Instead, while continuing to express a renewed commitment to compliance, it is important for management to take action that will demonstrate the importance of compliance measures to employees. One example is holding compliance meetings with attendance from top management. Likewise, when revising the corporate climate and corporate culture, which are the foundation of a company, top management must lead through action and demonstrate the importance of measures to employees.
(2) Revision of compliance training
For some corporations, there is a possibility that time may be required in order to cultivate compliance awareness among employees by fostering a healthy corporate climate and corporate culture. Therefore, I would also like to consider methods of cultivating compliance awareness by revising compliance training which is being implemented by many corporations.
From lectures to practical exercises and e-learning, compliance training is implemented using a variety of methods depending on the company. However, training in which participants simply attend a one-way lecture on general and abstract content related to the importance of compliance is boring and dull. Employees will not necessarily remember the content learned in such training. In order to ensure that employees remember the content of training, it is important to make each participant recognize the importance of compliance on a personal level. This can be accomplished by setting practical themes in compliance training considering the industry, business form, and business environment of the company. Other training methods which deserve consideration are dialogues with the lecturer, discussions, and group debates. In some cases, a lawyer or other external expert may be invited to serve as an instructor for compliance training. However, even in such cases, training should be conducted based on a practical theme which is relevant to the company, and meetings to set practical themes with the company should be held before commencement of training.
(3) Revision of compliance system
Moving on to a different perspective from the previous two items, in order to prevent interference with the fostering of compliance awareness, it is often essential to reform the compliance system that has been implemented at a corporation. If an overwhelming number of measures are implemented in an overzealous attempt to promote compliance, employees will feel as if they are being forced to comply. This will interfere with the fostering of compliance awareness, ultimately leading to compliance fatigue and creating a risk of scandals in association with continuous compliance violations. On a different note, overseas expansion of Japanese corporations continues to accelerate. This poses an increased risk of conflict with laws of other countries such as competition laws and laws intended to prevent corruption. There are many corporations which need to construct a new compliance system which considers global risk. In fact, I provide legal services to corporations working to create such systems. The appropriate size and content of a compliance system differs according to each corporation. Therefore, it is important to create a compliance system which matches the company after understanding the necessity and details of each compliance measure.
This concludes my short discussion on how corporate value can be increased and corporate scandals can be prevented by fostering compliance awareness among employees with a goal of responding to social demands levied on the corporation by stakeholders.
Cultivating compliance awareness is a long and arduous task for corporations. This is particularly true when also working to foster a healthy corporate climate and corporate culture. Nevertheless, it is important to keep pushing forward and implementing compliance one step at a time, through measures such as compliance training and revision of compliance systems. I will continue to provide legal services in order to assist corporations which are engaged in such forward-looking reforms.
Please refer to the explanation beginning on page 8 of “The Compliance and Internal Controls Handbook” (Shojihomu Publishing, 2017) by Naoto Nakamura.
It seems that under the guidance of the Dentsu Working Environment Reforms Commission that was established on November 1, 2016, Dentsu Inc. is working to reform the labor environment through measures such as ceasing labor management which emphasizes excessive commitment to working long hours. On July 27, 2017, Dentsu formulated the Working Environment Reform Basic Plan to implement thorough compliance, and seems to be promoting the fostering of a healthy corporate climate and corporate culture.
It is often effective to enlist the assistance of a lawyer or other external expert in order to incorporate an outside perspective into reforms. However, when implementing reforms through action by a company alone, I recommend referring to “Welcome to the World of Compliance Aimed at Increasing Corporate Value!” (Business Homu Vol. 17, No. 2 (2017): p. 12) by Shinichiro Touyama. This section discusses how to avoid excessive complicated compliance.
Lawyer, Nishimura & Asahi Law Firm, Fukuoka Office
In 2005, Yoshinobu Nakagawa was admitted to the Chuo Law School.
In 2008, he graduated from the Chuo Law School.
2010 to 2013: Nishimura & Asahi Law Firm (Daini Tokyo Bar Association)
2013 to 2016: Concurrent Lecturer at the Chuo Law School (Instructor of Legal Practice)
2013 to present: Nishimura & Asahi Law Firm, Fukuoka Office (Fukuokaken Bengoshikai)